For Immediate Release
Contact: Steve Halvonik 717 787-1381
Delaware River Port Authority Passes Wagner Resolution Prohibiting Swaps
HARRISBURG, Pa., Dec. 28, 2009 – Auditor General Jack Wagner today commended the Delaware River Port Authority today for unanimously approving his resolution to prohibit the agency from entering in to financially risky interest-rate swaps.
DRPA, which operates toll bridges between New Jersey and Southeastern Pennsylvania, has incurred $242 million in financial liabilities due to swaps agreements entered into in 2000 and 2001 that backfired.
“Swaps are toxic products, devised by Wall Street banks on steroids, and they should be banned from the public sector,” said Wagner, an ex-officio member of the DRPA board since 2005. “Public officials should not be permitted to gamble with taxpayer money.”
The board adopted the resolution today introduced by Wagner (a copy is attached) that contained several points:
- Prohibits DRPA from entering in to future swaps agreements.
- Requires DRPA to begin a process of terminating its current swap agreements.
- Requires DRPA to analyze existing swaps and then report the findings back to the board within 60 days.
- Requires DRPA to use a competitive process to hire financial advisors.
Wagner has urged every school district and municipality in the commonwealth to stop the use of swaps since he released a special investigation in November that determined Bethlehem Area School District lost at least $10.2 million in taxpayers’ money through swaps.
A swap is a financial contract between two parties betting on which way interest rates will move. The party that guesses correctly gets paid and the party that guesses incorrectly must pay the other party. The amount of cash being swapped is determined by the size of the debt being financed by bonds with variable interest rates. The higher the debt, the costlier the bet.
Wagner's recent special investigation of the use of swaps determined that 107 Pennsylvania school districts and 86 local governments had financed $14.9 billion in debt tied to interest-rate swaps.
On December 3, Wagner sent a letter to the DRPA board urging them to terminate any active swaps and to stop using them in the future.
Wagner also has called on 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.
“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.”
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.