The Tribune Democrat, Johnstown, PA

Local News

October 6, 2012

Harrisburg’s debt reveals faults in how state OKs borrowing

HARRISBURG — Harrisburg’s incinerator debt was tied to inaccurate cost and revenue estimates, as well as a state approval process for borrowing that did not examine the wisdom of the city taking on this debt.

This observation came out of a Senate Local Government Committee hearing last week on an audit of the failed incinerator project, which accumulated more than $300 million worth of debt.

And because of this fiscal crisis, the Department of Community and Economic Development, which oversees this approval process, could be revamped.

DCED’s role in the approval process is limited to the paperwork.

“Ultimately we verify that they have the proper paperwork and as was in testimony yesterday, the i’s are dotted and the t’s are crossed,” said DCED spokesman Steve Kratz. “The sworn statements that are submitted to the department that swear the information within those filings is, in fact, factual is essentially on what we base each evaluation.”

DCED approved at least nine borrowing requests for the incinerator throughout the 1990s and early 2000s based on sworn testimonies from consulting professionals on the finances of the incinerator.

And the city guaranteed the debt taken on by the Harrisburg Authority, triggering the approval process.

Former Mayor Stephen Reed testified Thursday that much of the problem was due to inaccurate cost and revenue estimates for retrofitting the incinerator. The debt was labeled “self-liquidating,” meaning the revenue from the project would cover operational expenditures and the debt service.

In hindsight, this was not the case.

State Sen. John Eichelberger, R-Blair, chairman of the Senate Local Government Committee, said DCED’s approval process will “absolutely” be reviewed in the wake of the incinerator incident. Following the hearings, the committee will consider new legislation on municipal borrowing, he said.

One idea would involve issuing penalties, such as fines or license revocations, to the third parties who draft inaccurate borrowing agreements and estimates.

“They drive that whole process, and they are definitely responsible,” Eichelberger said of consulting professionals.

Eichelberger said DCED’s review process should not be overhauled completely, which would be costly and time-consuming. A more tailored option would be to have the state pay more attention to unusual projects – such as an incinerator – that involve higher-risk financing.

“With this amount of money, if it wouldn’t have been self-liquidating, maybe there should’ve been more scrutiny,” Eichelberger said.

State Sen. Mike Folmer, R-Lebanon, who was also at the hearing, said DCED’s process should be evaluated.

“What do we need to do to change that process? What do we need to do to make it have more teeth?” Folmer asked.

“Because, what it seemed like to me from the answers was that they basically shuffle paper around.”

He also said he questioned the role of consultants. Folmer said he didn’t have much faith in the third-party professionals on the Harrisburg incinerator project, who signed off on high-risk financing deals and interest rate swaps.

“For the $328 million of debt, there’s almost $50 million of consulting fees,” he said. “What were they consulting?”

DCED consistently approves billions of dollars for hundreds of municipal borrowing projects on an annual basis under the state Local Government Unit Debt Act. In 2011 alone, approvals under the act totaled more than $6.5 billion on more than 1,000 projects.

But under the law, DCED is not responsible for overseeing the “wisdom of the debt,” according to DCED’s explanation of the law.

Legally, the department lacks the authority to offer any further assessment, Kratz said.

Steven Goldfield, a bond expert who authored a portion of the Harrisburg incinerator audit, testified Thursday that he was cautious about legislative fixes.

“You can’t legislate good financial taste. You can’t require professionals to do certain things,” he said. “I don’t know if this is going to come down to a legislative fix, until we hear from everyone else and get the rest of the documents.”

The next testimony on the Harrisburg incinerator audit will be Oct. 29. The list of testifiers has not been made public.

Click here to subscribe to The Tribune-Democrat print edition.

Click here to subscribe to The Tribune-Democrat e-edition.

Text Only | Photo Reprints
Local News
  • Halfway house inmates can ease back into society

    Prison life can be a time warp.
    When inmates are locked away – for months, years, decades – society moves forward: Technology evolves, major events occur, pop culture changes. From a personal perspective, families and friends live their lives: weddings, funerals, graduations, births, retirements. All the while, criminals bide their time, existing in a regimented world of cement walls and metal bars.
    Almost all of them eventually rejoin society, though.

    April 19, 2014

  • Crime board took aim at house

    Johnstown’s unemployment rate is around 8 percent.
    One-third of the city’s population lives in poverty.
    Burglaries and assaults significantly increased between 2010 and 2012. There is a thriving illegal trade in heroin and prescription drugs.
    Given those conditions, it can be challenging for Johnstown Community Corrections Center residents to find jobs when living in the facility or to avoid falling back into a criminal lifestyle upon their release.

    April 19, 2014

  • Homicides linked to center

    Three homicides that took place in Johnstown last year involved either a suspect or victim who previously resided in the Community Corrections Center.
    Police Chief Craig Foust confirmed the name of one victim, who spent almost two months in the facility on Washington Street during 2007, a time period verified by the Pennsylvania Department of Corrections.

    April 19, 2014

  • bachota Volunteers helping to spruce up community

    Walls and ceilings inside the Cambria County Library look clean and bright with fresh new coats of paint on them.
    The work was recently done by inmates from the Johnstown Community Corrections Center.

    April 19, 2014 2 Photos

  • alanna Hartzok targets income disparity

    Alanna Hartzok described herself as being a conservative progressive.
    The Franklin County resident said she is in favor of conserving environmental resources, education opportunities, Social Security and Medicare, while wanting to progressively address wealth inequality, health care and taxation.

    April 19, 2014 1 Photo

  • Schools rise to leadership challenge

    Forest Hills and Cambria Heights high school students put the spirit of healthy competition toward a good cause and picked up some lessons in leadership along the way.

    April 19, 2014

  • KATEY LADIKA Student’s photos win awards

    A Forest Hills High School junior has captured several awards in a high school arts and writing contest that has identified greats such as Truman Capote and Andy Warhol.

    April 19, 2014 1 Photo

  • Jim Siehl JIM SIEHL | Music to my ears

    Seldom has $15 produced such a high level of entertainment as it did a few weeks ago when I found myself in the second row just left of center keeping back the tears once again during my third live performance of “Les Miserables.”

    April 19, 2014 1 Photo

  • Michele Bender Bye, bye, Easter birdies

    Animals fascinated my mom. Riding the train between Johnstown and Philly, she saw horses, pigs, sheep, cows … a Mattel See ’n Say of farm critters.

    April 19, 2014 1 Photo

  • Bill Eggert Columnist Photo Travelogue of terror features Johnstown area

    A historic week will surround the venerable Silver Drive-In come the beginning of May.

    April 19, 2014 2 Photos


Would you like to see the Johnstown Community Corrections Center remain open after its lease runs out on Oct. 11, 2015?

I'm not sure
     View Results
House Ads