by Bill Keisling with Robert Field – one of a series
Concerned Lancaster County residents are asking whether the Lancaster County Solid Waste Management Authority’s bid to buy the troubled Harrisburg incinerator makes sound business sense.
Minutes from LCSWMA’s own board meetings should add to their concern.
The incinerator sale is one of the political deals designed to pay off the City of Harrisburg’s and Dauphin County’s $370 million in debt and thus avoid bankruptcy court protection that would have cost considerable losses to creditors.
As we wrote this past week, LCSWMA’s board was told by its CEO, Jim Warner, that the $100 + million sales price of the incinerator was negotiated by Dauphin County’s commissioners not because it’s a fair market price for the facility (LCSWMA had offered $45 million) but because it was a figure necessary to protect bond insurers stiffed by earlier bad bond deals.
A forensic audit report and state senate hearings of last year shows that Dauphin County and the bond industry themselves helped run up the staggering $370 million incinerator debt. Many who were involved benefited in fees from irresponsible and perhaps fraudulent bond swaps in the go-go 2000s. The incinerator and the Harrisburg Authority for decades were used as piggy banks by Harrisburg’s former mayor to dole out political largesse and balance the city’s general fund budget.
That’s what LCSWMA’s proposed bond sale is going to help pay off: bad ideas and political deals of the past.
Warner further told his board, “the total borrowing could reach $150 million, including ‘the subordinated debt to pay off the Covanta loan; that principal will likely only be due in 20 or more years which could be another $15 to $20 million, putting the total debt at around $150 million.'”
In 2007 incinerator operator Covanta loaned the City of Harrisburg $25 million to fix the yet-again broken incinerator. That Lancaster County residents be on the hook for a bad $25 million loan made by a private company to a city in another county makes no business sense.
Acquiring the Harrisburg incinerator may have real merit at the original $45 million price, a sum consistent with market value.
With a Net Worth of about $125 million and Profit of around $6.5 million annually, $45 million was affordable, not a “Hail Mary” staking the fiscal sustainability of the LCSWMA.
But even then to be prudent there would need to be evidence of the following:
1) Various forms of insurance coverage by approved sources that were are qualified to be re-insured by the state government. This does not appear to be the current situation for all of LCSWMA current insurance coverage.
2) An independent engineering evaluation that the long mechanically troubled incinerator was now reliable. CEO Jim Warner wants the public to accept assurances from Covanta which has a large portion of $25 million to gain if the deal goes through.
3) An independent feasibility study establishing a desirable rate of return on the investment.
LCSWMA says it has performed these studies, but won’t release them to the public due to a non-disclosure agreement with the Harrisburg Authority. The uncertainty about what was studied and by whom leaves a huge credibility gap. We find the situation inappropriate and unacceptable considering they are a public authority, not a private enterprise.
To help make the deal work at the hugely inflate price, the state will have to buy electricity from the plant at above market rates for decades to come. In short, this is the equivalent of a subsidy or new tax on Pennsylvanians, something that Gov. Tom Corbett has vowed not to do.
The landfill around the Harrisburg incinerator is full of incinerator ash. LCSWMA’s Warner says his authority will ask environmental officials for permission to dump even more ash on the site. Current research suggests the ash, generated at very high temperature, is inert and presents no health problems.
However, should years of rain water lead to an unanticipated problem in the future as some fear, LCSWMA may well be responsible for who knows how much money. In that hypothetical case, Lancaster County residents pay to remove and bury the ash of some other form of safeguarding through higher trash collection charges.
Making matters even more artificial, the Harrisburg Receiver’s office says it will ask the EPA and the state Department of Environmental Protection to grant the incinerator and LCSWMA a “distressed city” exemption so LCSWMA won’t have to address some environmental problems. This is another subsidy.
Based upon the information available from an uncooperative and extremely defensive LCSWMA, the entire deal as currently framed makes no prudent business sense. There is nothing per se wrong about a single entity such as LCSWMA becoming the de facto regional bulk waste disposal authority. But it should not be at the extreme risk and very possible huge expense to the residents of Lancaster County.
