There’s ample blame for Harrisburg’s debt crisis, the operator of the incinerator in Pennsylvania’s capital city said in a 133-page forensic investigation report released Wednesday.
The Harrisburg Authority cited the failure of Barlow Projects Inc., the original engineering firm on the retrofit of the incinerator, formally called the resource recovery facility. But it also chastised various parties including itself, the city, Dauphin County, and numerous professional advisors for brushing off warning signs about the deal.
“All parties proceeded with the Barlow retrofit project in 2003 without adequate security in place to ensure Barlow’s performance,” the report said. “It was clear that Barlow was unable to obtain a performance bond due to its poor financial condition. … [Those] who were paid significant fees to assist the authority, the city and the county in the decision-making process do not appear to have adequately identified or responded to numerous red flags that, if heeded, could have led to a different outcome.”
The report added: “It was evident that most, if not all, of the parties involved with the RRF knew or should have known that, at a minimum, there was substantial risk that the RRF would not generate revenue sufficient to service the debt being issued, but they proceeded with the retrofit projects and their financings anyway.”
Barlow, of Fort Collins, Colo., filed for bankruptcy in 2007. Covanta Energy that year issued a loan to the city to finish the project.
Law firm Klehr Harrison Harvey Branzburg LLP and ParenteBeard LLC produced the report, with assistance from financial advisory firm Public Resources Recovery Group.
The authority said it is not a full audit, citing budget limitations.
City Council member Brad Kolpinski on Thursday called for the U.S. Department of Justice to investigate the incinerator bond deals, and the additional $25 million loan related to the retrofit from CIT Group Inc., which the authority and Dauphin County is attempting to nullify in federal court.
"As the forensic audit released by the Harrisburg Authority yesterday showed, people and institutions in which this community placed its trust failed to meet their obligations. Instead of doing the right thing, they turned a blind eye to conflicts of interest," Koplinski said at a City Hall press conference.
Harrisburg is roughly $310 million in debt and other obligations related to the incinerator, which its four miles southeast of downtown. According to court records, the city has skipped $60 million of bond payments.
The city’s state-appointed receiver, David Unkovic, recently called the bond financing “troubling,” and said he expects to ask creditors for more concessions in his plan, which he expects to issue on Feb. 6.
Mayor Linda Thompson, who was on the City Council when it approved the original $125 million incinerator loan in 2003, was in Washington, D.C., attending the United States National Conference of Mayors. “I’m sure she has not had an opportunity to review the document,” said her spokesman, Robert Philbin.
Mark Schwartz, the attorney who two weeks ago referred to “questionable practices” in his own report to the City Council on the incinerator financings, repeated his call for investigations by the Internal Revenue Service and the Securities and Exchange Commission into the bond deals.
“Without having read their entire report, I’m wondering why it took the authority in excess of a year, at untold costs, to do this report, which took me only three weeks,” Schwartz said. “Regardless of that, my report and the Harrisburg Authority’s report provide a useful trail of information for both the IRS and the SEC. This matter should be number one on their municipal bond hit list.”