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Senate of Pennsylvania
Session of 2019 - 2020 Regular Session

MEMORANDUM

Posted: December 7, 2018 01:10 PM
From: Senator Mike Folmer and Sen. John P. Blake, Sen. John DiSanto
To: All Senate members
Subject: Reintroduction of Bipartisan Municipal Debt Reform Package (Local Government Unit Debt Act)
 
We plan to reintroduce a bipartisan package of bills to address financial transactions that led to financial problems for various school districts and municipalities (most notably, Harrisburg).

These bills were developed after 2012 Senate Local Government Committee hearings and a 2017 Grand Jury report on the financial transactions of the Harrisburg incinerator, which led to a crushing debt burden. These studies included a forensic audit of the Harrisburg Authority that cast serious doubt on the ability of current state laws to protect the fiscal health of communities.

Please contact Luc Miron of Senator Blake’s office (717-787-6481; LMIRON@senatepa.com), Chuck Erdman/Jonathan Humma of Senator DiSanto’s office (717-787-6801; cerdman@pasen.gov and jhumma@pasen.gov), or Fred Sembach of Senator Folmer’s office (717-787-5708; fsembach@pasen.gov) if you have any questions or would like additional information.



Document #1

Introduced as SB204

Description: Amend Local Government Debt Act (previously Senate Bill 490 sponsored by Senators Eichelberger, Blake, Folmer, Boscola, Costa, Browne, Schwank, and Vulakovich):  expand the ability of the Department of Community & Economic Development to review borrowings under the Local Government Unit Debt Act (LGUDA).
 
LGUDA defines the types of debt municipalities may incur and sets limits on the amounts they can enter into without voter approval.  While LGUDA empowers DCED to review debt transactions, these assessments occur after major borrowing decisions have already been made.  During the 1990’s and early 2000’s, the City of Harrisburg borrowed on multiple occasions for questionable reasons and with little consideration as to whether the debts could be repaid.
 
Our LGUDA legislation will:
  • Provide more information to the public and DCED before debt is incurred;
  • Eliminate the ability to charge fees to issue loan guarantees;
  • Limit municipalities’ ability to guarantee other entities’ debts, and;
  • Prohibit reimbursements for other non-project-related costs
 

Document #2

Introduced as SB205

Description: Strengthen the Ethics Act (previously Senate Bill 491 sponsored by Senators Blake, Eichelberger, Folmer, Boscola, Costa, Browne, Schwank, and Vulakovich):  expand current law to include municipal authorities.
 
The 2012 Senate Local Government Committee hearings discovered the Ethics Commission does not seem to have the ability to investigate possible conflicts of interest for municipal authorities.  This legislation would provide this authority.
 

Document #3

Introduced as SB206

Description: Restrict so-called “swaps” transactions (previously Senate Bill 492 sponsored by Senators Folmer, Blake, Eichelberger, Boscola, Costa, Browne, Schwank, Vulakovich, and Scavello).
 
“Swaps” are contracts where parties – a government entity and a financial institution (or “counterparty”) agree to exchange (or swap) cash flow payments.  The most generic swap is when government issues variable rate debt and then enters into a swap where the counterparty makes a variable rate payment to the government entity and the government makes a fixed rate payment to the counterparty.  The goal is to create a lower rate for the government entity.
 
However, what subsequently happens in bond markets produces “winners” and “losers” as all swaps involve government assuming risks they do not take on when doing a normal fixed or variable rate bond issue.  Also, if a government entity wants to get out of a swap early, it may be required to pay a large termination fee to the counterparty.
 
During the Great Recession of 2008, interest rates went low (and stayed low), resulting in multi-million dollar losses for local governments, authorities, and school districts.  Taxpayers cannot afford to pay losses incurred by government gambling on risky financial products.
 
Our legislation proposes to:
  • Establish reasonable limits on swaps;
  • Restrict swaps payments and termination fees, and;
  • Require more detailed public disclosures before entering into swaps
 

Document #4

Introduced as SB207

Description: Close a loophole in the Public Works Contactors’ Bond Law (previously Senate Bill 493 sponsored by Senators Eichelberger, Folmer, Blake, Boscola, Costa, Browne, and Vulakovich):  to ensure adequate performance bonds.
 
Current law is intended to provide security should a government project go bad.  However, a loophole allowed the City of Harrisburg to agree to a “security package” that provided no security whatsoever.  Our legislation would close this loophole by eliminating alternative security instruments by clarifying required security must equal the contract amount with a performance bond, payment bond (for supply of materials), irrevocable letters of credit, or an escrow account for all projects over $500,000.
 

Document #5

Introduced as SB208

Description: Amend the Commonwealth Attorneys Act (previously Senate Bill 694 sponsored by Senators Blake, Folmer, DiSanto, Yudichak, Ward, Aument, Hughes, Vulakovch, and Stefano):  permit the Attorney General to investigate and prosecute city, county, and municipal officials and employees for crimes involving public corruption.
 
As noted in the 2017 Grand Jury report, current law restricts the Attorney General to public corruption crimes of state officials and employees only.  Our legislation would extend the authority of the Attorney General.
 

Document #6

Introduced as SB209

Description: Amend the statute of limitations regarding public officials and employees (previously Senate Bill 695 sponsored by Senators DiSanto, Folmer, Blake, Yudichak, Ward, Aument, Hughes, Vulakovch, and Stefano):  clarify when the period to prosecute applies – especially when the criminal conduct is not discovered until after a public official or employee has left office.
 

Document #7

Introduced as SB210

Description: Expand public bidding requirements (previously Senate Bill 696 sponsored by Senators Folmer, Blake, DiSanto, Yudichak, Ward, Aument, and Stefano):  require government entities – including local governments – to competitively bid professional services other than solicitor, engineer, and/or auditor.