Swaps cost Philadelphia, school district $331 million

As a new report shows the cost of interest rate swaps to the city of Philadelphia and the school district, public interest groups are urging banks to relieves some of the pressure..

With interest rates at historic lows, rate swaps — in which bond issuers guarantee a rate of return — have already cost the city of Philadelphia and school district $331 million. They could still cost $240 million more.

In a nutshell, the city and school district gambled — and lost big, said Sharon Ward of the nonpartisan Pennsylvania Budget and Policy Center.

“Even if the interest rates moderate, which they are likely to do over the course of time moving forward, these agreements will be costly to these agencies when we can’t afford them,” she said.

Public interest groups, including Fight for Philly, are urging banks to return the money gained from the swaps. Anne Gemmell is political director of Fight for Philly.

“We think it is only fair that the banks that our city and schools do business with every day, renegotiate harmful deals that are currently active,” said Anne Gemmell, political director of Fight for Philly.

Gemmell urged political officials to turn up the heat on the banks to be good citizens and either refund or renegotiate the fees.