In what might be best described as a cautionary tale about over-borrowing for green energy “solutions” to municipal problems, Harrisburg, PA filed for bankruptcy last week. The city council voted 4-3 against a plan in which the city would sell or lease some of it assets to pay down its debt. The Chapter 9 filing reflected a divide between the council and state lawmakers who were expected to finalize legislation amounting to a state takeover of the city’s financial recovery plan. “There is definitely a sense of us versus them,” said Mark Schwartz, the Harrisburg City Council’s lawyer, who prepared the filing. “There are members of the city council who don’t want to be pushed around anymore.” Despite the bankruptcy, the mayor’s office announced that bondholders and city workers would continue to be paid.
Harrisburg has a total of $458 million in outstanding claims, but the largest chunk of that debt by far comes courtesy of the project derisively referred to as the “incinerator from hell,” the waste-to-energy facility that has amassed $310 million of it. The total debt is five times what the city has in its general fund, according to Stateline newspaper.
How did it happen? The history of the trash-to-energy incinerator is a saga of lofty intentions undone by incompetence. Former Mayor Stephen Reed, turned out of office in 2010 after 28 years, was largely responsible for the debacle, which began in 2003. The Harrisburg Authority, the public entity charged with providing solid waste management services for the city, approved a plan to retrofit Harrisburg’s incinerator for $120 million. It was a response to the reality that the original facility, built in 1972, frequently broke down. Furthermore, tests revealed that the facility’s lone smokestack, whose dark colored output occasionally floated over the city, contained highly toxic mercury and dioxin contaminants.
When Reed became mayor, the facility built to turn garbage into energy — and a municipal expense into a profit — was losing money. Reed stopped the bleeding and turned the incinerator into a profitable enterprise by hiring a professional management staff, and, in the early 1990s, selling it to the Harrisburg Authority, whose board was appointed by the mayor. The move brought money into the city coffers and insulated city politicians from any blame for rising trash disposal rates. Rates which are now some of the highest in the nation.
The amendment of the Clean Air Act imposed more stringent emission standards on the incinerator, and when one of its two boilers failed to meet EPA dioxin standards, environmental officials shut the facility down in December of 2003. At that point the city still owed $104 million on it. They decided the lesser of two evils was to issue $120 million in new debt and upgrade the facility, rather than close it and take the loss, hoping the improvements would garner enough of a profit to cover both the old and new debt. Barlow Projects Inc., based in Fort Collins, CO got the contract, primarily for being the cheapest bidder by far–and despite the fact they had never built anything that large. Their low-ball bid, $40 million less than the others, concerned many city officials, but reality intruded: there was no way the city could afford anything more expensive.
It was a fatal mistake greatly exacerbated by the failure of the city to get a performance bond–because Barlow didn’t qualify for one. City officials cobbled together a workaround in lieu of a bond which, according to former council member and current Mayor Linda Thompson, the city council never knew about. “Countless hours of tapes prove that the council went through very intensive public hearings,” she claimed. “How that got away from us is mind-boggling to me.”
In 2006, Barlow’s ineptitude became impossible to ignore. The city fired the company and brought in Covanta Energy. What they found was shocking: Barlow had “completely scavenged” a third boiler to maintain two others, despite the fact that boiler number three was the critical element needed to pay off the borrowed money. Without it, the facility was operating at two-thirds capacity and losing around $1 million per month.
In 2007, the council stripped the mayor’s previously used authority to appoint the Harrisburg Authority’s board, precipitating a lawsuit by Reed (which he eventually won) and the seating and unseating of several subsequent boards. The ensuing political standoff made it impossible to pursue other ways of raising revenue, such as Reed’s proposal to sell city-owned garages for 75 years in order to net $100 million.
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