Title
Urging the State Senate of Pennsylvania to enact SB 293, a measure that will repeal the legal ability of all municipalities to enter into financially risky qualified interest rate management agreements, commonly known as "swaps."
Body
WHEREAS, Pennsylvania State Senator Mike Folmer, a Republican who represents Lebanon County and parts of neighboring counties, introduced SB 293 on February 1, 2013 with five co-sponsors. SB 293 is an Act amending Title 53 of the Pennsylvania Consolidated Statutes that rescinds the legal ability of municipalities to enter into qualified interest rate agreements, also known as interest rate "swaps." Swaps are complex financial transactions used to hedge against the risk posed by fluctuating interest rates. The use of swap agreements in public financial management was encouraged by the federal Commodity Futures Modernization Act of 2000, and authorized by the Pennsylvania Legislature in Act 23 for use by local governments in 2003; and
WHEREAS, Between October 2003 and June 2009, the Auditor General of Pennsylvania published an investigation that revealed that 107 school districts and 86 local governments had entered into 626 swaps with various investment banks, involving $14.9 billion in public debt. In 2008, the worst financial crisis since the Great Depression triggered the Federal Reserve Bank to continually lower interest rates to near zero. As a result, what started out as approximately equal swap payments between municipalities or school districts and participating banks became completely imbalanced. Many municipalities were forced to continue making significant payments to their partner banks or pay swap termination fees; and
WHEREAS, Many municipalities that have entered into such agreements have suffered sizable financial setbacks, including Harrisburg, the Bethlehem Area School District, and the Pennsylvania Turnpike Commission. In Philadelphia, the City and the Pennsylvania Intergovernmental Coopera...
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