The US Securities and Exchange Commission (SEC) and the city of Harrisburg have something in common: the 21st century has so far been very unkind to both of them.
The SEC seems to be struggling to make laws and enforce them, having been embarrassed by the likes of Bernard Madoff and Eliot Spitzer.
Harrisburg, meanwhile, the capital of Pennsylvania, wound up $340 million in debt because of its Harrisburg Resource Waste Recovery Facility, a waste incinerator project opened in 1972. The municipality has hampered itself in its bid to privatise the incinerator, not to mention its parking.
But now, the Washington, D.C.-based Commission and Harrisburg are linked by more than mutual embarrassment. Last month, the SEC charged the city with fraud tied to some municipal bonds issued in 2007 designed to pay for improvements for its cash-burning waste-to-energy incinerator.
It’s worth noting that the SEC’s charge is based on a 2007 filing made under the administration of former Harrisburg Mayor Stephen Reed.
The SEC alleged that the filing didn’t include $4 million in guarantee payments that the city had paid on the incinerator debt during 2007, which would have “signaled” the Harrisburg Authority was in financial trouble. A 2008 filing claimed “a high degree of certainty” about the city being able to make its debt payment.
After that, Harrisburg stopped filing with the SEC while allegedly giving the impression its credit rating was higher than it was. By 2009, Reed knew the city was in debt by $260 million.
“In an information vacuum caused by Harrisburg’s failure to provide accurate information about its deteriorating financial condition, municipal investors had to rely on other public statements misrepresenting city finances,” George S. Canellos, co-director of the SEC enforcement division, said in a statement.
The Harrisburg case marked the first time the SEC charged a municipality with fraud for releasing misleading financial data, citing the city for violating the Securities and Exchange Act of 1934. The city neither admitted nor denied the charge, but settled by agreeing to cease and desist from putting forward incorrect data.
The Commission cited cooperation on the part of Harrisburg.
At the time of writing, Harrisburg, a city of 50,000, is in the midst of its mayoral election. Incumbent Linda Thompson is squaring off against city comptroller Dan Miller and bookstore owner Eric Papenfuse in the Democratic primary. Meanwhile, the push to privatise Harrisburg’s infrastructure assets has again taken a back seat.
In April, Harrisburg seemed ready to sell its incinerator to the Lancaster City Solid Waste Management Authority (LCSWMA) as well as sign off on a 40-year parking lease to Guggenheim Securities, AEW and Standard Parking. As of now, neither deal has been announced.
State-appointed receiver William Lynch, installed in June, had pushed forward with the plan to privatise public infrastructure in Harrisburg put forward by erstwhile receiver David Unkovic, who resigned.
In leasing the incinerator to LCSWMA, the city would in effect be making good on a 2011 recommendation from Novak Consulting, which advised offloading the project to Lancaster rather than selling it to EQT Infrastructure and LambdaStar Infrastructure Partners.
Given the twists and turns taken so far, no one would be too surprised should Harrisburg continue making headlines for a while yet.