HARRISBURG -- State Auditor General Jack Wagner today criticized school districts for entering billions of dollars worth of interest-rate swaps.

During a press conference this afternoon, Mr. Wagner urged school districts and other governmental agencies statewide to terminate swap agreements in favor of conventional loans. He's also asking the Legislature to make it illegal for public agencies to enter into swaps.

His plea comes after an audit that found the Bethlehem Area School District lost at least $10.2 million by using swaps.

Swaps are agreements in which a debtor and a finance firm make payments to each other that are based on a fluctuating interest-rate index. They allow borrowers to effectively reduce their interest rates but can result in unforeseen costs in volatile markets.

"Quite simply, the use of swaps amounts to gambling with public money," Mr. Wagner said. "The fundamental guiding principle in handling public funds is that they should never be exposed to the risk of financial loss. Swaps have no place in public financing and should be banned immediately."

Twenty-one percent of Pennsylvania's 500 school districts use swaps, according to a list Mr. Wagner provided. Those in Allegheny County include Allegheny Valley, East Allegheny, Hampton, North Hills, Pine-Richland, Shaler, Steel Valley, Sto-Rox and West Jefferson.

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