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Tax Law

State Net Capitol Journal – October 15, 2012

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Budget & Taxes

HARRISBURG HEARINGS REVEAL FISCAL PROBLEMS BUT NOT CONSENSUS: Six hours of testimony this month failed to produce any consensus on what caused the financial crisis that has gripped Pennsylvania's capital city. But the first of two days of state Senate hearings into the decisions that left Harrisburg saddled with $340 million in debt after a botched incinerator retrofit revealed serious problems with the fiscal management practices there and elsewhere in the state.

During his testimony, attorney Steve Goldfield, who worked on the forensic audit of the Harrisburg Authority, the public entity tasked with providing solid waste management services for the city, described the creative financing used to fund the incinerator project. He said the Authority repeatedly refinanced the project's debt instead of facing the reality of its soaring costs.

"It's akin to paying your rent with a credit card," he said, adding that it's known in the financial industry as a "scoop-and-toss."

Goldfield also told the senators that the financial practices employed by the Authority were spreading across the state, and the only ones policing them are the professionals contracted to draft the financial plans, individuals Eric Papenfuse, a former Authority board member and community activist, said "had every financial incentive to do what they were doing."

Timothy Anstine, Deputy Chief Counsel for the Department of Community and Economic Development (DCED), the state agency that monitors local government debt, conceded that his agency doesn't do much active policing.

"We're not in a position to second-guess [projects]," he said, adding that the DCED basically just checks to make sure they "dotted their 'i's and crossed their 't's."


Papenfuse also alleged that there was a "pattern of corruption and law-breaking" at the Authority that then-Attorney General Tom Corbett failed to investigate. And he said the FBI opened an investigation at one point, but it was more concerned with former Harrisburg Mayor Stephen R. Reed's use of a special-projects fund to buy Wild West artifacts than the creative financial practices of the Authority.

"Our law-enforcement arms let us down," he said.

Reed and others said Harrisburg's crisis stems primarily from Barlow Construction's underestimation of the costs of the incinerator project. He said if the company had calculated the costs accurately, "I think it is honest to say the project would not have started."

The last person to give testimony, however, Bill Cluck, an Authority board member, placed the blame on the political connectedness of everyone involved with the project.

"You have people wedded to each other.... No one was willing to stand up and say 'no,'" he said.

The next hearing on the issue is scheduled for Oct. 29. (PENNLIVE.COM)

WA HIGH COURT UPHOLDS POLLUTION TAX: The Washington Supreme Court unanimously ruled this month that the state's hazardous substances tax is constitutional. The justices upheld a lower court ruling declaring the state is free to use the current 0.7-percent tax on oil products, pesticides and other chemicals for environmental cleanup projects.

The Automotive United Trades Organization and the California-based Tower Energy Group had claimed the levy was a gas tax and therefore should only be used for highway and road projects under the state Constitution's 18th amendment. But the high court ruled that the hazardous substances tax (HST) law was enacted "to tax toxic substances, including motor vehicle fuel, for the purpose of cleaning up spills of hazardous substances" and that "funds from the HST levied against motor vehicle fuel do not have to be used for highway purposes because they were never restricted to be used only for highway purposes." (ASSOCIATED PRESS, OREGONLIVE.COM)

BUDGETS IN BRIEF: The city of Atwater, CALIFORNIA could soon become the fourth city in the state to seek bankruptcy protection this year. The agricultural community of 28,000 located about 100 miles southeast of San Francisco declared a fiscal emergency this month, after learning that a $3.3 million deficit may leave it out of cash by the end of the year (BLOOMBERG BUSINESSWEEK). • More than 1,100 people collected nearly $2 million in unemployment benefits while they were serving time in county jails or state prisons in ILLINOIS between 2010 and 2012, according to the Illinois Department of Employment Security. In addition to having to pay back the money, the individuals also face potential state and federal criminal fraud charges (CHICAGO TRIBUNE). • INDIANA Gov. Mitch Daniels (R) has transferred $360 million of the state's $2.16 billion cash reserve to five pension programs. The infusion will raise the state's pension funding level for judges, prosecutors and law enforcement officers to 80 percent (EVANSVILLE COURIER & PRESS, STATE NET).

- Compiled by KOREY CLARK

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