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(apologies to don for the FIRE pun)
This story brought to min c1ue's earlier thread on Harrisburg's impending muni default:
http://www.itulip.com/forums/showthread.php?t=14461
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An Incinerator Becomes Harrisburg’s Money Pit
Jessica Kourkounis for The New York Times
Harrisburg, Pa., went $125 million in debt trying to turn its incinerator into a moneymaker.
By MICHAEL COOPER
HARRISBURG, Pa. — Officials here decided seven years ago to borrow $125 million to rebuild and expand the city’s enormous trash incinerator, which the federal government had shut down because of toxic air pollution.
Memorabilia was collected for a Wild West museum using money from the public authority that owns the incinerator.
But the incinerator burned through the money faster than the trash, leaving Harrisburg residents feeling like they were living through a sequel to the 1986 movie “The Money Pit.”
There were contractor troubles, delays, cost overruns and squabbles. The city borrowed tens of millions more, shoveling good money after bad into the job.
It is now done, but at a staggering cost that threatens to bankrupt Pennsylvania’s capital.
The incinerator, which the city had hoped to turn into a moneymaker, is instead $288 million in debt. The lucrative contracts to burn trash that city officials were banking on never materialized. And there is a leak in the steam line that is supposed to allow the incinerator to sell the steam it generates.
The city has failed to make a couple of loan payments and does not know how it will come up with the $68 million in incinerator-related payments due this year — more than it spends in its annual budget.
Now, like a desperate homeowner trying to renegotiate a series of mortgages and home equity loans on a house that is underwater, the city is maneuvering for its fiscal life.
The debt left Harrisburg with one of the lowest credit ratings of any municipality in the country. This month, Moody’s Investors Service warned that “the city’s guarantee of the incinerator debt results in a continuing burden that will stress the city’s finances for the foreseeable future, negatively affect its creditworthiness and jeopardize its future access to the public credit markets.”
Some city officials are even using the “B” word.
“I don’t fear bankruptcy,” said the city’s controller, Dan Miller, who said that the city would have been better off if it had just kept the incinerator closed. “As a matter of fact, we are bankrupt. That’s the situation we’re in.”
Mayor Linda D. Thompson, who took office in January, said bankruptcy should be a last resort. She wants this city of 50,000 to explore other possibilities — including selling or leasing its parking garages and even selling parts of City Island, a beloved park in the middle of the Susquehanna River, to real estate developers.
“Some think that bankruptcy’s the best and easy way out, but it’s not,” Ms. Thompson said. “If we don’t do restructuring, and other things, we’re dead buried in this. We are dead buried.”
The cash crunch is evident in the halls and offices of government, where the air conditioning system has been out for weeks because officials stopped maintaining it properly to save money. Elevators feel like convection ovens. Last year, the city government’s voice mail system went down for months after maintenance was put off.
Anger over the incinerator project helped catapult Ms. Thompson to the mayor’s office this year, unseating Stephen R. Reed, who was called — prematurely, it turns out — Harrisburg’s “mayor for life” until his 28-year tenure ended.
Although he was credited with reviving the city’s downtown — City Hall is decorated with dozens of ceremonial shovels from groundbreakings — Mr. Reed was sharply criticized for mishandling the incinerator project.
He also drew strong rebukes for quietly spending at least $7.8 million from the public authority that owns the incinerator to buy a collection of memorabilia in what can only be described as a quixotic effort to open a Wild West museum in central Pennsylvania.
The incinerator sits in a quiet area, far from the grandeur of the state Capitol, whose imposing green dome was modeled after St. Peter’s Basilica.
Problems started soon after the incinerator was built in 1972. Although its original price tag was less than $15 million, it required so many repairs and refinancings that it was saddled with $94 million in debt by the time the federal government shut it down in 2003 because it was polluting the air with dioxin.
The city’s decision to borrow another $125 million to rebuild and expand it was essentially a double-down bet. Harrisburg’s gamble was that by expanding the incinerator so it could burn up to 800 tons of trash a day, it would be able to burn more garbage from neighboring counties. The fees it would collect, the city hoped, would pay off the debt.
But some counties decided not to take their garbage to the incinerator. Dauphin County, of which Harrisburg is a part, does take its trash there, but pays lower fees than the incinerator originally anticipated — and about a third of what Harrisburg itself pays.
The final insult may well be that Harrisburg now pays some of the highest trash disposal fees in the country — all to prop up the incinerator that it built. The money goes to the public authority that owns the incinerator, but whose inability to pay off its debts has left Harrisburg on the hook.
The incinerator debt has been such a drain that the city has had to lay off 32 workers and increased taxes a few years ago, and it may well lead to more. The City Council rebuffed Ms. Thompson’s efforts to raise taxes and water rates this year. But an outside consultant whom the state helped pay for suggested that Harrisburg should be considering everything from raising taxes to freezing wages to selling the incinerator.
The situation in Harrisburg is extreme, but not exactly unique.
In Alabama, for example, Jefferson County was pushed to the brink of bankruptcy in recent years after it took on $3.2 billion in debt to repair its sewer system.
Like Harrisburg, Jefferson County went into debt to repair aging infrastructure that had run afoul of federal pollution laws. Both places paid for the projects, in part, with complex deals called swaps, which were sold as a way to lower borrowing costs for municipalities, but have often wound up making the deals more expensive. The Jefferson County deals, though, have led to a series of criminal convictionsfor bribery and corruption.
“Sometimes public works projects fail,” said William J. Cluck, an environmental lawyer who was recently appointed to the board of the Harrisburg Authority, the entity that owns the incinerator.
Pennsylvania has made it clear that it is unlikely to bail out its capital, and there are few answers on the horizon.
Even if the city decides to sell or lease its garages — an offer for more than $200 million from a private developer is on the table — it will not be enough to balance the books.
Only about half that money could be used to pay off the incinerator debt. The city owes more than $100 million in debt on its garages.
http://www.nytimes.com/2010/05/21/us...isburg.html?hp
This story brought to min c1ue's earlier thread on Harrisburg's impending muni default:
http://www.itulip.com/forums/showthread.php?t=14461
---
Jessica Kourkounis for The New York TimesHarrisburg, Pa., went $125 million in debt trying to turn its incinerator into a moneymaker.
Memorabilia was collected for a Wild West museum using money from the public authority that owns the incinerator.
But the incinerator burned through the money faster than the trash, leaving Harrisburg residents feeling like they were living through a sequel to the 1986 movie “The Money Pit.”
There were contractor troubles, delays, cost overruns and squabbles. The city borrowed tens of millions more, shoveling good money after bad into the job.
It is now done, but at a staggering cost that threatens to bankrupt Pennsylvania’s capital.
The incinerator, which the city had hoped to turn into a moneymaker, is instead $288 million in debt. The lucrative contracts to burn trash that city officials were banking on never materialized. And there is a leak in the steam line that is supposed to allow the incinerator to sell the steam it generates.
The city has failed to make a couple of loan payments and does not know how it will come up with the $68 million in incinerator-related payments due this year — more than it spends in its annual budget.
Now, like a desperate homeowner trying to renegotiate a series of mortgages and home equity loans on a house that is underwater, the city is maneuvering for its fiscal life.
The debt left Harrisburg with one of the lowest credit ratings of any municipality in the country. This month, Moody’s Investors Service warned that “the city’s guarantee of the incinerator debt results in a continuing burden that will stress the city’s finances for the foreseeable future, negatively affect its creditworthiness and jeopardize its future access to the public credit markets.”
Some city officials are even using the “B” word.
“I don’t fear bankruptcy,” said the city’s controller, Dan Miller, who said that the city would have been better off if it had just kept the incinerator closed. “As a matter of fact, we are bankrupt. That’s the situation we’re in.”
Mayor Linda D. Thompson, who took office in January, said bankruptcy should be a last resort. She wants this city of 50,000 to explore other possibilities — including selling or leasing its parking garages and even selling parts of City Island, a beloved park in the middle of the Susquehanna River, to real estate developers.
“Some think that bankruptcy’s the best and easy way out, but it’s not,” Ms. Thompson said. “If we don’t do restructuring, and other things, we’re dead buried in this. We are dead buried.”
The cash crunch is evident in the halls and offices of government, where the air conditioning system has been out for weeks because officials stopped maintaining it properly to save money. Elevators feel like convection ovens. Last year, the city government’s voice mail system went down for months after maintenance was put off.
Anger over the incinerator project helped catapult Ms. Thompson to the mayor’s office this year, unseating Stephen R. Reed, who was called — prematurely, it turns out — Harrisburg’s “mayor for life” until his 28-year tenure ended.
Although he was credited with reviving the city’s downtown — City Hall is decorated with dozens of ceremonial shovels from groundbreakings — Mr. Reed was sharply criticized for mishandling the incinerator project.
He also drew strong rebukes for quietly spending at least $7.8 million from the public authority that owns the incinerator to buy a collection of memorabilia in what can only be described as a quixotic effort to open a Wild West museum in central Pennsylvania.
The incinerator sits in a quiet area, far from the grandeur of the state Capitol, whose imposing green dome was modeled after St. Peter’s Basilica.
Problems started soon after the incinerator was built in 1972. Although its original price tag was less than $15 million, it required so many repairs and refinancings that it was saddled with $94 million in debt by the time the federal government shut it down in 2003 because it was polluting the air with dioxin.
The city’s decision to borrow another $125 million to rebuild and expand it was essentially a double-down bet. Harrisburg’s gamble was that by expanding the incinerator so it could burn up to 800 tons of trash a day, it would be able to burn more garbage from neighboring counties. The fees it would collect, the city hoped, would pay off the debt.
But some counties decided not to take their garbage to the incinerator. Dauphin County, of which Harrisburg is a part, does take its trash there, but pays lower fees than the incinerator originally anticipated — and about a third of what Harrisburg itself pays.
The final insult may well be that Harrisburg now pays some of the highest trash disposal fees in the country — all to prop up the incinerator that it built. The money goes to the public authority that owns the incinerator, but whose inability to pay off its debts has left Harrisburg on the hook.
The incinerator debt has been such a drain that the city has had to lay off 32 workers and increased taxes a few years ago, and it may well lead to more. The City Council rebuffed Ms. Thompson’s efforts to raise taxes and water rates this year. But an outside consultant whom the state helped pay for suggested that Harrisburg should be considering everything from raising taxes to freezing wages to selling the incinerator.
The situation in Harrisburg is extreme, but not exactly unique.
In Alabama, for example, Jefferson County was pushed to the brink of bankruptcy in recent years after it took on $3.2 billion in debt to repair its sewer system.
Like Harrisburg, Jefferson County went into debt to repair aging infrastructure that had run afoul of federal pollution laws. Both places paid for the projects, in part, with complex deals called swaps, which were sold as a way to lower borrowing costs for municipalities, but have often wound up making the deals more expensive. The Jefferson County deals, though, have led to a series of criminal convictionsfor bribery and corruption.
“Sometimes public works projects fail,” said William J. Cluck, an environmental lawyer who was recently appointed to the board of the Harrisburg Authority, the entity that owns the incinerator.
Pennsylvania has made it clear that it is unlikely to bail out its capital, and there are few answers on the horizon.
Even if the city decides to sell or lease its garages — an offer for more than $200 million from a private developer is on the table — it will not be enough to balance the books.
Only about half that money could be used to pay off the incinerator debt. The city owes more than $100 million in debt on its garages.
http://www.nytimes.com/2010/05/21/us...isburg.html?hp