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).