Westmoreland County must pay $8M to cover loses from risky investment
Westmoreland County commissioners will have to pay more than $8 million this spring to cover losses from a risky investment made five years ago.
Commissioners are expected to hire financial experts on Thursday to help craft a package to pay off that debt and borrow up to $10 million for capital projects.
At issue is the refinancing of about $35 million in bonds that a previous board of commissioners approved in early 2008.
“The (new) financial package could be as much as $50 million,” Commissioner Tyler Courtney said.
Commissioners used a controversial “swaption” investment that essentially bet on interest rates.
Sandy Flanders, the county's director of financial administration, said that the higher the interest rates, the more money the county stood to earn in the deal.
Over time, interest rates dramatically decreased, leaving the county's investment in red ink.
The bill is expected to come due on June 1. As of Wednesday, the county owed about $8.5 million to get out of the deal, Flanders said.
Commissioners said they are now left to deal with the failed investment.
“The previous board made a decision based on the best information at that time,” Courtney said. “I wasn't there, so I won't say it was a bad decision. But it was a risky decision.”
Swap option investments were roundly criticized in a report released in 2009 by then-state Auditor General Jack Wagner, who called those deals risky.
He recommended the swap deals be declared off limits to government bodies.
In 2010, the Municipal Authority of Westmoreland County turned a $1.2 million profit when it opted out of its bond swap deal.
Others have not been as fortunate.
Last year, the Port Authority of Allegheny County wrote a $39.5 million check to cover losses from a bond swap deal.
Wagner's audit found 107 school districts and 86 local governments financed nearly $15 billion in debt tied to swaps.
The Bethlehem Area School District in Lehigh and Northampton counties lost at least $10.2 million, according to Wagner's audit.
None of Westmoreland County's current commissioners voted on the 2008 financial package.
That deal paid the county $1.2 million up front, but little of the original bonds that were refinanced have been repaid during the last half decade.
Courtney said the county must pay the buyout as well as refinance the original debt, which is about $35 million.
Commissioners are considering borrowing more money to pay for other projects such as construction of office buildings and rehabilitation of the long-shuttered waste-to-energy plant in Hempfield to convert it to new office space.
The county is expected to make a final decision on the refinancing by late April, Courtney said.
Rich Cholodofsky is a staff writer for Trib Total Media. He can be reached at 724-830-6293 or [email protected].