Lawmakers Announce Re-Introduction of Bi-Partisan Plan to Improve Oversight of Municipal Financial Deals

Senators John Eichelberger, John Blake, Rob Teplitz and Mike Folmer continue push for passage of municipal debt reform legislation.

HARRISBURG, February 12, 2015— Today, Sens. John Eichelberger, John Blake, Rob Teplitz and Mike Folmer announced the re-introduction of a package of bills aimed at curbing risky municipal debt transactions and providing better state oversight of local financing deals.  The legislation originates from the findings of Senate Local Government Committee hearings conducted in 2012 on the fiscal crisis affecting the City of Harrisburg and the debt of its incinerator project.  The incinerator project ended up costing $370 million — and played a major role in the capital city’s fiscal crisis.

“Our hearings clearly revealed insufficient oversight of Harrisburg’s deal to modernize and expand its incinerator.  We learned that the deficiencies in the local government debt law that allowed the Harrisburg situation to occur could clearly reoccur elsewhere,” said Eichelberger (R-Blair, Fulton, Huntingdon, Franklin, Cumberland).  Eichelberger oversaw the hearings as the former Republican chairman of the committee. “If our legislation is passed into law, I believe this reckless behavior will not be repeated.”

“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, Perry).  Teplitz has served as the Democratic chairman of the Senate Local Government Committee since taking office in January 2013. “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.”

Senate Bill 340, Eichelberger’s legislation, would make several reforms to the Local Government Unit Debt Act (LGUDA), 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 bill, Senate Bill 341, 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.

“My bill will grant clear 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,” said Blake (D-Lackawanna, Luzerne, Monroe), the former

Democratic chairman of the Senate Local Government Committee who helped lead the public hearings conducted in 2012.

Senate Bill 342, Folmer’s measure, would put in place best practice standards regarding the use of qualified interest rate management agreements, or so-called municipal “swaps,” by 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 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 need to be reined in.”

Similarly, Senate Bill 343, authored by Teplitz, would put in place best practice standards regarding the use of municipal swaps in the City of Philadelphia, which is not subject to LGUDA, in order to ensure that the standards apply statewide. “Risky financing schemes are no substitute for sound planning, thorough accounting and careful spending,” Teplitz said. “Strict standards must be put in place in order to protect municipalities and taxpayer dollars.”

Finally, Senate Bill 344 (Eichelberger) would close a loophole pertaining to performance bonds by requiring clear security for municipalities as a safeguard if projects fail.

All four senators serve as co-prime sponsors of each other’s legislation, and they have bipartisan support from the senators’ colleagues.

Media Contacts:

Elizabeth Rementer (Sen. Teplitz): 717-787-6801              Lee Derr (Sen. Eichelberger): 717-787-5490

Mark Shade (Sen. Blake): 717-787-9220                            Fred Sembach (Sen. Folmer): 717-787-5708