March 16, 2010, Auditor General Jack Wagner joined Senators Lisa Boscola (D-Lehigh, Monroe,Northampton) and Patrick Browne (R-Lehigh,Monroe,Northampton) to promote legislation that would ban school districts, local governments and municipal authorities from risking taxpayer money in interest-rate swaps.
Wagner recently called for legislation banning the use of swaps after his special investigation determined that 107 of 500 Pennsylvania school districts and 86 local governments had tied up at least $14.9 billion in public debt to swaps. As a result a sudden movement in interest rates could cost taxpayers hundreds of millions of dollars Wagner said.
Swaps are tantamount to gambling with taxpayer money and they have no place in the public sector Wagner said at a press conference in the Capitol Media Center. I commend Senator Boscola for bringing this problem to the attention of the Department of the Auditor General and I commend her and Senator Browne for sponsoring this important taxpayer-focused legislation that implements the recommendations of our report.
The Delaware River Port Authority which operates toll bridges linking metropolitan Philadelphia with New Jersey faces $109 million in liabilities because of interest-rate swaps that have soured said Wagner who became an ex-officio board member several years after DRPA entered into those swaps. At his urging DRPA recently passed a resolution to ban using swaps in future transactions and to begin a process of unwinding its current swaps. Nevertheless DRPA was required to pay the Swiss investment bank UBS $3.6 million in January and Februay which is the equivilent of six week's tolls on the Betsy Ross Bridge to hedge interest rates on bonds that have not been refunded. In addition DRPA has lost a total of $65 million from swaps that turned sour.
It is unconscionable that greedy Wall Street bankers are rewarding themselves with excessive bonuses whose profits were derived in part by hard-working Pennsylvanians whose elected officials gambled away their tax dollars in risky financial schemes thay didn't understand. Wagner said interest-rate swaps have no place in local government and the General Assembly should put a stop to this.
More information concerning Auditor General Jack Wagner's SWAPS investigation can be found at www.auditorgen.state.pa.us.