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Firms Sued Over Incinerator Deal That Left Harrisburg Broke

Carolyn Kaster
The Harrisburg incinerator on South 19th Street.

A lawsuit filed Monday blames lawyers, engineers and financial experts for a Harrisburg trash incinerator project that nearly bankrupted the city, calling it "the worst municipal financial disaster" in Pennsylvania history.

The state and the city on Monday sued four law firms, two financial entities and an engineering company for their roles in the project that drove the city into state receivership and triggered a budget crisis that is still playing out.

The complaint alleges fraud and malpractice in a series of transactions that left the city with hundreds of millions of dollars in debt over the repair and retrofit of the incinerator.

The lawsuit claims various defendants misled officials, hid material facts and helped others breach their duty to taxpayers. It noted the financial problems have resulted in higher taxes and trash fees, cuts to wages and benefits for police and firefighters, and losses for the creditors who loaned money that could not be repaid.

The state and city said the defendants had "integral roles in and responsibility for" the financial disaster, but thus far have not "contributed to the painful process of recovering from the default."

The defendants are RBC Capital Markets Corp. of New York; Buchart Horn Inc., a York, Pennsylvania-based engineering company; and Public Financial Management Inc. of Harrisburg; and four law firms: Obermayer Rebmann Maxwell and Hippel, Buchanan Ingersoll and Rooney, Eckert Seamans Cherin and Mellot, and Foreman and Caraciolo.

Eckert Seamans chief executive Timothy Hudak predicted his firm "will be fully vindicated" in the lawsuit, arguing the retrofit and refinancing required approval of elected and appointed members of city and county government.

He said the firm has no responsibility for the financial problems that drove the city into state receivership.

A spokeswoman for RBC Capital Markets Corp. declined comment. Others did not return messages seeking comment.

Democratic Gov. Tom Wolf described the project as representing "the worst of how lobbyists and special interests bilk taxpayers for their own gain," and said he wants to hold responsible the people who caused the problem and recover taxpayer money.

The state's takeover of Harrisburg, which lasted more than two years, was engineered by the Republican-controlled Legislature in 2011 to prevent the city from going into bankruptcy or shifting the costs to suburban commuters in the form of higher taxes.

The incinerator was sold five years ago.

The lawsuit says that between 1993 and 2007, the Harrisburg Authority "dumped" more than $360 million in debt onto the incinerator, which began operation in 1972 to generate steam heat for steel mills and downtown office buildings, and later began to produce electricity.

City officials compounded the problem in the 1990s by piling debt on the incinerator to pay for other projects and to keep it running.

It shut down in 2003 over federal regulators' concerns that it was also polluting the air with cancer-causing dioxins and was not operational for five years while it underwent a costly overhaul.

The lawsuit said lawyers and consultants involved in helping the city borrow hundreds of millions to rebuild the incinerator advised officials to pledge the city's credit and taxing power to repay the debt, including assurances that the new facility would generate enough money to pay off the borrowing and fund ongoing operations.

The group based its presentations to the public on only five years' of financial projections, the lawsuit claims, but in fact also had estimates that showed the deal would not remain in the black over the coming three decades.

Their plan, the plaintiffs allege, "left no room for error" and did not account for possible construction delays, revenue shortfalls, higher expenses or larger debt payments.