Growing non-cooperation pits Corbett-appointed receiver against city council as calls for criminal investigation continue
First of a series by Bill Keisling
Gov. Tom Corbett’s freshly appointed receiver, William Lynch, wrote a letter to city council president Wanda Williams on June 11 threatening to go to court if council continues to refuse to ratify even the smallest aspects of the state-ordered recovery plan for the city.
City council, meanwhile, seems locked in a growing non-cooperative stance with the state-appointed receiver.
City council president William suggested that Lynch and the commonwealth will be forced to take city council to court on even the smallest of issues, greatly dragging out the supposed recovery process.
The current standoff between council and the state receiver involves comparatively small issues, including the hiring of specialized city employees — such as the mayor’s spokesman and an assistant city solicitor — and whether council should approve a doubling of the city’s earned income tax rate from 1 to 2 percent.
They haven’t even gotten to the big issues, such as the extent of Harrisburg’s crippling bond debt and what to do about it.
About the only thing that remains clear is that the public at large, like Harrisburg city council, does not understand the depth of Harrisburg’s financial problems. Nor does the public or city council support the Corbett administration’s piecemeal recovery plan.
How bad is the ongoing, day-to-day problem?
The city of Harrisburg as of this writing has yet to complete financial audits of city operations for the years 2009, 2010 and 2011.
As such, no one in the public or city hall has a clear idea of the deficits in the city’s operating fund, let alone outstanding problems with servicing its more than one billion in bond debt.
Despite the inability of the receiver and city council to cooperate with even small matters, Receiver Lynch has announced his office’s intention to soon sell the city’s long-troubled incinerator to one of two perspective bidders.
The Lancaster County Solid Waste Management Authority is vying against a bid from Cambridge Project Development, Inc., of Miami to buy the incinerator.
Behind the scenes, observers say the Lancaster Solid Waste Authority has been lobbying the Corbett administration for better terms for the sale of generated electricity from the co-generating incinerator plant should it buy the facility.
While all this is happening (or rather not happening), the Harrisburg Patriot-News has belatedly joined the broad calls for a criminal investigation of the latest round of the city’s bond debt involving the incinerator.
The Patriot in recent days published several articles suggesting laws may have been broken in the creation of the bond debt, such as a June 14, 2012 article titled, “Harrisburg audit begs question: Is city’s debt crisis a crime?”
The Patriot article was a legally technical article concerning arcane matters. Such discussions not only are late in the day, but they do little to shed light between the forest and the trees in this unfolding crisis.
And others have stated many of the Patriot’s arguments for years.
For example, the Patriot on June 14 questioned whether the incinerator debt was “self-liquidating,” as promised in bond documents. Self-liquidating is a term of art concerning whether an investment will eventually pay for itself.
Unmentioned by the Patriot’s article, for example, is that former Harrisburg Authority board member Eric Papenfuse left the board in 2008 complaining that the incinerator debt was fraudulent and inaccurately described by bond papers as “self-liquidating.”
Papenfuse soon thereafter contacted the FBI to request a criminal investigation of this and other issues involving the incinerator.
“I met with these young FBI agents wearing guns who seemed to be more attuned to fighting bank robbers than municipal fraud,” Papenfuse told me. His calls for criminal investigations in the late 2000s fell on deaf ears at the FBI.
Calls for criminal investigations are further endangered because state and federal fraud laws have 2 to 5 year statute of limitations, respectively. The time period for criminal investigations may be running out.
Moreover, criminal investigations aren’t going to get to the bottom of Harrisburg’s 30 years of irresponsible bond underwriting.
The problem is one of poor policy, rather than violation of criminal law.
Rather than being a financial instrument for sound municipal investments, bonds became an attractive way for elected officials like Harrisburg former Mayor Steve Reed to get easy cash flow without raising taxes, and to receive political contributions from the bond industry.
Sitting elected officials of both political parties certainly do not want to open a debate on these policy subjects.
This issue was underscored by former Harrisburg Receiver David Unkovic, who penned an editorial appearing in the Patriot on June 10. Unkovic resigned from the receiver’s job in late March, saying Harrisburg was a financial house of cards that was about to collapse.
“Many in the capital have treated the law simply as an ‘object’ or a ‘hurdle’ to be manipulated as necessary to accomplish a political goal,” Unkovic wrote. “I believe the disdain for the law is so embedded in Harrisburg’s political culture that it constitutes a very insidious form of corruption.”
Unkovic went on to write that Harrisburg taxpayers were for decades “in the dark” about what was going on with the finances of their city, and should not be punished.
This last statement seems more to the point. Without understanding what got them into this mess, taxpayers and city council members cannot be expected to cooperate with proposed solutions that do not take into account the entire problem.
And they certainly shouldn’t sell city assets that may be encumbered by fraudulent practices, or may prevent the city from paying its bills down the road.
In his editorial, Unkovic understates the problem.
Harrisburg has a culture that not only has a distain for the law.
Harrisburg’s current culture has a distain for its own history, and an equal distain for reality.
Ultimately, a quarter century of bad politics has created a distain that Harrisburgers feel for each other, and which prevents any political solutions.
We will explore the roots and evolution of the current crisis in subsequent chapters.
To be continued…
You should talk to Bill Cluck about this. He’s been following this very closely.