WASHINGTON -- The House Banking Committee plans to hold a hearing next month in New York City to examine whether industrial development bonds always deliver as promised.
The hearing, tentatively set for July 5, will focus on a defaulted $15 million issue for a medical waste incinerator in the Bronx built by a company with alleged ties to organized crime.
Panel members will examine what happens when there is a default on IDBs and the promised jobs and other community benefits fail to materialize, according to a committee statement issued Monday.
"There is some evidence that these bonds are not always a win-win situation for the taxpayer," said the committee, which is chaired by Rep. Henry Gonzalez, D-Tex.
The hearing will zero in on the case of a New York company called Resource Management Technologies Inc. [Remtech], which in 1988 formed a subsidiary called Metro New York Health Waste Processing Inc. Metro then entered into an agreement with Bronx-Lebanon Hospital Center to own and operate a medical waste incinerator in the South Bronx.
The project, originally estimated to cost $9.1 million, secured approval for tax-exempt bond financing from the New York City Industrial Development Agency. Within a year, the cost of the project ballooned to $15.8 million, all of it financed with agency-authorized bonds.
While Metro went on to build the incinerator, it never ran close to full capacity and was cited for repeated violations of city and state pollution standards. In August 1993, Metro filed for bankruptcy and defaulted on the bonds.
The situation was brought to the attention of Gonzalez by Rep. Maurice Hinchey, D-N.Y. He charged in a May letter that Remtech has contracts with two hauling companies that are owned or controlled by individuals from Long Island who have been identified by federal law enforcement officials as members of the Gambino crime family. One of the companies, South Side Carting Company, also loaned Remtech money to help buy the incinerator's machinery and equipment, according to Hinchey.
Even if Metro could reorganize under Chapter 11 to pay off the bonds, there is still evidence that the company misallocated up to $6 million to buy the machinery when it was worth only $1.3 million, Hinchey said. Further, he told Gonzalez, New York agency officials owe an explanation for failing to screen Remtech for ties to organized crime.
Normally, the House Ways and Means Committee has jurisdiction over tax-exempt bonds. However, the Banking Committee asserted its interest under House rules that give the committee jurisdiction over matters relating to community development.