Financial Disaster Legislation Would Hold Local Government Officials Accountable

Oct 1, 2016

Credit WITF

The city of Harrisburg's near-bankruptcy led to Pennsylvania's first and only local government takeover, the ousting of a seven-term mayor and his pending criminal trial - and aggressive, expensive parking enforcement in the state capital.

It also inspired legislation meant to prevent future financial disasters.

Three years after bills were first introduced, the state Senate has unanimously passed measures aimed at making public officials and their advisers more accountable when they indebt taxpayers.

The bills are the product of public hearings and outrage in the wake of the city defaulting on debt repayments. Harrisburg's obligations amounted to nearly half a billion dollars, presumably repayable by a city with 50,000 people, a 33 percent poverty rate and a largely exempt tax base typical of a government center.

Before the full-blown crisis, some city residents approached the state Ethics Commission about The Harrisburg Authority's financial habits.

The commission didn't investigate back then because it lacks jurisdiction, recounted state Sen. John Eichelberger, R-Blair, before Wednesday's vote.

forensic audit ultimately revealed that, of all city agencies, the authority had the most direct role in creating the crippling debt - mainly because it was response incinerator and its failed retrofit project.

One of the bills passed would change expand the commission's scope to include water, sewer, parking and other municipal authorities. It also spells out conflicts of interest for authority officials - and that compromised contracts would be negated.

Another measure would more tightly monitor local debt.

Right now, counties, school districts and municipalities have to notify the state Department of Community & Economic Development when borrowing money.

After that, not much happens, according to testimony during legislative hearings in 2012.

Across state government, there are paperwork submission requirements - "but there aren't necessarily review requirements," says state Sen. Rob Teplitz, D-Dauphin.

"So we're making sure that that DCED that they're not just collecting papers and sticking them in a in a file cabinet somewhere," says Teplitz, whose constituency includes the city of Harrisburg.

DCED's new tracking system would not be accompanied by any power to block a bad deal.

Some provisions also have been weakened.

For example: originally, Teplitz, Eichelberger and other sponsors state Sen. John Blake, R-Lackawanna, and Mike Folmer, R-Lebanon, proposed bans on financial practices regarded by some as unwise: interest rate management agreements, known as swaps, and guaranties, which amount to government entities cosigning for one another.

The debate over swaps has been raging for years.

But, like guaranties, they've become integral to how some public agencies manage their finances. For others, they've caused irreparable damage.

The current versions of legislation targeting swaps and guaranties impose rules rather than bans. (There are four bills in all. The fourth, which deals with swaps, didn't go to a vote Wednesday).

Teplitz, who's running for his second term representing the Capital region, says he's not settling.

"We have very strong bills," he says. Teplitz also notes the inevitability of negotiation and compromise when "you try to take money away from one group of interests and give it to another."

Eichelberger, too, has acknowledged strong opposition from banks, financial management firms and their interest groups as well as officials from government agencies who boast the wherewithal to manage sophisticated financial instruments to taxpayers' benefit. Some made their positions public at hearings in recent years. 

There are other provisions unchanged since first being suggested.

One would require written disclosures from private attorneys and financial advisers involved in public debt deals.

Another would make shirking their fiduciary responsibility a second-degree misdemeanor punishable by up to $5,000 in fines, two years in prison and limitations on their entire firm's business dealings.

All of this now goes the House of Representatives.

Teplitz says he hopes lawmakers in the House "understand all the work that done so they don't go back to square one and revisit issues that yeah we would have liked but we negotiated away or compromised."

The House isn't due to convene again until three weeks from now, for one of eight session days remaining on the legislative calendar. 

Editor's note: This post has been updated to correct the number of days remaining in the House of Representatives legislative calendar.

Find more of this and other reports at the website of our partner WITF.