Sunday, August 2, 2015

'Credit card' finance 'spreading' in broke PA cities

Everyone's doing it, say the people who left Harrisburg busted

'Credit card' finance 'spreading' in broke PA cities

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In Pennsylvania, "the laws that govern local government debt have no teeth, and no enforcing agency has clear jurisdiction. In the wild west of municipal finance, no one is minding the store, and there’s no police or penalties for robbing it," writes Nick Malawskey in today's Harrisburg Patriot-News.

The story details yesterday's state Senate hearing into Harrisburg city's outrageous $340 million in unpaid (and increasingly defaulted) municipal debt, largely for a mismanaged trash incinerator project that state and city officials approved and their paid bankers and consultants supported despite its obvious unworkability and failure to comply with finance guidelines.

Ex-Mayor Stephen R. Reed, a popular Democrat who left the city's finances a shambles, was among the authors of the city's financial collapse who testified in the six-hour session. There'll be another hearing Oct. 29.

"Depending on whom you believe, the retrofit of the city’s incinerator was done with the best of intentions and the blame belongs to now-bankrupt Barlow Construction, the firm hired to conduct the retrofit. Or it is a tangled web of financial interests, parties hellbent on getting the project done, whatever the cost. A conspiracy of consultants and politicians benefiting from the public’s largess," writes Malawskey.

"Laws clearly were bent, if not broken ...

"Attorney Steve Goldfield, (who) worked on the Harrisburg Authority’s forensic audit of the project and is now assisting the state in the city’s financial recovery," testified that, "rather than face the reality of soaring costs and debt load, the Authority — with the city’s input — would rewrap the debt and refinance it, pushing back the bills.

“It’s akin to paying your rent with a credit card,” Goldfield said, adding that the financial-industry term is a “scoop-and-toss.”...

"The city and the Authority should have seen warnings that the incinerator’s debt was not sustainable. And yet the parties involved continued to refinance and push forward.

"Goldfield also told the senators at the hearing, which was chaired by Sen. John Eichelberger, R-Blair County, that Harrisburg’s system of creative financing to plug budget holes is spreading across the state.

"The only people policing it, he said, are the very professionals who draft the financial plans. The state government entity tasked with monitoring local government debt, the Department of Community and Economic Development, doesn’t actively do so."

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About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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