Lawmakers Announce Plan for Improved Oversight of Municipal Financial Deals

For Immediate Release

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.

“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 financial schemes like swaps are essentially betting with public funds,” Teplitz said. “The taxpayers who bear the burden of the losses deserve better.”

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

Media Contacts:


Elizabeth Rementer (Sen. Teplitz): 717-787-6801

Lee Derr (Sen. Eichelberger): 717-787-5490

Mark Shade (Sen. Blake): 717-787-5166

Beth Williams (Sen. Folmer): 717-787-5708