Harrisburg Receiver Calls for State-Federal Investigation

Harrisburg (9661MF)’s receiver requested state and federal probes of “possible illegal activities” in financing a waste-to-energy incinerator overhaul that pushed Pennsylvania’s capital into insolvency.

In letters sent yesterday to U.S. Attorney Peter J. Smith in Harrisburg and Pennsylvania Attorney General Linda Kelly, David Unkovic, the city’s state-appointed receiver, cited an audit that said municipal officials and advisers “knew or should have known that, at a minimum, there was substantial risk” the plant wouldn’t produce enough revenue to cover costs.

“If there is a possibility there has been illegal things going on, it’s not my job to make that determination, so I decided to ask the authorities to investigate,” Unkovic said today in an interview in his office. The audit was released in January for the Harrisburg Authority, which oversees the incinerator run by a unit of Covanta Holding Corp. (CVA)

Heidi Havens, a spokeswoman for Smith, and Nils Frederiksen, a spokesman for Kelly, declined to comment on the request for examinations of the plant’s financing.

Unkovic, who has proposed selling the incinerator to help pay off more than $300 million in related debt owed by the city, said a March 22 court decision to strip control of the plant from the authority also prompted his letters. Under the order, another receiver will be appointed to oversee the facility.

Incinerator Receiver

The ruling by county Judge Todd A. Hoover approved a request by creditors, Dauphin County, of which Harrisburg is the seat, and Assured Guaranty Municipal Corp., a bond-insurance unit of Assured Guaranty Ltd. (AGO) The county and the insurer had covered incinerator debt payments the city skipped and sued to recoup their money.

The new receiver probably won’t interfere with Unkovic’s effort to solve the financial crisis in Harrisburg, Hoover said in the ruling, made public March 27. Unkovic has proposed selling or leasing other municipal assets to cover the city’s debt, which is five times its general-fund budget.

“I was very concerned about the effect of this order by Judge Hoover to put back the incinerator to parties who caused the massive debt,” Unkovic said.

He characterized the deals to fund an overhaul and expansion of the incinerator as a “joint venture” between the city, county and bond insurer.

‘Risky’ Venture

“It was a risky joint venture, and they all knew it was a risky venture,” Unkovic said.

Ashweeta Durani, a spokeswoman for Hamilton, Bermuda-based Assured, didn’t have an immediate comment on Unkovic’s remarks. Amy Richards Harinath, a Dauphin County spokeswoman, didn’t immediately respond to an e-mail seeking comment.

Harrisburg’s City Council also has called for a federal probe of the incinerator financing. Smith, in a Feb. 21 response to council President Wanda Williams, said the request was under review and that the audit had been forwarded to the U.S. Securities and Exchange Commission.

Unkovic’s request brings greater weight to the council’s efforts since “he’s been entrusted by the governor to do the right thing,” Councilman Brad Koplinski said. “If he believes a federal investigation is appropriate, we fully echo that and appreciate the backup.”

Missed Payments

The city of 49,500, where 30 percent live in poverty, announced March 9 it would miss $5.27 million in general- obligation bond payments due March 15.

Unkovic is awaiting proposals to buy or lease the city’s parking facilities and the operations of its water and sewer system, as well as the incinerator.

“I’m proceeding with this process,” he said today.

Elisa Barsotti, a New York spokeswoman for RBC Capital Markets, a unit of Royal Bank of Canada, declined to comment on Unkovic’s request for investigations. The bank was described in the January audit as involved in numerous financial analyses for the authority.

Representatives of two other firms identified in the audit as financial advisers also didn’t respond to requests for comment. Sandra Sosinski, a spokeswoman for Philadelphia-based Public Financial Management Inc., didn’t reply to an e-mail seeking comment. A message left at Investment Management Advisory Group’s Pottstown, Pennsylvania, office yesterday didn’t produce a response.

Bruce Barnes, president of Harrisburg-based Milt Lopus & Associates Inc., another of the advisers, declined to comment. John Nester, an SEC spokesman in Washington, declined to comment.

The receiver case is TD Bank NA, v. The Harrisburg Authority, 2010-CV-11737, Court of Common Pleas, Dauphin County, Pennsylvania (Harrisburg).

To contact the reporters on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net; Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

To contact the editors responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net; John Pickering at jpickering@bloomberg.net.

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