Pennsylvania casts sunshine on muni swaps

When it comes to municipal derivatives, Wall Street has brutalized the poor Keystone State. Though many municipalities, such as Alabama’s Jefferson County, have suffered bigger losses from muni swaps, Pennsylvania is like a cancer cluster of bad derivative deals. State Auditor General Jack Wagner wants to do something about that, and last month he announced that Pennsylvania is creating a public registry of local government swaps. I hope this is a trend for other states. From the office of the Auditor General:

Auditor General Jack Wagner today asked the Department of Community and Economic Development to strengthen its oversight of school districts’ and local municipalities’ interest-rate swaps agreements to make the cost of these risky transactions more open and transparent to taxpayers.

In a letter to DCED [Department of Community and Economic Development] Secretary George Cornelius, Wagner asked the department to require all local governments, municipal authorities, and agencies of state government to file their swap agreements upon execution and to update the status and financial results of those swaps every three months. Taxpayers would then know how much was paid in fees and commissions for each swap, how much the swap costs the public entity each month, how much money the swap has lost, and how much could be lost under the worst case scenario, Wagner said.

Why is it important to create transparency for these municipal swaps? From the Auditor General again (emphasis mine):

A special investigation by Wagner last year found that 107 school districts and 86 local governments had $14.9 billion in public debt tied to swaps. He found that Bethlehem Area School District in particular lost at least $10.2 million in taxpayers’ money through swaps.

Muniland’s black swans

Are we looking in the wrong places?

John Carney of CNBC argues for the possibility of a black swan event for muniland.

He’s right about unknown risks but I think he is looking in the wrong place.

He doesn’t mention municipal derivatives in his analysis. I mean interest rate swaps not municipal credit default swaps.

Muni sweeps: Increasing the muni investor pool

It’s a glorious spring day in America and everything continues to bounce along. A little progress here and some fall back there. Oh and that unpleasant negative ratings watch on United States debt from Standard & Poor’s. Yeah that is not good. Welcome to a new week in muniland. The sun sets over a pond in Rogers, Arkansas, November 8, 2009. REUTERS/Lucy Nicholson

The sun sets over a pond in Rogers, Arkansas, November 8, 2009. REUTERS/Lucy Nicholson

Increasing the muni investor pool:

Marketwatch has an article which frames the proposed Wyden and Coates federal legislation for muni tax-exemption as having the effect of shrinking the investor pool.

  • # Editors & Key Contributors