May 13-19, 2004

cover story

Phoenix Falling

Then and Now: Phoenix Farms, with a translucent polycarbonate greenhouse that glistened when lit at night in West Philly, was built upon lofty dreams. Harsh realities, however, have left a filthy swamp and dirt tracts where green plants once thrived. Photo By: Michael T. Regan

Why City Consumer Affairs Director Lance Haver's Utopian Urban Farm could soon disappear … along with $1 million in public funds.

by Bruce Schimmel

Phoenix Foods was a vision of urban renewal that nearly everyone adored -- activists, ecologists, politicians and bureaucrats. With a space-age greenhouse built on an urban brown field, Phoenix was touted to be energy efficient and ecologically sensitive. The basil and fish farm would supply the city’s market with the freshest of herbs and live tilapia fish.

A private enterprise, Phoenix also promised neighborhood jobs with fair wages and good benefits. From its oily abandoned railroad siding, new life would flow into a nearby decrepit Victorian-era neighborhood along Fairmount Park.

The man with this vision was Lance Haver, the perennially noisy mouthpiece of the Consumer Education and Protective Association. Haver left CEPA, a consumer group that is now defunct, after 20 years to start Phoenix Foods.

But by the time Haver departed to head John Street's Office of Consumer Affairs last September, the fledgling enterprise had consumed almost $2 million. By this spring, creditors quietly began foreclosure to recover almost $1 million of public support that was put into the utopian project, which could soon be replaced by a strip mall.

It was a quiet closing as Phoenix's failure was an embarrassment to many. Word of its demise failed to reach some of Phoenix most ardent admirers like former television consumer reporter Orien Reid, who now does public relations for ShopRite supermarkets.

"I was in [a ShopRite market] two months ago, and saw the product [basil], and I got such a warm feeling," says Reid.

When told Phoenix had by then stopped shipping, Reid said she was shocked that Haver's dream had failed. Just last summer, Reid says, she tried to put together a basil-distribution deal for Haver. "I was impressed and asked him if there was anything I could do," she says. "I just thought that the product [fresh basil] is so good."

Green Thumb: At 5 a.m., Haver cuts basil that will arrive in markets in the Delaware Valley in a matter of hours. Photo By: Michael T. Regan

Jean MacKenzie, produce coordinator for Weaver's Way in Mt. Airy, also raved about the basil. "What we found was a great product at a great price," she says. "Our shoppers loved it. By the time it got to us, it was only six hours out of its growing tank."

Phoenix Foods was once very lovely to behold. Lit at night, the translucent polycarbonate greenhouse, with its 20,000 square feet of bubbling water, glistened like a crystal palace. On a recent sunny spring day, a former worker, Will Maus, showed off what has become of the farm.

The greenhouse now shelters clogged waterways that are becoming a filthy swamp. Its half acre of water tanks is choked with basil in various states of decay. Yellowing plants float by on blue Styrofoam rafts. Flip the rafts over, and you'll see that the roots of the plants are gone.

The tilipia in the tanks -- originally intended to groom bugs from the basil's roots -- are starving to the point that they're devouring the roots, sheering them flat.

Though it's warm today, a new, massive oil heater continues to crank full blast. It apparently runs around the clock, because there's no one here with either the authority or the know-how to turn it off.

Amidst the wreckage, Maus declares, "I'm not going to let this turn into a mosquito farm."

Now unemployed, Maus maxed out his personal credit card in the Phoenix's waning days to keep the farm afloat.

Following Maus around is a big, black watchdog named Zelda -- too friendly ever to have provided much protection -- who has luckily found a new home on an organic farm outside of Harrisburg.

Phoenix Farm was, for a brief time, a model of agricultural, industrial, financial and social engineering. Designed not just as a prototypical urban farm, it was also engineered to be a state-of-the-art energy transfer station.

As a cogeneration facility, the heat, light, water temperature, gas and electric power used to run the farm would be essentially interchangeable. So in addition to selling the fresh herbs and fish, Phoenix would also sell its excess energy back to the power grid, in theory, at a profit.

Financed in large part by public funds, this exemplary enterprise would be owned primarily by workers who lived nearby, a harbinger of a tech-savvy urban renewal.

Phoenix sits on a sooty slice of land sandwiched between Fairmount Park and lanes of railroad tracks -- an abandoned rail yard that dragged the neighborhood down.

No parcels have been sold in this federal Empowerment and Keystone Opportunity Zone since Phoenix bought its two acres four years ago, and none has been sold since. There's been talk, though, of siting several businesses, but there's nothing actively in play for this stretch of real estate that's called "Tax Break Park." Tax breaks indeed.

In putting together Phoenix's financing, Haver demonstrated a spectacular faculty for attracting great blocks of public funds. He assembled a $1.7 million financing package by scoring a bureaucra tic trifecta of tax breaks, energy subsidies and low-cost government loans. About $1 million in various public discounts, grants and foundation funds were matched by more than $800,000 in private investments. Haver himself estimates he invested about $15,000 in personal funds. Ironically, some of the public funds and support came from the very institutions that Haver once attacked as a consumer activist:

• From PGW came below-market-priced natural gas

• From Exelon came $100,000 in generating equipment

• From the Philadelphia Industrial Development Corporation (PIDC) came deeply discounted land

• From West Philadelphia Financial Services Institution (WPFSI), a federally funded Empowerment Zone lender, came $300,000

• From the state Department of Community and Economic Development (DCED) arrived another loan of $200,000

• From one of Haver's favorite targets, PECO, came more money, though its path was circuitous. State Sen. Vincent Fumo's Delaware Valley Regional Economic Development Fund came up with $250,000 for Phoenix. Half of the money was an investment, the other half a loan. That quarter million was part of what is now more than a $7 million consumer-settlement deal with PECO that Haver helped to bring about.

Now, with Phoenix collapsing, these various agencies are moving in to recoup their losses -- even though there appears to be little left of value. How much Haver, now the city’s consumer affairs director, will have to repay out of his own pocket, is still to be determined.

The sky began to fall around the Phoenix enterprise on Jan. 17, 2003, when PGW abruptly shut off its gas. With its access to gas cut off, Phoenix didn’t have enough energy to power the farm’s hi-tech cycle of natural gas to agriculture crops to cogen cash. What PGW did was totally legal, even anticipated. In order to qualify for special, very low rates as a cogeneration customer, Haver had agreed that PGW could interrupt his supply at their discretion.

"We figured that we'd have to be down three, four days tops, at a time," says Haver, adding that he counted on getting sufficient heat from three sources -- auxiliary heating fans, an insulated greenhouse and the huge reservoir of warm water in which the plants and fish lived -- to tide his operation through the cold.

But as wintry days stretched into weeks and Haver came in day after day, PGW still had no gas for Phoenix. What's worse, says Haver, is that the utility couldn't -- or wouldn't -- say when it would be turned on again.

As the basil withered in the cold, supply contracts with wholesale produce distributors had to be finagled.

The January outage stretched into February. By the time the heat came back in the middle of March, the basil was frozen and the sale contracts had been breached. The farm's reputation was ruined.

"I don't fault PGW for these decisions," says Haver. "It's unfortunate that the national energy policy created a quadrupling of prices at the wellhead."

If there was a fatal technical flaw in Haver's plan, this might have been it: Haver says Phoenix Farms was built on that economic-engine theory of re-marketing natural gas through cogeneration, which seemed like a great source at the time.

sign, sealed, Shuttered?: Phoenix Farms' future looks rather dim these days but there's talk of a revival. Photo By: Michael T. Regan

In all of 2002, the year before Phoenix came online, the utility company never once had to shut down service to its cogen customers. But according to PGW spokesperson Patricia Cole, shortages in the gas market did force PGW to shut off its cogen clients for a stretch of 42 days the previous year. From Dec. 5, 2000, to Feb. 1, 2001, the utility interrupted its cogen customers -- a fact that Haver now says he cannot remember having been aware of.

"If I had known that, I would have used another model to heat the greenhouse. I would have used oil," says Haver. "In theory, it was doable without cogen, but it didn't make much sense without it. The reason we used natural gas was to promote economic growth in the city [since the city sells natural gas]."

From Dec. 5, 2003, to Feb. 26 of this year, PGW again cut Phoenix's supply. But by then, Haver had already left Phoenix Foods to join the Street administration, a position he thought would enable him to help people throughout the city.

The task of pulling the plug on Phoenix fell, in late March, to James Burnett. Burnett is executive director of WPFSI, a community investment bank chartered to make low-cost loans to business in the West Philadelphia Empowerment Zone. In 2003, it was funded with $980,127 in federal tax dollars that are funneled through Philadelphia city agencies.

"[Phoenix Foods] was a fantastic idea," says Burnett. "The concept was wonderful -- empowering people, giving ownership and making them a part of this business. And Lance … we bought into him."

In fact, Burnett bet $300,000 on Haver, which is a bundle for WPFSI.

According to Burnett, WPFSI currently has 20 loans with a total value of $2.4 million in its portfolio. But of those assets, nearly $1.7 million represents vacant land. According to its most recent audit, WPSI was holding just $732,912 in business loans in 2003. So, the $300,000 that Burnett lent Haver represents a substantial percentage of all WPFSI's interest-bearing loans on the street.

By late April, Burnett estimates that Phoenix still owed WPFSI about $284,000. The company is in arrears for $42,000, says Burnett, and there have been no payments since last September, the time of Haver's departure.

Asked why he thought Phoenix failed -- to be successful, they would have had to sell $600,000 of basil annually -- Burnett offers, "They didn't sell enough basil. I'm not sure why. They were not able to generate enough business in terms of distribution to major outlets. They also told me about the cogeneration problem. "

Haver admits production had crashed and his clients were disheartened, but offers another reason why Burnett was ready to foreclose on the loan in mid-March.

"I suspect that [WPFSI] had another use for the land," says Haver.

Around the same time that Burnett pulled Phoenix's loan, the Daily News was reporting that there was so much interest in the land under and around the greenhouse that there wouldn't be enough space even if Phoenix, small nearby businesses and a Verizon service center were moved to another location.

Potential clients included a Lowe's Home Improvement Center, a supermarket, a mushroom factory and even a church.

Many of these new industries might mean, for Burnett, an opportunity to offer other federally funded loans, thereby replacing the loan to the failing basil farm and augmenting WPFSI's modest portfolio.

Burnett confirms that "we are developing a 300,000-square-foot shopping center, about 30 acres, the whole area from 52nd to 50th [streets], along the tracks. But not as far down [as Phoenix], though we may have. Then, we determined that we did not [need that land]."

At present, though, there appears to be little going on. Burnett confirms that there is no "active interest" in developing the land.

But Haver, Will Maus and Frank Viola, who represents some of Phoenix's private investors, believe that Burnett had essentially given up on the project after Haver left.

And among those who are questioning Burnett's moves is Michael Derro who some think might have been Phoenix's best last chance, and who -- says Derro -- Burnett all but ignored.

Yes, Derro may well have been what Phoenix needed last September, with its contracts in shambles and the departure of Haver. But by April, Burnett was unconvinced the company could be saved.

"You can always have a white knight that comes in and looks good after the fact," says Burnett of Derro's plans to save Phoenix.

At 45 years old, Derro says he’s been "a produce man since about I was 13." He estimates that he currently sells about $10 million a year in fresh flowers, plants and herbs from growers to retail garden stores and food markets. As a veteran salesman, Derro says he’s confident he’s "in a position to rep [Phoenix] well."

Seeing the model urban farm for the first time last October, Derro remembers both his delight and dismay.

"[Phoenix] was a dog that just didn't hunt," he says. "It had a beautiful green [farm], a great location, utilities, good product, an opportunity to be competitive, to make some money.

"They were able to grow [the basil], but they didn't know distribution and sales," which is where Derro says he excels.

The private investors, according to Viola of Murex Investments, a consortium of private investors interested in social issues, saw an opportunity to revive the company, even as Haver was leaving for his city job, an appointment he considered a tremendous opportunity to help a lot of people. (His current project involves keeping the price of milk down.)

To address the natural-gas shortfall, Phoenix's private investors installed a new oil furnace to supplement the natural gas burner last fall. With the furnace in place and an extensive business plan in hand, Derro went to WPFSI.

"We had four meetings but he basically blew me off," says Derro. "He never gave me the respect of the total reason why he didn't take the deal. He never once told me if he liked it or didn't like it. He asked about moving Phoenix [to another site], and when I asked for a plot plan, he never got back to me.

"I know they wanted this piece of ground [under Phoenix] because it would be valuable to the big-box [Lowe's] project. I was the pawn to be moved from point A to point B. I think he had another agenda."

For his part, Burnett says that he did consider Derro's deal, but determined that the terms were unreasonable. Derro wanted Burnett to take the $300,000 loan and turn it into an investment. WPFSI would have then become an owner, but would have lost any claim to the assets should the business fail.

"Do we need to put more money into this thing?" Burnett remembers asking himself. "This literally could begin to stink."

With the departure of Haver, and having not been paid in months, Burnett had had enough.

"If we were a [commercial] bank, it would not have lasted as long as it lasted," he says. "But we have to, at some point, [figure out] how do we get our money back."

Getting their money back is now apparently on the minds of some Phoenix creditors, though aside from WPFSI's Burnett, institutions who furnished Phoenix public funds seem reluctant to go on record.

In addition to the $300,000 from WPFSI, Haver also got a loan of $200,000 from the Pennsylvania Department of Community and Economic Development (DCED). In late April, spokesman Kevin Ortiz confirmed that Phoenix was in default. Asked if DCED was going to try and collect, Ortiz promised an answer, but did not return several calls and e-mails.

BEST INTENTIONS: In a photo taken two years ago, Haver carted boxes of basil off the farm for a delivery. Today, the building's grounds sit in shambles. Photo By: Michael T. Regan

Fumo's Delaware Valley Regional Economic Development Fund (DVREDF), which invested $125,000 and lent Phoenix $125,000, seemed even more circumspect. Three phone calls and a detailed e-mail to Fumo's spokesperson, Gary Tuma, yielded no response for the record.

But Murex's Viola reports that he did receive a recent letter from attorneys representing DVREDF. Their letter suggests that they are aware of Phoenix's demise.

Upon Phoenix's closing, says Viola, the $800,000 that Murex put in is gone. As owners, equity money is not secured by assets, such as equipment or land.

First in line of those who are likely to get something is the DCED. Their $200,000 was secured by the two acres under the greenhouse, which if WSPFI's "big box" deal ever goes through, could be worth something. Citing unnamed sources, the Daily News reported in March that PIDC is asking $400,000 a acre, but that there have been no takers.

Second in line is WSPFI. Their $300,000 was secured by the greenhouse, the equipment and the heating units. As salvage, Burnett's believes he'll be lucky to see $150,000.

Last in line is DVREDF. Their ownership (equity) investment of $125,000 is gone. Their $125,000 loan, like other creditors, is secured in some part by Haver's personal assets.

Although Haver personal assets -- he co-owns a piece of property with family members -- are also listed as security for these loans, it's unclear whether, in fact, any of the above lenders will attempt to move against Haver himself.

Asked if he thinks they will, Haver did not rule out the possibility of having to declare bankruptcy. But, he adds, "If the land [under and around Phoenix] is worth what some people way it's worth, then everyone will get their money back."

What Haver will never get back are the bragging rights he sought when he started Phoenix Foods. He quit public advocacy for Phoenix to prove that what he'd been haranguing the business community for 20 years to do was actually doable.

Haver wanted to show the world that you could have a worker-owned business that paid fair wages, benefited the community, made a healthy product and did it all in the an ecologically sensitive way. Now, he's just openly contrite.

"It's very sad and I want to apologize to all the people who believed in me for not pulling it off," he says. "I feel bad that people look bad -- like Fumo -- for believing in me." Regardless, the public dollars that Haver has fought for as a city consumer advocate will likely be used to cover the cost of his errors. Still, the one thing that could keep him out of debt would be the success of a big-box, corporate-owned shopping mall that offers many dead-end jobs. Which is exactly the kind of business that Lance Haver has for so long, and so publicly, despised.

But Phoenix's white knight, apparently, does not want to give up. At the end of April -- after a second round of interviews for this article -- produce man Derro sent one last e-mail to Burnett. This time, just as this article was first scheduled for publication, Burnett was willing to listen.

Derro proposed a new deal that got Burnett's attention. Instead of buying the business, Derro offered to lease the facility -- which for Burnett would be a far more attractive prospect than selling the equipment for scrap.

"We're still pulling the plug on the current ownership," says Burnett, "but right now we'd like to have somebody in the property" if only to protect its assets.

Both Burnett and Derro confirm that dollars were not discussed, just concepts. And standing in the way of any deal is DCED, the state agency first in line for Phoenix's assets.

Burnett says he has met with DCED to ask them for some breathing room, but has yet to get the go-ahead. DCED's Ortiz confirms that there have been discussions.

"We are reviewing our options. Basically, Derro has expressed an interest in taking over. We are looking at our options and we cannot give a timeline when a decision will be made," he says. When asked how long it would take for a decision, Ortiz replied, "It's still unclear."

Meanwhile, the weather -- this time, too much heat -- could once again be Phoenix's undoing.

"My concern is that you get a really hot day," says Derro. With no electricity to circulate the air, "you could run into some health problems" for fish as the greenhouse temperature climbs past 140 degrees.

The reason for the delay, Derro speculates, is DCED's lethargic bureaucracy which is further slowed by politics. Given Haver's prominence, "it's a political web and for now everyone's concerned about doing things right."

Whether Derro ever takes over or not, Burnett says he's not going to let Haver off the hook.

"You have someone who's defaulted on a loan, and so you go through a foreclosure," says Burnett, "and we're trying to collect our money any way we can. In spite of everything, I like Lance and I want to keep everything as civil as possible. It makes life easier. But I'm going to do what I can to collect the money from Lance -- absolutely."

Meanwhile, Burnett waits at the gates, hoping to get in before the sun turns the Phoenix basil and fish farm into a half acre cauldron of hot-and-sour soup.

"I'd really like to get in there," says Burnett, "but for now my hands are tied."