Four Pennsylvania lawmakers are filing bills to enhance state oversight of municipal financing deals and prevent another Harrisburg-type fiasco.

State Sens. Rob Teplitz, John Eichelberger, John Blake and Mike Folmer announced their intentions Wednesday at the Harrisburg incinerator, the focal point of the capital city's fiscal mess.

Bond financing overruns to a retrofit project for the incinerator has stranded 49,000-population Harrisburg with about $350 million of debt that it cannot pay. Harrisburg, which missed its last three general obligation bond payments and is under state receivership, received a cease-and-desist order on Monday from the Securities and Exchange Commission, which accused it of securities fraud for releasing misleading information about its worsening finances.

"Municipalities across Pennsylvania can learn a valuable lesson," said Teplitz, a Susquehanna Township Democrat whose district includes Harrisburg's Dauphin County.

Oversight of the bond financings was the focal point of two local government committee hearings the state Senate held last fall. A forensic investigation report by the Harrisburg Authority public works agency in January 2012 was the basis for those hearings. The authority, however, said lack of subpoena power limited the scope of the audit.

"We've learned about the deficiencies in our current process that allowed the Harrisburg situation to occur," said Eichelberger, the committee chairman and a Blair Township Republican.

Folmer, R-Lebanon, wants to ban the use of qualified interest rate management agreements, or so-called municipal swaps, for municipalities encompassed in the Local Government Unit Debt Act, such as local governments, school districts and municipal authorities. Teplitz, looking to ensure that a swaps ban applies statewide, would ban the use of municipal swaps in Philadelphia, which is not subject to LGUDA.

A message seeking a response was left with Philadelphia Treasurer Nancy Winkler.

Former Harrisburg receiver David Unkovic last year urged the Senate to ban municipalities from swaps. "You just get into worse and worse situations if the market continues to go against you," he said. "It's pretty much like a game of Russian roulette, where every once in a while the bullet's going to go off and there's a bad situation."

Unkovic quit in March 2012 after four months on the job citing pressure from lobbyists, major creditors and officials in Gov. Tom Corbett's administration.

Eichelberger's measure would overhaul the Local Government Unit Debt Act, including limiting local government guarantees of municipal authority borrowings, eliminating the ability to charge a fee for issuing a guarantee, and giving the state Department of Community and Economic Development greater authority over the borrowing processes of local government units.

Legislation by Blake, D-Archibald, would allow the state Ethics Commission to investigate alleged ethical violations by individuals involved in financial transactions by municipal authorities. The commission now lacks this jurisdiction.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.