Philadelphia Taxpayers Lost $331 Million on Swaps, Report Says
January 20, 2012, 11:51 AM ESTBy Romy Varghese
Jan. 17 (Bloomberg) -- Philadelphia and its school district have lost a combined $331 million on interest-rate derivatives known as swaps, and the city stands to lose $244 million more, the Pennsylvania Budget and Policy Center said in a report.
Losses came in the form of net interest payments and cancellation fees related to derivatives negotiated with banks that included Wells Fargo & Co., Morgan Stanley and Goldman Sachs Group Inc., the Harrisburg-based nonprofit organization said today in the report. It examined financial audits, bond documents, and historical interest rates of variable benchmarks.
Cancellations and payments from the school system, the eighth-largest in the U.S., show losses of $161 million, while the city, the nation’s fifth-largest by population, lost $170 million through July 2011, according to the report. The district closed a $629 million current-year budget gap by cutting teachers and programs. The group said banks that profited from the swaps should help schoolchildren and taxpayers.
“Paying back termination fees to the school district as an act of goodwill could put students back in music and gifted programs,” the organization said in the report. The nonprofit group, started in 2005, focuses on policies as they affect working families, according to its website.
“Renegotiating active swaps with the city to more equitable terms could alleviate future cuts to the city budget,” the group said in the report. “It’s only fair.”
Rob Dubow, Philadelphia’s finance director, Mark McDonald, a city spokesman, and Fernando Gallard, a school district spokesman, didn’t immediately respond to telephone calls seeking comment on the report.
--Editors: Ted Bunker, Stacie Servetah.
To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
