Harrisburg incinerator, parking deals 'down the homestretch'Funding wastewater system upgrades will be one of next big pieces in capital's recovery
Assuming positive feedback from creditors and, ultimately, deal approval from a Commonwealth Court judge, the biggest remaining hurdle in the Harrisburg incinerator sale appears to be in place.
Harrisburg receiver William Lynch, state officials and the head of the Lancaster County Solid Waste Management Authority, the municipal authority looking to acquire the city's troubled waste-to-energy plant, said the framework of a long-term power purchase agreement with the state Department of General Services is in place.
"We're really close," said Jim Warner, LCSWMA's CEO, Monday, referring to a 20-year contract to sell electricity to the commonwealth.
The power agreement is the glue that holds the deal together because it helps establish a final valuation for the incinerator and enables a tax-free bond issuance, Warner has said.
The latter means a low interest rate and the highest possible valuation.
"We are down to the final detail with DGS," Warner said. "That could get wrapped up in the next few days."
The only wrinkle in the deal is that a third party must be brought in to administer the power transfer, Warner said, citing the Pennsylvania Municipality Authorities Act.
The act limits authorities that own electric-generating assets such as incinerators to sell to resellers, not end users like DGS, he said.
LCSWMA is working with the Borough of Columbia to serve as a conduit, Warner said.
"Things are moving along in a positive direction," DGS spokesman Troy Thompson said of the negotiations.
Thompson and Lynch said there was no signed agreement; Warner indicated a term sheet had been sent.
"We're down the homestretch," said Fred Reddig, executive director of the Governor's Center for Local Government Services at the state Department of Community and Economic Development.
Reddig has worked extensively with Harrisburg as it has navigated its way through the Act 47 distressed cities program and into a court-approved recovery plan under fiscal receivership.
All parties are anticipating the sale of the incinerator and long-term lease of the city's parking system to be completed by the end of the first quarter.
The receiver is negotiating the parking deal with an entity known as Harrisburg First, which is led by Guggenheim Securities, a unit of privately held global financial services firm Guggenheim Partners, which is headquartered in Chicago and New York.
It also includes Chicago-based parking operator Standard Parking Corp. and Boston-based real estate asset manager AEW Capital Management.
"I'm still hopeful," said Lynch, who has been meeting regularly with creditors.
The primary creditors on the incinerator debt, which has been pegged at $340 million, are Assured Guaranty Municipal Corp., or AGM, and Dauphin County.
Lynch said a "reasonable" proposal has been submitted to them.
"It's possible. We're optimistic," he said of the first-quarter projection.
Warner said he is hopeful the closed-door meetings will continue to trend in a positive direction.
"We're optimistic that everybody is motivated in some way to get this behind them," he said.
A bond issuance to purchase the incinerator would take at least 45 days, he said. A completed sale could happen by the end of March or early April.
The other big piece
At times lost in the shuffle, but just as important for the city in the long run, is the future operation of its water, wastewater and stormwater systems.
A major piece of the puzzle is a projected $54 million sewage treatment plant upgrade needed to meet federal standards aimed at reducing pollutants flowing into the Chesapeake Bay. That project must be done by September 2014.
However, the authority's association with the city pulled its bond rating down below investment grade, which killed its chances of floating a bond.
Moody's Investors Services downgraded and then withdrew the authority's water bond rating in late 2011 because of the financial crisis and late financial audits.
The city recently completed its 2009 and 2010 audits. The 2011 audit is expected to be done by mid-May, Lynch said.
Discussions have focused on an intermunicipal structure in which neighboring municipalities serviced by the city's sewer plant could help strengthen the financial arrangement to go into the bond market.
The system serves Lower Paxton, Susquehanna and Swatara townships, as well as Steelton, Paxtang and Penbrook boroughs.
The recovery plan calls for bringing in an outside party to manage the water and sewer-related assets. But a municipal-operated authority is the preferred structure at this point, Lynch said.
That could mean a completely new authority, a reconstituted Harrisburg Authority or maybe a joint municipal authority, he said.
"We're really not there yet," Lynch said.
Harrisburg Authority Chairman Bill Cluck declined to comment on the possible management structure, citing a confidentiality agreement.
"It's definitely on the priority list," Lynch said. "It's just not of primary interest today."
A completed 2011 audit could trigger movement on funding for needed improvement projects, Cluck said.
The Pennsylvania Infrastructure Investment Authority, commonly known as Pennvest, is another potential source, officials said.
A timetable has not been established to finalize a plan for this next series of city assets. It is one of many balls that Lynch said is being juggled.