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Capitol reporter Katie Meyer covers Pennsylvania politics and issues at the Pennsylvania state capitol.
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State lawmakers see in Harrisburg a teachable moment on local debt

Written by Mary Wilson, Former Capitol Bureau Chief | Oct 4, 2012 10:31 PM
Thumbnail image for Harrisburg Capitol building with fountain

State lawmakers are looking into what they called the “fiscal debacle” of Harrisburg’s incinerator, with an eye toward preventing similar cases of irresponsible borrowing that could doom other municipalities across the commonwealth.

Harrisburg’s debt crisis stems in part from all the borrowing to fund its trash burner – the incinerator is worth far less than the more than $300 million owed against it.

Lawmakers received a tick-tock account of the incinerator’s financing, and the series of debt issuances, each one more questionable than the last. Still, the state approved them, leading Sen. John Eichelberger (R-Blair) to finally ask one of the commonwealth’s former lawyers involved in debt approval: “I know you do hundreds of these a year. How many do you turn down a year?”

There was a long pause and a somewhat winding explanation of checking for correct paperwork before the answer came from Bernadette Barattini, a lawyer who until this past April approved municipal debt issuances for the state Department of Community and Economic Development. She said 99.9 percent of projects were approved.

Eichelberger suggested that more oversight is required within DCED – perhaps not in the form of more staff, but in the form of what he calls “real teeth in the afterlife of the approval” of additional debt.

“There would be very severe penalties for professionals or others that were involved in misrepresenting things to the department,” said Eichelberger.

Tim Anstine, deputy chief counsel with DCED, agreed that creating penalties for those involved in ill-fated debt issuances could deter future incinerator debacles elsewhere.

That may be a better remedy than changing state law to discourage bad borrowing.

Lawmakers repeatedly came back to the question of how to prevent such quagmires in other municipalities. If Harrisburg is up to its ears in debt due to irresponsible restructuring, should laws be changed that allow such borrowing? Steven Goldfield, author of the forensic audit of the incinerator’s financing, said no.

“There are different ways of doing restructurings that make sense, so it would be throwing the baby out with the bathwater to say under no circumstances can you do a debt restructuring,” he said. Goldfield added that the state’s laws on municipal debt make sense – it’s just their interpretation that may need to be tightened. Harrisburg was able to submit the equivalent of a clean bill of health to the state as it continued to accrue more and more debt because it called the debt “self-liquidating” – as in, the incinerator would be able to pay for itself.

The reason that wasn’t challenged, Goldfield said, was due in part to the fact that the state agency with debt approval oversight, DCED, doesn’t really play the role of checking the plausibility of such claims. Goldfield said he’s not even sure if there is a legislative fix to the problems that led to Harrisburg’s debt troubles.

“You can’t legislate good financial taste,” said Goldfield. His audit, he said, uncovered a number of red flags about the incinerator’s accumulation of debt that he said should have spurred the people involved to put a stop to the borrowing.

But one of the key players in the long saga, he city’s former mayor, Stephen Reed, said the debt issuances snowballed because the cost of the incinerator was underestimated from the beginning, and he wanted to complete the project so it could be used.

“The initial cost estimate for the project to retrofit and expand the Harrisburg Resource Recovery Facility was significantly underestimated,” he said. “That was the genesis of all this.”

Thursday’s hearing was the first of two scheduled on the topic of Harrisburg’s incinerator financing. Before testimony began, Eichelberger acknowledged the uniqueness of the capital city’s fiscal woes. But Sen. John Blake (D-Lackawanna) warned it may not be such a singular tale.

“The scale of this situation is probably unique, but I don’t think it is distinct only to the city of Harrisburg,” Blake said. “I think this is a more pervasive issue throughout the entire commonwealth that affects the fiscal health of all our communities.”

A second hearing is scheduled on October 29.

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