Bills aim at towns' bad debt deals
Legislation would ban rate 'swaps'
HARRISBURG - Standing in the shadow of Harrisburg's debt-ridden incinerator, a bipartisan group of four senators unveiled legislation Wednesday to provide taxpayers with more legal protection and state oversight to guard against risky and potentially illegal municipal debt deals.
Sen. John Blake, D-22, Archbald, is among the group proposing to ban use by municipalities of complex financial interest rate transactions known as "swaps," give state officials greater review power over municipal debt borrowings and give the state Ethics Commission authority to investigate alleged ethical violations by individuals involved in municipal financial transactions.
"This package of reform bills is about protecting taxpayers from malfeasance," said Mr. Blake.
The senators' action came two days after the federal Securities and Exchange Commission charged the city of Harrisburg with violating federal anti-fraud rules by giving misleading information that created risks for municipal bond investors. The SEC didn't impose any financial penalties for the actions dating from 2009 to 2011.
But the Senate legislation has been in the works before the SEC action and reflects testimony at Senate committee hearings last fall on municipal debt. The Senate hearings focused on how a massive debt tied to Harrisburg's incinerator has pushed that city to the brink of bankruptcy. The senators said they referred testimony from those hearings to Dauphin County District Attorney Ed Marsico for review to determine if wrongdoing was involved with the incinerator debt. The legislation resulting from Harrisburg's experience will apply to all municipalities, they said.
Two gaps in existing state law would be closed by the legislation to give the ethics commission authority to investigate the municipal financial transactions and prohibit the use of debt proceeds for purposes unrelated to the original debt, said Mr. Blake.
Another measure would limit the ability of a municipality to provide guarantees on municipal authority borrowings, eliminate the ability to charge a fee for issuing a guarantee, give DCED authority to seek documents and put conditions on municipal debt undertakings and set penalties for filing false information with DCED.
"It's (current DCED review) essentially a check off rather than a true review of the fiscal impact of the project," said Sen. John Eichelberger, R-30, Hollidaysburg.
The legislation would increase fees for the debt review process and let DCED keep those fees to help underwrite its review costs.
The municipal debt bills surfaced as a special task force starts to consider a comprehensive rewrite of the Act 47 distressed municipalities law under the umbrella of the Local Government Commission, a legislative service agency. Mr. Blake is on that task force, as are senators and House lawmakers of both parties.
Contact the writer: rswift@timesshamrock.com