Sharon Ward Testifies at Philadelphia City Council Hearing on Cost of Interest Rate Swaps

Too Big to Trust ReportRead Sharon Ward's Testimony Before Philadelphia City Council

The City of Philadelphia should take steps to recover some of the millions of dollars lost in interest rate swap deals that have proved costly in the wake of the Great Recession, PBPC Director Sharon Ward testified before a hearing hosted by Philadelphia City Councilman Jim Kenney today.

"Even in the best of circumstances, interest rate swaps are risky business," she testified. "During normal economic downturns when interest rates are low, they can become very costly, at the worst possible time. While local governments across the state have argued that they would like the authority to use these instruments, the public should be wary. The track record here and across the country simply has not been very good."

According to a January PBPC report, swap deals negotiated with banks such as Wells Fargo, Morgan Stanley and Goldman Sachs cost the city and school district $331 million in net interest payments and cancellation fees. If interest rates continue to remain low, the report found at the time, still-active swaps could cost the city another $240 million in future net interest payments. 

Read the full report, Too Big to Trust? Banks, Schools and the Ongoing Problem of Interest Rate Swaps.  Read Sharon Ward's October 23 testimony.

"The City should use its negotiating power to recover some of the millions of dollars paid to the banks in swaps gone bad," Ward testified at the City Council hearing. "These institutions have received public funds to ensure their financial health and continued existence, now it is time to repay that debt...

"This should include recovery of termination fees and the opportunity to renegotiate active swaps to achieve more favorable terms for public entities."