For more than a year, Harrisburg’s incinerator facility and its heavy debt load have epitomized public finance gone wrong.

Yet a neighboring waste-management authority views Harrisburg’s incinerator as a potential savings boon and is ready to hand over $45 million and implement lower tipping fees in order to purchase the facility. The Lancaster County Solid Waste Management Authority Friday approved a resolution that would allow the authority to enter into a memorandum of understanding with key participants in Harrisburg to discuss a potential purchase of the troubled incinerator.

That potential acquisition would not involve the authority taking over the incinerator’s $282 million of outstanding debt. Chief executive officer James Warner said the authority’s offer could help address the incinerator debt with an up-front payment and allow for capital upgrades to the facility.

“We can monetize it and give them $45 million in cash, which doesn’t solve their problem, but it gives them $45 million that they don’t have today,” he said.

The Harrisburg Authority owns the incinerator, which does not generate enough revenue to meet debt-service costs on the outstanding bonds. The city of Harrisburg guarantees the debt but has failed to make payments. Dauphin County, another guarantor, and Assured Guaranty Municipal Corp. have been making payments to bondholders.

For the Lancaster County SWMA, acquiring Harrisburg’s incinerator would allow it to increase needed capacity while at the same time avoiding a $175 million investment to expand its own waste-management facility. The SWMA’s solid-waste treatment facility is 18 miles south of Harrisburg’s incinerator.

The county authority is offering an up-front $45 million payment, financed in part with $40 million of tax-exempt bonds that would amortize over 20 years.

Along with the $45 million, the SWMA is offering to invest $20 million into Harrisburg’s incinerator during the next 10 years for capital upgrades. In addition, the SWMA would lower the tipping fees that Harrisburg and Dauphin County pay. The city and the county pass those fees onto their residents.

Harrisburg currently pays $200 per ton and the SWMA would drop that charge to $100 or below by 2018, with the city paying a low $78 in 2019 and $90.08 in 2031, the furthest year out. Overall, the city would gain $113 million during the next 20 years from lower tipping fees compared to previous forecasts. Dauphin County would gain $31 million of savings during the same time frame.

While a $45 million payment and lower tipping fees could help Harrisburg unravel its incinerator-financing fiasco, selling the facility would take away the very revenue stream that secures the bonds. Marc Kurowski, chairman of the Harrisburg Authority, said crafting a repayment plan for the $282 million is a key component to any potential sale of the incinerator.

“I don’t think that we could even legally sell the facility without having a plan in place that said how are we going to pay for the rest of the debt,” he said.

The $45 million would be a welcome infusion, Kurowski said, but the real potential is in the $113 million of projected savings from tipping fees. One idea is that the city and county could still charge its residents those fees in order to meet debt-service costs on the incinerator.

“That’s part of LCSWMA’s value proposition here, that if the city and the county would continue to charge the current rates but — through the sale of the asset — the LCSWMA would charge the city and county less, then that difference could be applied to whatever and most likely that would be debt service,” Kurowski said. “So conceptually it makes sense, but logistically we have to flush that out because that’s actually a bigger component than the purchase price.”

A possible sale involves many different government entities agreeing to the plan, including the Harrisburg Authority, Harrisburg Mayor Linda Thompson, Harrisburg’s City Council, and Covanta Energy Inc., the incinerator’s operator. Thompson and the City Council have hit political stalemates in the past regarding how best to tackle the incinerator debt. Warner said if the proposal fails to move forward by the end of the year, the Lancaster County agency will return to its original expansion plan.

“If we see that there’s really no will or progress and we’re just being pulling along, we’re not going to get deep in the muck,” Warner said. “They have to come together here and if we can’t get anywhere by the end of the year, we’ll cut loose and pursue our own expansion.”

In response to the SWMA’s offer, Thompson released a statement saying that she welcomes all interested parties looking to invest in Harrisburg’s future. The mayor’s office did not return requests seeking further comment.

The $45 million offer is lower than a $159 million appraisal that the Harrisburg Authority received from R.W. Beck for the incinerator facility. That $159 million appraisal takes into account higher tipping fees that increase at a rate of 2.2%.

“That’s one of things that we need to discuss with R.W. Beck about and get a handle on how they did the appraisal,” Kurowski said. “And based on what the LCSWMA is proposing, why the difference, what’s the gap?”

Harrisburg is under Pennsylvania’s distressed municipalities program, called Act 47. Outside advisers are working on a fiscal recovery plan for the city.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.