The Incinerator That Kept Burning Cash (WSJ article about Harrisburg)

[alp227]

In 1969, officials in the state's capital city raised $12.5 million to build a trash incinerator that generates electricity. Since then, officials have borrowed at least 11 more times, according to the city controller and bond documents, swelling the facility's debt to $310 million.

Investment banks, lawyers and advisers collected fees for assembling the deals, and Harrisburg guaranteed most of the debt in return for its own share of the money. Much of the proceeds from bond sales that sank the incinerator deeper into debt went to refinance old bonds and for a retrofit that went awry.

"No one knew how to say no. They just knew how to do deals," says William Cluck, who was appointed last year to the Harrisburg Authority, the public entity that owns the incinerator. "The mayor said, 'I want to do this.' And the financial advisers said, 'Here is how you do it. Now, please pay me my fees.' "

Incinerator revenue now exceeds operating expenses, and it has been praised as one of the nation's most successful waste-to-energy facilities. But business isn't good enough—and might never be—to cover debt payments. The city of about 47,000 residents also faces a cash crunch from a budget deficit.

Scrambling to avert a default, officials might sink Harrisburg even deeper into debt. The city council is scheduled to vote Tuesday night on a plan to borrow as much as $11 million. Some of the cash would be used to pay $3.3 million to bondholders by a Thursday deadline. The deal carries an interest rate that could reach 10%, according to the mayor's office.

full: http://online.wsj.com/article/SB10001424053111903532804576564882240033792.html

(if only a short excerpt comes up, then enter the title into google to read in full)

[JPZenger]

1. Here's the full text link

Thanks for posting. Here is the full text link:

http://online.wsj.com/article/SB10001424053111903532804576564882240033792.html?mod=googlenews_wsj

The problem was that you had a Mayor with way too much power for decades. Much of his power passed through authorities that were not under the oversight of City Council. Also, during many of these years, past City Councils did not do their jobs very well. That Mayor was given great latitude because he was getting many good things done. However, few people asked how they were being financed, and how that debt would come back to haunt the City.

Over $10 million of the proceeds of some of these authority-financed deals were used by the Mayor to buy Wild West memorabilia. No one knew about it until after the money was spent.