The state Attorney General’s office pledged more arrests when it released the report of the financial missteps of former mayor Steve Reed and other city officials.
Anyone who’s been on Front Street in Harrisburg after dark notices the white lights on the Walnut Street Bridge, the quarter-mile connector between City Island and the Susquehanna River’s east shore.
The entire lighting scheme was paid for by Reed’s special projects fund years ago.A state grand jury report highlights this use of the fund as a legitimate one.
But it’s an exception to typically imprudent handling of funds — as with the city’s fiscal affairs in general.
Harrisburg’s municipal government and affiliated public agencies amassed a half-billion dollar debt that nearly bankrupted the Commonwealth’s capital city. Hence the investigation by state Attorney General Kathleen Kane and the arrest on Tuesday of former mayor Steve Reed.
After his arrest, Reed defended his record and dedication to the city, and promised a “vigorous fight.”
Kane and the grand jury report noted the mayor’s initial commitment to Harrisburg, but contend that it went awry somehow. “Mayor Reed served as mayor for 28 years, and he did do a lot of good for the city. At some point, that turned. And that’s disturbing,” Kane says.
Past the pointKane’s deputy Clark Madden was more specific about when, exactly, that point was reached: “when it became politically untenable to take money out of the general fund.”Reed’s former spokesman Randy King details says that was in 2000.
King testified that Reed couldn’t get City Council to release taxpayer money, instead using The Harrisburg Authority’s special projects fund.
King and others say became an obsession for Reed at taxpayers’ expense, but the other museums never opened.
Reed’s now accused of theft by deception that Madden estimates amounts to millions of dollars. “As opposed to spending money on cops, or on pipes that work and don’t need to be refitted in 2015, it was spent on this menagerie of collectibles and curiosities –- and that is a fraud on investors,” Madden says .
Investigators say the fraudulent part stems from the way the cash materialized in the first place.
Here’s an example: Reed and his appointees would say The Harrisburg Authority was borrowing money on behalf of another public entity for a stated purpose, then take a facilitator’s fee. The report describes the fees as excessive, in one instance between six and 40 times what other agencies would charge.
They’d go into the special projects fund and often be used for something different than that original stated purpose, like buying artifacts.
The report details how city employees helped Reed move those objects out of City Hall after he lost a re-election bid in 2009. Fifteen boxes made their way into the basement of former Harrisburg Senators board chairman George Mancini.
Investigators say they’ve cataloged about 1,000 objects — many “cluttering” Reed’s house, according to Kane, and kept in his downtown storage space, which also contains what’s described in the report as a shrine of sorts to his 28 years in office (after six in the state House of Representatives).
Reed tried to sell 20 antique firearms in the midst of these raids – tampering with evidence, the state alleges.
Others were auctioned two summers ago to help pay the city’s debt.
Kane says Reed didn’t act alone. The corrupt organizations charges against him involve multiple people, she says, but no one else has been arrested because, investigators say, they are working to make sure they can prove criminality, not mere negligence.
The report names some officials who testified, but not others, and consistently casts doubt on their professed ignorance of financial missteps and proper policy alike.
Kane described Reed as the “mastermind” of a financial “scheme” that developed over two decades.
“Whether it was charm, whether it was ruling with an iron thumb, whether it was people getting things in exchange for votes on issuing debt — all of those may have come into play,” Kane said.
But the report details more: The school district paying more than $1 million to an unnamed lobbying firm tied to Reed. The district also once committed to borrowing $25 million — which would have maxed out its debt load at the time — from RBC (the Royal Bank of Canada) ahead of a state law that would require voter approval for bond issues. The borrowing was arranged by Reed, a bank managing director James Losty, unnamed representatives from Public Financial Management (a firm often retained by the state to fix municipal finances) and former school busineses administrator Bill Gretton.
(School districts, it should be noted, can still change their spending plans with school board approval and without going back to voters.)
The school district later sought state assistance for financial problems through the Commonwealth’s Act 141 program. School officials have since said the issues were overblown due to what were described as bookkeeping errors. But even more recently, the district paid $6.7 million to terminate a swap agreement.
In addition to the school distirct, the report says, the city’s Parking Authority and Redevelopment Authority as well as Harrisburg University were used for conduit financing during Reed’s administration.
The parking authority itself has been phasing out since the city privatized its spaces and meters to help settle its massive debt at the end of 2013.
Even before that, Harrisburg University defaulted on its debt, so Dauphin County taxpayers have been responsible for $1.5 million per year in bond repayments, because County Commissioners agreed to that.
Not that they didn’t negotiate first, according to Kane.
“The city and the county put certain conditions on their backing — about 15 conditions. When the mayor disagreed with some of them, he took it upon himself to offer certain things of value to members of those councils, either the city or the county, to sway their vote in favor of issuing the debt,” she says.
In 2007, the City Council went for its own special projects fund, of sorts, according to the report.
Former Council President Richard House testified that each council member got $200,000 for charitable contributions he says reaped political benefits. And witnesses say city council bargained years before that for so-called “walking around money” to support one of the most disastrous city bond deals in 2003.
House also negotiated a job with the Harrisburg Senators — which the state alleges constitutes bribery in its criminal complaint — in exchange for his support of the 2003 financing linked to an incinerator retrofit.
Eight years prior, one engineer determined the project was unfeasible, and lost his contract when he shared his assessment with Reed.
Kane’s says there will be more charges, even if it means convening another grand jury after this one expires next year.