Philadelphia and Our Schools Have a Big Problem
In recent years, Big Banks in Philadelphia and around the country have marketed complex financial products—known as interest rate swaps—to our schools and our city. These deals were sold to schools and the city as a theoretical way to lower the costs of borrowing. It was a way to take variable rate interest loans and effectively turn them into fixed rate loans.
But after the 2008 economic meltdown—caused, in part, by the Big Banks—interest rates crashed to nearly zero. These low rates, which were enjoyed by the banks after they were bailed out, left our School District and many more on the short end of now-bad contracts.
In an effort to end these bad deals, our school district and city have lost hundreds of millions of dollars. These deals are draining away millions that could otherwise go to maintain essential services, close budget gaps and retain good workers.
Right now, these banks are making billions in profits and continue to avoid paying their fair share of taxes to our city, our state, and our country. Yet, we the people who pay our fair share in taxes are left holding the bill.
Philadelphia is not alone. Pennsylvania has 107 school districts and 86 local municipalities that are currently the victims of damaging swap agreements. Future payments on these swap agreements promise to deplete public funds and services for decades to come.