Hidden state subsidies involve inflated parking leases, electricity purchases, fire protection payments and lax environmental enforcement
How do you make a state bailout not look like a state bailout?
That question is now being answered in Harrisburg, even if in a ridiculous fashion, in part by two words: parking spaces.
For months observers of Harrisburg’s bond debt crisis have wondered what incentives could possibly be offered to bond insurer Assured Guaranty Municipal (AGM) to get the firm to go along with a bailout deal and not drive Pennsylvania’s debt-sodden capital city into bankruptcy court.
Emerging details of the Republican-led bailout of Harrisburg reveal the pending deal relies on large and hidden state subsidies to city creditors, creatively financed by means including parking spaces.
GOP partisans no doubt hope the subsidies being worked out by the Corbett administration’s receiver are so complicated they’ll be unrecognizable and hidden from Republican base voters who would certainly object to a direct and simple cash bailout of Pennsylvania’s capital city.
As a central part of the emerging scheme, the receiver plans to lease the city’s parking spaces to a new state agency called the Pennsylvania Development Financing Authority, or PEDFA. In a complicated deal, the Corbett administration would then rent parking spaces for state workers at an inflated annual cost.
Proceeds from the subsidized state parking spaces would generate excess revenue and resulting profits would then be used to pay back, over time, Harrisburg’s bond insurer AGM and Dauphin County.
The state will also refinance city parking authority bonds at a lower rate to plow back savings into the deal.
How many parking spaces are we talking about?
It’s not immediately known just how many parking spaces the state must lease at what inflated rate so that this smoke-and-mirrors Rube Goldberg deal can work.
AGM and Dauphin County say they are now owed $24 million and $27 million, respectively, in additions to guarantees they’ve already paid to bond holders. So these two creditors alone are owed in the neighborhood of $50 million.
To keep things simple, the state could always lease a single parking space for $50 million, with the proceeds channeled back to the bond insurer, thus providing the subsidized bailout.
A $50 million parking space would probably be noticed and criticized by even the dumbest of free-market irate upstate GOP taxpayers.
So by necessity the state instead must lease hundreds if not thousands of parking spaces at inflated prices to make the state subsidized bailout work.
“Of course it’s a subsidy and a hidden bailout,” says Harrisburg controller and mayoral candidate Dan Miller. “Basically the state’s bailing the city out. The average person isn’t going to see it. The person in Colonial Park isn’t going to see it. They’re basically doing it this way so Corbett’s Republican constituents in Colonial Park don’t see what’s going on and don’t get mad at the bailout subsidies for Harrisburg.”
“Here’s the thing: the numbers don’t add up,” Miller says. “Not in the real world. They can’t pay this debt. But they can do it in this manner by subsidizing. The state just gave us $5 million for fire protection. We couldn’t pay the firefighters without that.” Emerging details of the growing yet hidden state subsidies in the bailout plan are news even to Harrisburg Controller Miller.
“I knew the state was going to lease parking spaces for inflated fees, but I thought the proceeds would go to lessee of the garages, not the creditors,” like the bond insurer, Miller says.
So, as the controller asks, Why not just give Harrisburg state bailout money?
The answer is that these are all hidden subsidies designed to make this deal palatable to Corbett’s constituency.
Yet Controller Miller, an accountant by profession, questions the strained mechanism(s) involved in the plan.
“How are they going to get the money (from the inflated state-leased parking spaces) to the bond insurer?” Miller wonders aloud.
Other state subsidies designed to sweeten the deal have been known for some time.
Officials in the receiver’s office for months have said that the state will agree to buy electricity at fixed rates for 20 years from the Harrisburg incinerator.
The electrical subsidies are meant to sweeten the questionable $130+ million bond incinerator purchase price paid by the Lancaster County Solid Waste Management Authority (LCSWMA) (not taking into account others costs to the LCSWMA that pushes the total investment to about $200 million). The incinerator is actually valued at around $50 million.
“Why didn’t they (the state) just buy the electricity from us?” city controller Miller asks.
“It makes no sense to set rates for electricity purchases twenty years out,” incinerator watchdog Eric Epstein warns.
As well, it’s become increasingly evident that a large part of the hidden subsidies of the incinerator deal with LCSWMA involve lax or non-existent environmental regulation by the Corbett-controlled state Department of Environmental Protection.
As Newslanc has reported, tons and tons of known carcinogenic toxic wastes for decades were dumped on the grounds of the Harrisburg incinerator.
Toxic waste moreover has likely migrated off site.
LCSWMA can’t afford to clean up the toxic waste in this high finance bailout deal, and so the Lancaster authority is variously pretending it’s not there, and also says it shouldn’t be required by DEP to perform a site assessment to find it.
Corbett’s DEP in turn is echoing LCSWMA that no one should have to look for, or clean up, long-known toxic waste on or off the incinerator site.
This of course is a hidden environmental subsidy, no doubt worth tens of millions of dollars or more in potential cleanup costs.
“The Lancaster Authority (LCSWMA) is very aware of this (toxic waste at the incinerator site),” Dauphin County Commissioner Jeff Haste told Epstein at a commissioners’ meeting on July 24. “And they’ve had meetings with DEP. And I don’t know the details of it, but I know between the two of them, they have a plan.”
What’s the plan? Epstein asked.
“I think they’re assuming the worst (toxic waste) is there,” Commissioner Haste replied. “At this point in time I think they feel the best policy is not to disturb it.”
In other words, Corbett’s plan, and the plan of GOP commissioners, is to park the toxic waste indefinitely on site.
The mind boggles.
It’s evident that the price of bailing out Harrisburg will be borne by state tax payers and by the LCSWMA. As for the ‘mountains’ of suspicious ash, for the time being…the environment be damned.
The hazardous waste pile was there during prior administrations and I heard no complaint. Leaving hazardous waste alone is a legitimate method of dealing with it. State and federal governments have been doing it for years because the cure, i.e. cleanup, is worse than the disease.
EDITOR: But should regulations continue to be tightened, the clean up will be Lancaster’s responsibility and the cost astronomical. Prudent business people don’t purchase environmentally compromised properties.
Minimally, LCSWMA should simply purchase or long term lease the incinerator, without acquiring the mountains of currenet ash. Then any clean up responsibility will remain with the Harrisburg Authority.
More to the point, toxic waste has been migrating off the site in ground water. Pollution is certainly no longer just on the site. LCSWMA and DEP are refusing to to drill bore sample to ensure the ground water and the public is safe off site. LCSWMA simply doesn’t have the money to do the job properly.
As well, many in Harrisburg have been concerned about this for decades. As NewsLanc has reported, concerned neighbors have been asking this mess be cleaned up for decades.
More to the point, toxic waste has been migrating off the site in ground water. Pollution is certainly no longer just on the site. LCSWMA and DEP are refusing to to drill bore sample to ensure the ground water public is safe off site. LCSWMA simply doesn’t have the money to do the job properly.
As well, many in Harrisburg have been concerned about this for decades. As NewsLanc has reported, concerned neighbors have been asking this mess be cleaned up for decades.