Environmental officials reduced HRK's mortgage note at Piney Point

jsalman@bradenton.comJuly 24, 2012 

PALMETTO -- Florida taxpayers may be on the hook for nearly $16 million worth of cleanup expenses at Piney Point if troubled HRK Holdings LLC can't emerge from its bankruptcy with a viable revenue source.

HRK has failed to satisfy a number of state maintenance requirements at the former phosphate plant since leaks in the gypsum stack liners last year spilled 170 million gallons of toxic water into Bishop Harbor during a Port Manatee dredging project that went horribly wrong.

With fewer assets than outstanding liabilities, many stakeholders now fear the embattled firm will crumble before the dredging disposal facility is safely shut down -- leaving the door open to more environmental problems in the future.

Clean-up and long-term maintenance at Piney Point have been estimated to tally $15.8 million -- a bill that will come due to the Florida Department of Environmental Protection in May 2013, records obtained by the Bradenton Herald show.

Despite a recession-battered revenue fund projected for shortfalls, that's a tab the Florida Legislature will have to swallow in the state budget if HRK doesn't meet its environmental obligations.

And while state officials wait for the firm's bankruptcy to play out, more questions continue to surface over the DEP's handling of the project.

New documents reveal HRK's mortgage to the state was reduced by $2.6 million after the company promised to take over the DEP's responsibility of draining water out of the gypsum stacks.

But HRK failed to submit a water management plan for the site by its Feb. 1 deadline.

Now those water levels have become dangerously high, and based on typical rainfall projections, the gypsum stacks will exceed their storage capacity by Oct. 1 -- sending highly acidic runoff into Bishop Harbor on Tampa Bay, according to reports obtained by the Herald.

Runoff at a site exposed to high levels of toxins including phosphate, ammonia, phosphorus and nitrogen could ultimately kill fish and aquatic plant life. HRK's current process water storage areas have capacity for about 14 more inches of rainfall, DEP spokeswoman Dee Ann Miller stated in an email Monday to the Herald.

"HRK continues to provide daily monitoring results to Department, and Department staff continue to perform routine inspections of the site to monitor changes in water levels as needed at the site," Miller said in the email.

Piney Point 'a poster child'

The decision to lighten HRK's financial burden is another questionable move made by the agency tasked with environmental oversight in an effort to move the project along.

"The DEP has dropped the ball on this a number of times," said Glenn Compton, director of Manasota 88, an environmental group that has been fighting pollution at Piney Point since the early 1970s.

"This site is the poster child for the environmental problems that can take place with the improper disposal of radioactive materials," Compton told the Herald. "The real concern is the precedent this is setting."

Piney Point is a former phosphate facility purchased by HRK in 2006 for the sole purpose of housing disposal from Port Manatee's Berth 12 dredging project -- the focus of a $200 million decade-long expansion to allow for larger cargo ships.

In May 2011, liners and pipes that housed the dredged material at Piney Point sprung leaks, gushing 2,700 gallons of toxic water a minute into Bishop Harbor on Tampa Bay.

The dredging was completed in October, but the environmental fallout can still be evidenced today, with high levels of ammonia in an on-site drainage ditch and watershed that's still contaminated with dredging sediment, according to the DEP.

HRK filed for Chapter 11 bankruptcy protection in late June over the expenses tied to the disaster.

But Compton questions why the state ever would approve the sale of Piney Point to a limited liability corporation in the first place, given the clear potential risks and the property's bruised history.

A series of Bradenton Herald reports also show the disaster could have been averted had the state stopped the dredging project when a tear was discovered in the liner months before a similar rupture then polluted the harbor. State officials acknowledged they never notified port staff of any previous problems before the toxic spill.

The DEP also never applied a commonly used protective dirt cover on the exterior of the gypsum stack, which could have prevented sun damage that's believed to have contributed to the rips, reports show.

"There was an awful lot of looking the other way," said Jim Mikes, whose company is owed $250,000 by HRK and has followed the project closely. "Nobody really paid attention, and HRK took advantage of it."

Threat 'of great concern'

DEP officials recently ordered HRK to immediately address eight maintenance deficiencies at Piney Point, including damage to structures that were never repaired since the spill.

One of the biggest unanswered concerns is the discharge of untreated storm water.

In a letter dated June 15, the state estimated HRK must reduce water inputs at the site by 153 gallons per minute to avoid exceeding the system's storage capacity by Oct. 1.

That was before Tropical Storm Debby dumped 11 inches of rainfall on North Manatee, with dozens of heavy showers that have since followed.

After contact with potential toxins on the ground, the untreated runoff from a facility like Piney Point could create harmful algae blooms -- killing fish and plant life in Tampa Bay, according to the Florida Sierra Club.

"This is something that should be of great concern to everybody living across Tampa Bay or people who use the bay recreationally in any way," said Frank Jackalone, Florida staff director for the Sierra Club. "If it were a large run-off spill, it could fuel an even bigger algae bloom in the Gulf of Mexico. That would be an even bigger problem."

The current threat is an eerie repeat of another dangerous runoff at the same site. In 2005, the state spent millions of dollars disposing acidic water that pooled atop the waste stacks of the abandoned fertilizer facility. The wastewater was partially treated and released into Bishop Harbor.

But instead of closing the plant down for good, the state approved the sale of Piney Point to HRK a year later, and now it is facing the exact same problem again.

"We will make sure HRK does what it's expected to do at the site," Calvin Alvarez, deputy director of the DEP's water management division, told the Herald last week. "This is HRK's site. We believe they're accountable, and we're going to hold them accountable."

The DEP issued a $3.8 million mortgage with HRK for the development of Piney Point in August 2006 to help transition the former Mulberry Phosphates Inc. processing facility into a storage reservoir for Port Manatee dredging.

But a revised agreement in June 2010 then reduced the promissory note to $1.2 million after HRK agreed to take over the DEP's water drainage responsibility.

An attorney representing HRK told the case judge the only way the debtor will successfully emerge from the bankruptcy will be to sell its way out.

To date, only one land transaction for $5.8 million has been made public. That deal is expected to close later this year.

The proceeds will be split among more than 60 creditors now owed about $21 million by HRK -- including DEP's $1.2 million mortgage. A full disclosure of HRK's assets has not been released.

As part of the initial Piney Point sale, HRK obtained a $1.65 million letter of credit with Regions Bank to meet the state's stopgap financial assurance requirements. Another $15.8 million for the site's long-range care will be due May 1, 2013. That amount is not secured by any HRK assets.

Despite the financial hurdles, HRK CEO Jordan Levy released an email statement to the Herald late Sunday emphasizing the company's commitment to the 675-acre property. He has declined to comment further.

"HRK has worked with the FDEP during the last six weeks to put a plan in place to safeguard the site and surrounding environment, and we are prepared to deal with any potential rain event that may occur in the near-term," Levy said in the statement. "As far as the longer-term water management, HRK is in the process of addressing these activities with the FDEP.

"It's unfortunate for all involved that the site closure did not live up to the expectations or representations made to HRK or our dredging partners, but we are collectively addressing these issues as quickly as possible," Levy continued. "HRK is committed to the property and safeguarding our Manatee County neighbors through prudent water management. We're eager to complete the bankruptcy process so that we may be able to further develop the property."

Josh Salman, Herald business writer, can be reached at 941-745-7095. Follow him on Twitter @JoshSalman.

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