|Posted:||May 9, 2013 08:52 AM|
|From:||Senator Rob Teplitz and Sen. Mike Folmer, Sen. John P. Blake, Sen. John H. Eichelberger, Jr., Sen. Lisa M. Boscola|
|To:||All Senate members|
|Subject:||Bipartisan Municipal Debt Bill #4: First Class city swap ban|
|Under the First Class City Government Law, a swap is entered into between the City of Philadelphia and a financial institution, commonly referred to as the counterparty. There are many variations of swaps. (Refer to Bipartisan Municipal Debt Bill #3 for a summary of the different type of swaps.)
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. In 2009, then Auditor General Jack Wagner called swaps “gambling with the public's money," and recommended they be banned. As chief counsel to Auditor General Wagner at the time, Senator Teplitz was instrumental to this effort.
These losses were not just limited to small municipalities. Large local governments, such as the City of Philadelphia and the Philadelphia School District, have incurred hundreds of millions of dollars of losses. Swaps are too complicated and involve too much risk. Taxpayers cannot afford, in these difficult economic times, to pay losses incurred by their local governments on risky financial products.
We believe swaps represent gambling with the public’s money, which is why we are introducing this legislation:
Introduced as SB904