(Update with Turnpike comment below) The Pennsylvania Turnpike Commission's use of interest-rate swaps "has cost Pennsylvania taxpayers and turnpike motorists at least $108.9 million" since 1998, state Auditor General Jack Wagner said in a written statement afte reviewing the agency's books.
UPDATE: Turnpike spokesman Bill Capone said Wagner's analysis exaggerates the cost because it ignores millions in initial savings from the swaps; and that the commission believes swaps have an appropriate use in managing its borrowing.
Interest-rate swaps, marketed by JPMorgan and other investment banks, enabled the commission to initially qualify for a lower interest rate on its debt and protect against rising national interest rates.
But the Turnpike contracts also required the commission to make up the difference to the banks and their clients if interest rates fell, instead of rising. Rates fell to near-record lows in the late 2000s and have remained there, costing local government agencies in Pennsylvania and other states millions in fees, interest and future financial obligations, which might be reduced or reversed when interest rates finally rise again.
"The Turnpike's strategy was to use the swaps to save money, but it has instead proved to further saddle the debt-ridden Commission" with more debt, according to Wagner's statement.