Sen. Blake Hears Pros, Cons of Bills to Improve State Oversight of Muni Financial Deals

HARRISBURG, Sept. 9, 2013 – Officials representing school districts, associations, public finance firms and the City of Philadelphia pressed state Sen. John Blake and members of the Senate Local Government Committee today to tread carefully on legislation designed to better safeguard local governments venturing into complicated financial deals with taxpayer dollars.

The hearing followed similar recent public meetings that emphasized the need for better state oversight of municipal financial deals, especially those involving interest rate management agreements, or swaps.

Blake (D-Lackawanna/Luzerne/Monroe) introduced Senate Bill 902 in May as part of a package of bills that would better shield school districts and municipalities from bad deals that could – and have – cost taxpayers millions of dollars.

“There remains exposure to the Pennsylvania taxpayer if we don’t do something here,” Blake said. “And that’s what prompts the legislation that is before you. We need to ensure greater transparency and accountability when local governments or local municipal authorities incur debt that is to be paid off by taxpayers.”

SB 902 would allow the State Ethics Commission to investigate alleged ethical violations by people involved in municipal financial transactions. The Ethics Commission does not have this jurisdiction today.  It would further require that any debt incurred by a municipal authority be used solely for the public purposes intended at the time of the borrowing.

School districts and local governments throughout the state have been tied up in more than $17 billion in swaps deals between 2003 and last year.

While some swaps deals benefitted a number of local school districts and municipal authorities, Blake said the problem is some of these deals have not turned out well for taxpayers. Or, the deals impose refinancing difficulties because they inhibit local organizations from exiting them.

“Disentanglement is the word,” Blake said. “When local leaders try to get out of past deals they can get stuck, and it can end up costing taxpayers millions more on the way out than it cost them on the way in.”

Sen. Blake noted the testimony of former state Auditor General Jack Wagner, who said he believes swaps “are nothing more than a form of gambling with public funds,” and the differences between the Bethlehem Area and the Great Valley school districts.

Former Bethlehem School Board Vice President Judith Dexter said swaps “almost bankrupted” the school district while Great Valley Director of Business Affairs Charles Linderman said swaps have helped his district pay for important projects and have “resulted in a positive cash flow for the district.”

“With regard to the reforms suggested on local government debt and swaps, we need to consider all the testimony received today and get this right. We need to ensure capital markets can meet the needs of local governments while not exposing taxpayers to unnecessary risks and costs,” Blake said.

Blake’s SB 902 is part of a package of bipartisan bills proposed by Sens. Rob Teplitz (D-Dauphin), John Eichelberger (R-Bedford) and Mike Folmer (R-Lebanon).

###

Senate Democrats: New Economic Development Plan Excludes Certain Municipalities

HARRISBURG, July 1, 2013 — Senate Democrats today decried a Senate Republican-led measure to deprive municipalities of a unique opportunity to drive local investment and revitalize underdeveloped areas.

A proposal that was amended into the Tax Code bill associated with the 2013-‘14 state budget (House Bill 465) authorizes City Revitalization and Improvement Zones (CRIZ) for eight third-class cities with populations above 30,000.

CRIZ designations would enable new investment in local economies by redeveloping eligible vacant, blighted and/or abandoned properties for commercial, exhibition, hospitality, conference, retail community or other mixed-use purposes.

However, the measure, approved on a party-line vote, excludes 45 of the state’s 53 third-class cities as well as the City of Scranton.

Sen. John Blake (Lackawanna/Luzerne/Monroe) attempted to amend the CRIZ legislation in the Senate Appropriations Committee to include all third class and 2A cities in the program.

Blake said City Revitalization and Improvement Zones impose virtually no cost for the state, is limited in scope to two designations per year and provides strict controls and reviews to ensure proper implementation. Additionally, Blake said the annual CRIZ designations would be approved by the governor’s Budget Office, the Department of Revenue and the Department of Community and Economic Development.

The senator added that he believes the limitation on cities’ participation in the program was arbitrary – preventing an equitable playing field where all of Pennsylvania’s small cities could compete in a merit selection process. Blake’s amendment failed, again, on a party line vote.

Sen. Rob Teplitz (Dauphin/York) said the Republicans’ plan to exclude Harrisburg, despite the city being within the population parameters for inclusion in the program, was a shameful tactic that deprives it of an opportunity to compete for assistance through the program.

Sen. Jim Brewster (Allegheny/Westmoreland) said the CRIZ program has the potential to do more.

“There is a great need to generate economic activity and jobs in all third class cities, and a selected few should not be favored above others,” Brewster said. “Economically struggling cities in my district should have access to funding tools to help them create jobs.

“All cities should have a chance to participate and compete fairly,” Brewster said. “The program should be inclusive and tax dollars should not be doled out based on politics.”

Sen. John Wozniak (Cambria/Centre/Clearfield), who has been working with a bi-partisan Third Class City Caucus, said the legislation should have given preference to Act 47 (financially distressed) municipalities.

The Senate Democrats agreed to return in this fall to work on expanding the CRIZ program statewide to all of Pennsylvania’s small cities.

 

###

Media Contacts:

Mark Shade (Sen. Blake) – 717-787-9220 or mshade@pasenate.com

Elizabeth Rementer (Sen. Teplitz) – 717-787-5166 or erementer@pasenate.com

Tim Joyce (Sen. Brewster) – 412-380-2242 or TJOYCE@pasenate.com

Blake, Eichelberger Taxpayer Protection Bills Clear Committee

HARRISBURG, June 26, 2013 Legislation to protect Pennsylvania’s taxpayers from irresponsible financial transactions by local governments or their related municipal authorities moved one step closer to becoming law today.

Sens. John Blake (D-Lackawanna/Luzerne/Monroe) and John H. Eichelberger Jr. (R-Bedford/Blair/Huntingdon/Fulton/Mifflin) today had two bills of a four-bill municipal debt reform package pass the Senate Local Government Committee, of which Eichelberger is the chairman and Blake is a member. The committee unanimously passed both bills that will now start to move through the legislative process.

Senate Bill 901 grants greater oversight of municipal borrowing processes to the PA Department of Community and Economic Development (DCED). It would also limit local government guarantees of bonds and loans taken out by municipal authorities, and prohibit the charging of fees for those guarantees.

Senate Bill 902 would give the state Ethics Commission and other law enforcement officials the power to investigate circumstances of conflict of interest if local officials are found to have benefitted personally from decisions they made in an official capacity involving public funds. It would also require that proceeds from borrowings carried out by local municipal authorities not be used for purposes unrelated to the project for which the debt was incurred.

“We moved one step closer today to providing needed taxpayer protections and improved oversight on local government financing deals,” said Blake, the prime sponsor of SB 902.

“These bills need to be signed into law to correct flaws or omissions in previous laws and to ensure Pennsylvania’s local government officials are properly accountable to the taxpayers and ratepayers they serve. In addition, SB 901 will ensure that DCED is better positioned — and resourced — to monitor and approve financial transactions that occur to advance the public interest and to meet the needs of our local communities,” Eichelberger said.

The lawmakers have been working with Local Government Committee Democratic Chairman Sen. Rob Teplitz (D-Dauphin) as well as with Sen. Mike Folmer (R-Berks/Chester/Dauphin/Lancaster/Lebanon) on a package of reform proposals that resulted from hearings last fall on the Harrisburg incinerator financing debacle that undermined the fiscal security of the City of Harrisburg. Additional bills authored by Teplitz and Folmer involving so called “swap” transactions by local governments and local municipal authorities will be the subject of additional hearings later this year.

“Today’s votes on SB 901 and SB 902 demonstrated strong bi-partisan support, and we will continue to work together to ensure the entire four-bill reform package gets to the governor’s desk,” Eichelberger said.

 

###

 Contacts:

 Mark Shade (Sen. Blake) – 717-787-9220 or mshade@pasenate.com

Lee Derr (Sen. Eichelberger) – 717-787-5490 or lderr@pasen.gov

Lawmakers Announce Plan for Improved Oversight of Municipal Financial Deals

The bills would prevent financial debacles like the Harrisburg incinerator project

HARRISBURG, May 8, 2013 — As municipalities across the state struggle to clear debts caused by risky borrowing, four state lawmakers have introduced a bipartisan package of bills that would help provide better state oversight of municipal financing deals.

State Sens. Rob Teplitz, John Eichelberger, John Blake and Mike Folmer introduced their legislative package today at the Harrisburg incinerator, which stands at the heart of the city’s current fiscal woes and also inspired the legislation.

[hdvideo id=61 ]

“Residents across the Harrisburg region are now on the hook to pay for an incinerator project that, despite multiple setbacks, kept moving forward thanks to a tangled web of risky deals that simply went unmonitored,” said Teplitz (D-Dauphin, York), the new Democratic chairman of the Senate Local Government Committee. “Municipalities across Pennsylvania can learn a valuable lesson from Harrisburg’s financial fiasco, and this legislative package will help prevent other taxpayers from suffering the same consequences.”

Two state Senate Local Government Committee hearings conducted last fall revealed insufficient oversight of the deal to modernize and expand Harrisburg’s incinerator. The infrastructure project has cost the city $370 million — a debt that continues to grow.

“Through our hearings, we’ve learned about the deficiencies in our current process that allowed the Harrisburg situation to occur,” said Eichelberger (R-Bedford, Blair, Fulton, Huntingdon, Mifflin), the Republican chairman of the Senate Local Government Committee who oversaw the hearings. “If our legislation is passed into law, this reckless behavior will never be repeated.”

Eichelberger’s measure would make several reforms to the Local Government Unit Debt Act, including limiting local government guarantees of municipal authority borrowings, eliminating the ability to charge a fee for issuing a guarantee, and giving the state Department of Community and Economic Development (DCED) greater authority over the borrowing processes of local government units.

Blake’s measure allows the State Ethics Commission to investigate alleged ethical violations by individuals involved in financial transactions by municipal authorities. Currently, the Ethics Commission does not have this jurisdiction. If ethical violations are found, they would be considered a violation of the state Public Official and Employee Ethics Act and those individuals would be subject to the scrutiny of the Ethics Commission, district attorney, or the Office of Attorney General.

“Bi-partisan work on legislation informed by public testimony and integrating divergent views and interests often serves our citizens best. I am very proud to have successfully concluded important work with my colleagues Senators Eichelberger, Folmer and Teplitz on a package of local government bills that will protect the public’s interests; improve transparency and accountability; and ensure ethical conduct in processes related to local government debt issuances,” said Blake (D-Lackawanna, Luzerne, Monroe), the former Democratic chairman of the Senate Local Government Committee who helped lead the public hearings conducted last fall. “My bill will grant jurisdiction to the PA State Ethics Commission to investigate and take appropriate actions in the case of allegations of conflict of interest by officers or other public officials related to the activities of municipal authorities throughout the commonwealth and further will prohibit the use of proceeds obtained in debt issuances by such authorities for any purpose unrelated to the project for which the debt was incurred.”

Folmer’s measure bans the use of qualified interest rate management agreements, or so-called municipal “swaps,” for municipalities encompassed in the Local Government Unit Debt Act (LGUDA), such as local governments, school districts and municipal authorities.

These risky and complicated swaps have cost Pennsylvania taxpayers billions of dollars. From October 2003 to September 2012, 108 of 500 school districts — a shocking 22 percent — and 105 local government units had $17.25 billion in public debt tied to swaps, according to DCED. There have been nearly 800 swap transactions recorded in Pennsylvania during that same time period.

“Most who have read the Harrisburg incinerator forensic audit are struck by the lack of openness, transparency, and accountability: multiple and complex transactions, millions in fees, and convoluted business practices. ‘Swaps’ — qualified interest rate agreements — were used eight times in Harrisburg over a short period of time,” said Folmer (R-Lebanon, Dauphin, Lancaster, Berks, Chester). “To me, such transactions represent gambling with taxpayers’ money, which is why they should be banned.”

Similarly, a measure authored by Teplitz would ban the use of municipal swaps in the City of Philadelphia, which is not subject to LGUDA, in order to ensure that a swaps ban applies statewide.

“Risky financing schemes are no substitute for sound planning, thorough accounting and careful spending,” Teplitz said. “Anyone who hasn’t learned that lesson at this point shouldn’t be trusted with public money.”

All four senators have co-sponsored each other’s legislation.

###