Inside the Harrisburg incinerator, just before its sale in 2013.
The commonwealth of Pennsylvania filed a civil lawsuit on Monday against numerous companies involved in Harrisburg’s disastrous incinerator retrofit, seeking compensation for some of the $360 million in debt that the project piled up.
The lawsuit, filed in Commonwealth Court, names many of the law firms, finance companies and consultants familiar to those who have followed the 25-year saga of the incinerator, which nearly bankrupted Harrisburg and led the commonwealth to impose a receiver to help set the city’s finances straight.
“It is time to hold those responsible for the failed incinerator debt scheme accountable and recoup the taxpayer dollars wasted by their negligence and deception,” said Gov. Tom Wolf, in a statement. “This project, started in 2003, represents the worst of how lobbyists and special interests bilk taxpayers for their own gain. My administration is standing up to these interests on behalf of the taxpayers, and we will continue to fight to stop anyone that uses deception or fraud to take advantage of taxpayers.”
The incinerator dates from the late 1960s. However, much of the facility’s crippling debt began to accumulate with its 1993 “sale” from the city to the city’s own utility authority, the Harrisburg Authority. The state’s lawsuit mostly concerns itself with the period starting in 2003, when under the administration of former Mayor Steve Reed, the authority made the disastrous decision to “retrofit,” or upgrade, the facility using largely untested technology from Minnesota-based Barlow Projects. (Click here for a detailed history of the Harrisburg incinerator.)
In its lawsuit, the commonwealth calls the Harrisburg incinerator debacle, “. . . the worst municipal finance disaster in the history of the commonwealth of Pennsylvania.”
The respondents named in the suit include RBC Capital Markets Corp.; Obermayer, Rebmann, Maxwell & Hippel LLP; Buchanan Ingersoll & Rooney PC; Eckert, Seamans, Cherin & Mellot LLC; Public Financial Management, Inc.; Buchart Horn Inc.; and Foreman and Caraciolo PC.
The lawsuit charges that members of these firms formed a “working group” that allegedly did not act in the best interests of the city. Among the allegations, the lawsuit states that:
- “The Working Group’s dual representation of the [Harrisburg] Authority and the city created destructive conflicts of interest.”
- “In their efforts to close the debt transaction and collect their compensation, the Working Group’s members provided the city with false and misleading information, concealed material facts and aided others in breaching their duties to taxpaying citizens. Consequently, the city signed onto imprudent and illegal debt guarantees that rendered it insolvent.”
Because of this insolvency, former Gov. Tom Corbett declared a fiscal state of emergency and placed the city into receivership.
The lawsuit also alleges that:
- The working group convinced Harrisburg City Council to guarantee $130 million in debt that the city could not afford.
- The working group’s disclosures understated the financial burden of the reconstruction project and its financing.
- The working group did not disclose to council or to residents the “unreasonable assumptions” supporting its financial analysis.
- The engineering consultant failed to identify “key defects” in the original incinerator retrofit design by Barlow Projects.
- The working group “falsely” advised the city that the incinerator debt complied with laws meant to prevent excessive municipal debt.
- The working group told the city to classify debt as self-liquidating (able to pay for itself out of revenue), “even as the incinerator is about to shut down.”
- The working group advised the city to classify new incinerator debt as self-liquidating “based on unreasonable assumptions and despite contrary evidence.”
- The working group submitted “incomplete and inaccurate information” to obtain state approval of city debt guarantees.
- The working group “violated” laws requiring contractors to post financial security.
In the end, the lawsuit charges that the working group was responsible for adding some $60 million to the incinerator’s debt.
“The professionals involved in these transactions reaped rewards at the taxpayers’ expense,” the lawsuit alleges.
The lawsuit further makes charges against some of the respondents, including allegations of fraud, negligent misrepresentation, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, legal malpractice, aiding and abetting fraud, professional malpractice and unjust enrichment.
In its suit, the state is requesting both actual and punitive damages, as well as a jury trial.
“The action taken today by Governor Wolf is welcome news for the city of Harrisburg,” said Harrisburg Mayor Eric Papenfuse in a statement. “I’m thrilled the governor is taking the necessary step to hold accountable those responsible for the failed incinerator debt scheme. Our residents also are pleased the commonwealth is continuing to fight to secure revenues for the city.”
In 2013, the Lancaster County Solid Waste Management Authority agreed to purchase the Harrisburg incinerator, relieving about half of the outstanding debt on the facility. Tax increases and the long-term lease of the city parking system covered much of the rest of the debt.
The state exited its receivership in early 2014, though the city remains in the state’s Act 47 program for financially distressed municipalities.
In 2015, the commonwealth filed almost 500 criminal counts against Reed, many in relation to incinerator financings. However, many of the counts were eventually dismissed because a judge ruled that the statute of limitations had expired. Last year, Reed pleaded guilty to 20 theft-related counts arising from city-owned museum artifacts that were found in his possession, and he was given probation.
“I thank Gov. Wolf for his willingness to take tackle the tough issues and take on special interests to do what’s right for Harrisburg residents and Pennsylvania taxpayers,” Papenfuse said.
