PhillyDeals: Senator wants bond deals investigated by prosecutor

State Sen. Mike Folmer (R, Lebanon)
State Sen. Mike Folmer (R, Lebanon)
Posted: February 14, 2013

Pennsylvania state Sen. Mike Folmer (R., Lebanon), whose district sprawls like a run-over turtle from western Chester County to suburban Harrisburg, and a handful of colleagues from both parties are pushing a plan to hire a special prosecutor to investigate how the state's capital city went broke selling bonds that enriched Wall Street banks and investors, Philadelphia law firms and financial consultants, and hometown contractors at taxpayers' expense.

A companion proposal would reverse a law signed by former Gov. Ed Rendell to please his banker backers and would ban interest-rate swaps - which were peddled to Philadelphia, Harrisburg and other communities that hoped to reduce borrowing expenses but backfired at a cost of millions - while also giving the state more power to ride herd on debt-crazed local officials.

The special-prosecutor proposal, currently in Bucks County Republican Sen. Stewart Greenleaf's Judiciary Committee, arrived more than a year after a Harrisburg Authority audit showed the city and its paid professionals failed to justify the $300 million-plus borrowed to fix the city's aging incinerator using unbonded contractors, experimental methods, and a phony payback schedule, leaving taxpayers stuck with the bill.

One draft measure, Senate Bill 292, sets up rules for a committee of elected judges to ask state Attorney General Kathleen Kane to request that Gov. Corbett's general counsel appoint a "special investigative counsel" to determine whether any crime or violation of election and public-employee ethics laws took place.

I asked Folmer's counsel, John Basial: Won't putting all those politicians in charge of a political-corruption investigator ensure that no one is prosecuted?

"We took the old state independent-prosecutor statute" as a model, he told me. "Only silly people reinvent the wheel" is the senator's belief, he added, though "we're willing to make changes."

Other proposals in Folmer's package include SB 293, which would ban municipal interest-rate swaps; SB 294, which would strengthen the state Department of Community and Economic Development's oversight of supposedly "self-liquidating" projects (which are expected to pay for themselves) such as the Harrisburg incinerator; SB 295, which would make lying about "self-liquidating" public-debt projects a criminal offense, and not just, you know, lying, and SB 296, which would require "justifications" for municipal water and sewer rates, which would prevent Harrisburg from going back to its practice of jacking them up on neighboring towns to ease its budget deficit.

Former state-appointed Harrisburg financial overseer David Unkovic, whose testimony guided the senators' efforts, applauded their proposals. "If these bills are passed, they will prevent local governments and school districts across the state from getting into the debt trouble that has plagued Harrisburg," he told me.

But Mark Schwartz, the Main Line lawyer (and former legislative aide and municipal investment banker) who represented Harrisburg officials in their early attempts to fend off a state takeover, called the effort stillborn. State government "already had the responsibility to oversee bond issues. Instead, it simply rubber-stamps any piece of garbage," he told me.

It's good to ban swaps, but better to sue bankers, lawyers and advisers for damages, he added.

Of course, as Basial, the former-prosecutor who helped Folmer draft the bills, pointed out, authorities don't really need a special prosecutor to go after municipal bond profiteers. "Whether the U.S. attorney, the state attorney general, the county prosecutors, they could begin an investigation tomorrow," he told me.

Even without the politicians.


Contact Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, @PhillyJoeD.

comments powered by Disqus
|
|
|
|
|