Rachel's Democracy & Health News #884, December 7, 2006
MONEY TO BURN
[Rachel's introduction: The mayor of Harrisburg, Pennsylvania is considering selling city buildings -- including City Hall -- to raise cash to pay for a failed garbage incinerator.]
By Peter Montague
To alleviate massive debt created by the city's garbage incinerator, the mayor of Harrisburg, Pennsylvania has proposed selling off the city's Pubic Safety Building, headquarters for the city's police and fire departments. Harrisburg is the state capital of Pennsylvania.
Harrisburg's mayor of 20 years, Stephen R. Reed, had initially considered selling off City Hall itself, but settled for selling the police-and-fire building instead. The city is flirting with bankruptcy as the incinerator's debt burden grows.
The mayor says selling the Public Safety Building, then leasing it back from its new owner, will raise $10.5 million in short-term cash. The cost of this bit of creative financing would be borne by future taxpayers.
In June, 2003, Harrisburg's 31-year-old garbage incinerator shut down because it could not meet air quality standards. But the city still owed $104 million on the machine, which would have to be repaid at the rate of $7 million per year through the year 2030.
Mayor Reed came up with the idea of borrowing another $125 million to finance a facelift for the defunct machine. The refurbished incinerator would be designed to burn 800 tons of garbage per day, about 8 times as much as Harrisburg itself produces. The machine would import garbage and sell steam and electricity to turn a profit. At least that was the plan.
To feed the machine and reassure investors that they would get their $125 million back with interest, Harrisburg signed contracts with dozens of municipalities in Dauphin, Cumberland and Perry Counties giving Harrisburg the exclusive right to burn their garbage. Such an arrangement is called "flow control," and "flow control" was declared illegal by the U.S. Supreme Court in 1994, but Harrisburg officials insist their plan is legal and can survive any future lawsuits by independent waste haulers seeking to compete with the Harrisburg incinerator.
As soon as the city's incinerator plan was announced, citizen opposition flared. But city officials fought back with a campaign of frightening predictions. They foresaw major problems for taxpayers if the $125 million loan were rejected. Dan Lispi, the Harrisburg official in charge of the incinerator, said annual property taxes on a $100,000 home would rise $500, waste disposal fees would skyrocket, the city would become dependent on dwindling and uncertain landfill space, and there would be "mass layoffs" of city workers.
On the other hand, city officials offered a rosy picture of the refurbished incinerator's financial future, estimating that the plant could earn as much as $23.6 million in its first full year of operation in 2006 -- enough to pay its $9.9 million in annual operating costs, handle the debt payments and begin building a cash surplus.
But residents who turned out for public hearings in August, 2003, said they'd heard similar rosy projections before, when the original incinerator was proposed. They pointed out that the original machine had never worked reliably and that the city had repeatedly borrowed more money to try to improve performance. "You'll never convince me," that refurbishing the old incinerator makes sense, said resident Evelyn Warfield. She outlined the financial history of the original incinerator and presented a petition opposing the new project.
Green Party member Frank Divonzo pointed out that debt on the old incinerator, which was $41 million in 1993, had more than doubled to $104 million by 2003 as officials struggled to keep the original machine working.
But Harrisburg officials were adamant -- rebuilding the incinerator was the city's only hope, they said. So they pressed on and arranged to borrow $125 million for an $80 million facelift of the old machine, plus $45 million in incidentals. Local lawyers, engineering consultants, financial advisors, accountants, and bankers found the plan rewarding.
The incinerator is located in south Harrisburg where 70% of residents are black. The International Ministers Conference of Harrisburg filed a last-minute appeal, saying the project was a clear case of environmental racism. Both the Harrisburg Authority, which owns the incinerator, and the state Department of Environmental Protection, which approved the project, jumped on the ministers with both feet, saying their appeal was both too late and without merit.
The hearing board quickly sided with city and state authorities, ruling that the ministers had filed their appeal too late, and denying any evidence of racism. The original incinerator was built when the neighborhood was predominantly white, they said, and blacks moved in later as whites moved out. The hearing board refused to acknowledge the obvious -- that such a familiar pattern of land use is prima facie evidence of white privilege, a familiar form of racism. The mayor said he knew the ministers would keep an eye on the incinerator to prevent health problems from emerging, tacitly acknowledging what has been obvious for years -- that state and local officials are not up to the task of regulating such a machine.
Harrisburg's refurbished incinerator was supposed to begin burning garbage January 2, 2006, but steel shortages (in Pennsylvania!) and construction delays plagued the project. The Harrisburg Authority gave the firm doing the work -- Barlow Projects Inc. -- a four-month extension to complete the job, and it waived a penalty clause calling for Barlow to pay the city $22,000 for each day the project was late. City Council members have since acknowledged that this was "an incredibly bad decision."
The refurbished machine never worked right from day one. John Luciew, a reporter for the Harrisburg Patriot-News, wrote, "Even when the incinerator's three burners were lighted, design flaws with the trash and fuel feeds at one end and the ash handling at the other have hampered operations to the point where just one or two furnaces are firing at any time." In addition, the machine took more staff to run than first thought, resulting in double shifts and abundant overtime.
By late November, the incinerator had earned $12.6 million less than projected for 2006, and the city of Harrisburg was facing a budget shortfall of $13.8 million. The city borrowed $7 million to pay some of its bills. The mayor initially estimated that the incinerator was responsible for $5 million of the shortfall, and that fixing the design flaws in the machine would require an additional investment of $5 to $10 million. By December 1 the mayor revealed that it would cost $14 million to fix the incinerator's design flaws, including replacing its ash-handling systems.
It was around this time that the mayor began thinking of selling city hall to a private party, then leasing it back.
Of course, such a short-term fix would only make the long-term picture worse. Harrisburg and its taxpayers -- not the Harrisburg Authority -- are now on the hook for about $220 million in incinerator-related debt. That equates to payments of about $16 million each year for the next 30 years. Essentially the refurbished incinerator will have to work perfectly every day for the next 30 years to meet its financial obligations. No incinerator in the world has ever achieved such a flawless record of performance.
In desperation, Harrisburg is now considering turning over management of the incinerator to the company that mis-designed it in the first place, Barlow Projects Inc. Under the new plan, Barlow would form a management subsidiary called Harrisburg Resource Recovery Operation LLC that would manage and staff the facility for about $10.5 million annually. The Harrisburg Authority would still own the plant, and the taxpayers of Harrisburg would still own the financial liability.
The management contract would allow Barlow to secure financing for the $14 million in improvements needed to fix the plant. Barlow, not the authority, would pay for the upgrades.
But the deal would destroy the jobs of the 45 city employees who work at the plant. Incinerator officials have said they will "talk to" union officials before privatizing 45 unionized city jobs.
Cynics point put that plan to privatize 45 city jobs has several salutary effects from the point of view of both city officials and the corporate sector:
(a) 45 union jobs will disappear, thus diminishing the bargaining power of one of the only strong unions remaining in the U.S., government employees. At a time when Harrisburg will undoubtedly try to squeeze its workers to pay for a long series of "incredibly bad decisions" by management, it is probably essential -- from management's perspective -- to weaken the union.
(b) Government workers cannot legally contribute to anyone's re- election campaign, but private workers can be subtly coerced by their employers into giving campaign contributions -- so the deal could politicize a substantial pot of money that might now slosh around at re-election time in Harrisburg;
(c) If Barlow fails to run the incinerator properly, the city, not Barlow, will remain liable for the $220 million in debt that the machine has racked up so far.
(d) If regulations on ultrafine particles, or mercury, or other emissions from the incinerator are tightened at any time during the next 30 years -- as seems inevitable -- additional retrofits and additional debt will become necessary.
(d) The waste industry -- always politically alert and active -- no doubt appreciates that the refurbished incinerator will create powerful, ongoing incentives to prevent three large Pennsylvania counties from adopting waste-reduction or recycling measures for the next 30 years.
With $220 million in debt as a driver, all the incentives in Harrisburg are now set to encourage the production of as much waste as possible for the next three decades, to feed the machine.
 Laura Pulido, "Rethinking Environmental Racism: White Privilege and Urban Development in Southern California," Annals of the Association of American Geographers, Vol. 90, No. 1 (2000), pgs. 12-40. [10 Mbyte PDF]