Port, HRK sought state funds to avoid Piney Point legal entanglements

jsalman@bradenton.comNovember 11, 2012 

PALMETTO -- Port Manatee officials and HRK Holdings LLC were discreetly collaborating early this year on an 11th-hour funding plan to avoid the dire financial losses both parties now face in the wake of the toxic spill at Piney Point, records show.

Port Manatee and HRK began drafting a $5.4 million funding request to the Florida Legislature in January to clean up the environmental violations from a port dredging project last year that spilled 170 million gallons of toxic water into Tampa Bay, according to emails obtained by the Herald.

The same documents also show embattled HRK founder and Chairman William "Mickey" F. Harley III was involved directly in discus

sions with the port over Piney Point -- despite a senior ranking Port Manatee official telling the Herald last month that the quasi-government agency had never heard of the man's name when questioned about scars in his business background.

Harley was among just a handful of stakeholders included in the correspondence, which sought to avoid the legal battle that now surrounds the former fertilizer processing facility by seeking $5.4 million from the state's phosphate trust fund.

The Manatee County Commission, which also serves as the Port Authority, did not approve the plan and apparently was never collectively notified of the funding attempt -- a policy decision that should have requires board consent, according to commissioners.

Port officials met in Tallahassee with representatives from HRK and the state Department of Environmental Protection in January, where they vetted the funding concept.

HRK and port staff crafted an eight-page draft proposal that was designed to sidestep any litigation that could arise between the two parties.

The agreement called for sending $3.7 million from the trust fund to the Port Authority to reimburse claims by the dredging contractor, $1 million to HRK to assist with immediate repairs and another $700,000 for HRK to use on any future clean up at the site.

Although it gained early support from the DEP, the $5.4 million proposal never made its way to the state's annual legislative session in March -- in part because it never won Gov. Rick Scott's support.

Harley directly involved

A string of emails detailing the proposal were circulated in February between Harley, HRK CEO Jordan Levy, Port Manatee Executive Director Carlos Buqueras and the port's Chief Financial Officer Bob Armstrong.

Harley, an original founder of HRK who still controls company decisions, now faces lawsuits claiming he defrauded investors -- including a charity -- of millions to fund his business operations.

Port officials confirmed they never looked into Harley's background before agreeing to do business with his startup company on a deal to use Piney Point as a storage site for their dredging project.

Steve Tyndal, the port's senior director of trade development and special projects, said in October that port administration had never worked with Harley during meetings planning the project.

"We don't even know the name," Tyndal said last month. "There's no recollection from anyone on staff having interactions involving him."

Tyndal stood by those statements last week, saying he never realized Harley was directly included in talks with the port until a public records request by the Herald revealed otherwise.

"We had never heard of the name," Tyndal said again Thursday.

Buqueras was traveling in Spain last week and could not be reached.

But Armstrong, who was included in the emails and helped guide the Piney Point project from the beginning, said Thursday he knew of Harley's name and role with HRK possibly as far back as a year ago.

Armstrong did not know why Tyndal said anything different.

"I knew the name and knew of his role with the company, but I couldn't pick him out of a lineup," Armstrong said.

Harley financed operations at Piney Point and other business interests with an offshore investment fund supported in part by a charity, court records show. The New York financier is now facing a federal lawsuit from the Claude Worthington Benedum Foundation, a massive Pittsburgh nonprofit that claims he defrauded it of $2 million.

Harley has since turned the fund holding Benedum's investment into the Arsenal Group, which has provided hundreds of thousands of dollars in stopgap loans to keep HRK operating through its Chapter 11 bankruptcy, according to court documents.

Harley testified in July before a bankruptcy trustee representing the federal government that Arsenal lent $2.8 million to HRK for operations at Piney Point. Plans for repayment were stymied by the toxic spill, bankruptcy records show.

The Benedum Foundation believes the account that ultimately became Arsenal at one time held upwards of $108 million, with the nonprofit as one of the smaller investors.

Other financiers of the fund also have come forward with similar lawsuits -- leaving mounting questions over whether Harley was spending those funds ethically, or even legally.

Those who had close business relationships with the port say Harley's name was used frequently in private port meetings. In fact, his financial background spurred a lively discuss among port executives -- including Tyndal -- at a holiday party in December 2009, said Jim Mikes, who was working with the port at the time on a railroad project.

Mikes is now legally pursuing Harley over a $500,000 escrow payment to HRK that reportedly was never reimbursed.

"There is no question the port knew who Harley was," Mikes told the Herald last week. "His name was tossed around all of the time over there."

Proposal falls apart

Before HRK filed bankruptcy over the costs tied to the spill, the embattled firm was working with both the port and DEP in an attempt to use public funds to clean up the mess that remains.

The two parties had proposed allocating $5.4 million from the state's phosphate management fund, designed to fix environmental issues that could stem from the fertilizer industry.

The fund now holds $10.2 million, which cannot be spent without an appropriation from the Legislature.

The concept, first pitched by HRK, would have allowed the crumbling company and the port to mitigate its losses without a courtroom.

DEP Secretary Jeff Littlejohn initially supported the plan following a January meeting with the port and HRK in Tallahassee.

At some point, however, the talks fell apart -- in part because state officials did not want to approve funding that was slated for a "private entity" like HRK, emails show.

"My sense is our only option would be to engage in a lobbyist with or without DEP support," Levy wrote in one of the emails. "It is not that the DEP is against this, they just can't publicly support it if the governor doesn't."

The DEP declined to provide any insight as to why the proposal was pulled before the legislative session. The agency also would not say why it changed its position.

"The Department was approached by HRK earlier this year to spend money from the Non-mandatory Land Reclamation Trust Fund to fund activities at the Piney Point facility," DEP spokesman Patrick Gillespie said in an email statement. "As the owner of the site, HRK must fulfill its obligations to address outstanding violations by using financial sources available to it."

Gillespie declined to comment further.

Although port officials were actively involved in the negotiations, the proposal was never brought before the Port Authority, which is required to grant approval on all policy issues, like outside funding requests, according to Commissioner Carol Whitmore .

"I have never heard anything about this," County Commissioner and Port Authority Chairman Larry Bustle said. "It's new to me."

Whitmore also said the idea was never brought to the board's attention, which should have been done given the nature of the issue, she said.

But Commissioner Joe McClash, voted out of office this year, said he remembers being briefed on the $5.4 million funding idea during a private meeting with port staff. He supported the concept as a way to avoid the legal entanglements that now surround the dredging project.

"I don't think it (this proposal) was hidden from the public," McClash said. "It was something that made sense."

Port staff members say they never brought the option to the board because they were still doing the legwork and a decision was not ready to be made on the proposal.

But even in those situations, staff is encouraged to seek direction from commissioners before proceeding, Whitmore said.

"It never came to the board -- and I would remember something like that," she said. "That's a policy issue, and we should have heard about it."

The Manatee Port Authority unanimously agreed in January on a $3.3 million principal settlement with Great Lakes Dredge & Dock, the project's dredging contractor. The deal will send Great Lakes seven interest-free payments totaling $3.284 million over a 30-month term for the company's alleged financial losses.

Saga continues

Piney Point is a former phosphate facility purchased by HRK in 2006 to serve as disposal grounds for Port Manatee's Berth 12 dredging project, the focus of a $200 million decade-long expansion to accommodate larger cargo ships.

It was the first time abandoned phosphate gypsum stacks had ever been reused for another purpose. The results weren't what many had hoped.

In May 2011, the pipes and liners housing the dredged material sprung leaks, sending 2,700 gallons of polluted water a minute gushing into Bishop Harbor on the southern lip of Tampa Bay.

That water is considered toxic from its exposure to highly radioactive phosphate waste including ammonia, phosphorus and nitrogen -- all of which have been known to trigger algae blooms that can become deadly for aquatic wildlife.

A series of Bradenton Herald reports show the spill could have been averted had the state stopped the project when a tear was discovered in the liner months before a similar rupture polluted the harbor.

HRK and state officials never notified port staff of any previous problems before the disaster, the DEP confirmed.

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

"It was like the perfect storm," Armstrong said. "The DEP told us it (Piney Point) was the Cadillac of disposal sites. Ardaman (the third-party engineer) said the structure was sound and nothing could go wrong. What could we have done different?"

Uncertainty for the future

Since Mulberry Phosphates abandoned the fertilizer processing facility in 2001, the state has spent more than $143 million in taxpayer money trying to close Piney Point.

State lawmakers that represent the area say they never were approached about the $5.4 million proposal, but given the mess Piney Point has caused, they were surprised to learn the measure didn't go before them.

At least $15.8 million worth of cleanup will fall again on taxpayers if the embattled firm crumbles before May 1, records show.

"I would have been all over it," said outgoing Sen. Mike Bennett, R-Bradenton. "If I can get $5 million for rowing, I can get $5 million for the port, especially given what happened and the governor's support of the port system."

HRK still has not filed a suitable management plan for the Piney Point property, and the DEP was forced to take emergency steps in August to prevent the stacks from overflowing, which could have sent at least another 13 million cubic yards of tainted water into the harbor, DEP records show.

The DEP has ordered the embattled firm to immediately address eight deficiencies ranging from high levels of ammonia in a drainage ditch to watershed that's still contaminated with dredging sediment, according to the DEP.

The only funds identified by HRK to ease those concerns is a $2.5 million loan from Regions Bank, which cannot be released until the Piney Point land sale closes -- perhaps later this month.

Environmental advocacy groups believe the DEP also should accept responsibility for the spill and the agency's questionable oversight -- including issuing the dredging permit, reducing HRK's financial liability by $2.6 million, and approving the contractors that may have done faulty work on the stacks.

But the state sent a letter in late October to ManaSota-88 declining the environmental organization's request for further investigation.

"This certainly is the poster child for what can go wrong with phosphate gypsum stacks," ManaSota-88 Chairman Glenn Compton said. "It shows there's very little oversight going on."

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

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