* Hearing in wake of troubled Harrisburg incinerator project
* Penalties, tougher review could be on tap
* Ex-mayor, who signed off on debt deals, offers suggestions
By Mark Shade
HARRISBURG, Pa., Oct 4 Pennsylvania legislators,
grappling with capital city Harrisburg's $340 million of debt,
set out on Thursday to tighten the state law that governs how
cities and towns win approval for complex, taxpayer-funded
In a day-long hearing, members of Pennsylvania's Senate
Local Government Committee questioned former local officials
publicly for the first time about how Harrisburg could have
racked up so much debt tied to renovations of its ill-fated
"[We need] legislative fixes that can guarantee that this
fiscal debacle does not get revisited on any taxpayer across the
commonwealth," said state Sen. John Blake, the Democratic chair
of the committee. "I think this is a more pervasive issue
throughout the entire commonwealth that affects the fiscal
health of all of our communities."
Committee Chairman John Eichelberger, a Republican from
central Pennsylvania, said changes could include incorporating a
tougher review process with penalties for those who misrepresent
When Harrisburg filed for bankruptcy in October 2011, it
became a cautionary tale about how a single troubled project
could bring a struggling city to the financial collapse.
A handful of other U.S. municipalities - in particular,
Alabama's Jefferson County, which filed the country's largest
Chapter 9 bankruptcy last November - were also undone largely by
debt from underperforming public projects financed with revenue
Harrisburg's bankruptcy case was thrown out because state
legislators passed a law banning the city from filing. That ban
was extended until Nov. 30. If lawmakers don't extend the ban
again, William Lynch, the city's state-appointed receiver, could
put the city into bankruptcy again.
Lynch's attorney, Mark Kaufman, declined to tell the
audience at the Bloomberg State & Municipal Finance Conference
in New York on Wednesday whether Lynch would put the city into
bankruptcy if the ban expires. Kaufman added that municipalities
ought to avoid Chapter 9 if possible.
CITY BORROWED MILLIONS TO PAY FOR OPERATIONS - AUDITOR
Harrisburg's finances ran into trouble when it first issued,
and later guaranteed, debt to repair and retrofit its
trash-to-steam incinerator from the early 1990s to 2007.
The city sold the flailing incinerator to the newly formed
Harrisburg Authority in 1993. The authority began borrowing
millions of dollars for operating capital. It would then borrow
millions more to refinance that debt, forensic auditor Steven
Goldfield testified at the hearing.
Goldfield said Pennsylvania law bars long-term borrowing for
government operations, but that's what Harrisburg was doing with
"It's akin to paying your rent with a credit card and never
paying the balance off, and continuing to do it," Goldfield told
state senators. "At some point you're paying exorbitant interest
rates, you haven't addressed the problem, and the debt load is
beyond your capability."
Stephen Reed, who was Harrisburg's mayor for 28 years,
including while the incinerator financing was hashed out, also
testified. He has rarely spoken about the deals since leaving
Reading from a statement, he recommended that the state be
required to dig deeper into the guarantees that municipalities
make when seeking approval for large-scale projects.
Reed said the city made its guarantees when it first started
retrofitting its incinerator because officials believed the
changes would be sufficient to get the facility operating in a
No independent review found that the project might end up
being far more expensive than projected, said Reed, who has been
the target of some scorn for the financially troubled project.
"The decision makers in this matter ... are not engineers
and would not have specialized knowledge to assess a cost
estimate on a project of this sophistication and technology," he
The committee is planning to hold another hearing at the end
of the month.