Auditor General Jack Wagner Asks Philadelphia School District to Finally Provide Swaps Details

HARRISBURG, Pa., April 21 /PRNewswire-USNewswire/ -- Pennsylvania Auditor General Jack Wagner today reiterated his call for the School District of Philadelphia to provide his department with information related to the school district's exposure to interest-rate swap agreements.

In his third letter to the district's chief business officer, Michael Masch, Wagner asked the school district to provide his department with detailed information regarding its use of swaps, including all costs, commissions, and other fees incurred from active and terminated swaps. The district failed to respond to Wagner's first two letters, sent in January and February, seeking this information.

"With such a large financial exposure to swaps, I am deeply concerned about the potential damage to taxpayer-funded efforts to improve the state of the district's financial condition and academic performance," Wagner wrote to Masch.

According to the City of Philadelphia's Comprehensive Financial Report for Fiscal Year Ended June 30, 2009, the school district had 12 swaps worth $682.6 million as of June 30, 2009. If the school district had to terminate all of the swaps, it would lose $124.7 million, which, Wagner noted, is an amount almost equaling 10 percent of the commonwealth's proposed basic education and special education subsidies to the district for the 2010-11 state fiscal year.

"The fundamental guiding principle in handling public funds is that they should never be exposed to the risk of financial loss," Wagner said. "Swaps have no place in public financing and should be banned immediately."

A special investigation by the Department of the Auditor General determined that 107 Pennsylvania school districts and 86 local governments had financed $14.9 billion in debt tied to interest-rate swaps, and that one school district -- Bethlehem Area, in Lehigh and Northampton counties -- had lost at least $10.2 million in swaps.  

As a result of his investigation, Wagner has asked the General Assembly to repeal Act 23 of 2003, which permitted Pennsylvania school districts and local governments to enter into interest-rate swaps, and to expressly prohibit the use of such instruments by school districts, local governments, and municipal authorities. He also has recommended that school districts and local governments stop entering into any additional swaps agreements and to unwind any swaps agreements that they currently have in a way that best protects the interests of taxpayers.  Legislation to implement Wagner's recommendations is pending in the General Assembly.

Wagner requested the swaps details by April 30, 2010.  "Otherwise, I will assume that the district is refusing to provide the requested information and we will proceed accordingly," he wrote.

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly.  He is the Commonwealth's elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations.  The Department of the Auditor General conducts more than 5,000 audits per year.  To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department's Web site at www.auditorgen.state.pa.us.

SOURCE Pennsylvania Department of the Auditor General