How Wall Street plundered Philly schools

Interest-rate swaps

Philadelphia, like many cities, has faced serious financial difficulties in recent years. These difficulties have forced the city government to make ends meet by cutting agency budgets, cutting services and raising taxes. The city trimmed almost $100 million off its budget during 2008 and 2009, and the school district faced a $629 million budget hole just this year, which was closed by laying off teachers and cutting programs for students.

The Pennsylvania Budget and Policy Center, points to highly-speculative, risky interest-rate swap deals the city negotiated with banks such as Wells Fargo, Morgan Stanley and Goldman Sachs that have cost the city and school district $331 million in net interest payments and cancellation fees, according to the report, "Too Big to Trust? Banks, Schools and the Ongoing Problem of Interest Rate Swaps.” If interest rates continue to remain low, still-active swaps could cost the city another $240 million in future net interest payments.

According to the report:

These financial institutions have profited, while Philadelphians have paid the price through lost city services, lost jobs, and lost school programs. The financial institutions, on the other hand, have returned to profitability with subsidies from taxpayers—including Philadelphia taxpayers—and with multimillion-dollar contracts with the city. Moving forward the banks should respond as good corporate citizens of Philadelphia, by refunding a portion of the lucrative cancellation fees they received for terminating bad deals and renegotiate those deals which are currently active.

"Good corporate citizens," indeed.