HARRISBURG — State Auditor General Jack Wagner is recommending a type of complex financial deal that cost Butler County taxpayers millions be banned.

Wagner on Wednesday asked the state Legislature to make "swaps" for school districts, municipalities and authorities illegal. Additionally, he called for active swaps to be terminated.

"Quite simply, the use of swaps amounts to gambling with public money," Wagner said in a statement. "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."

In this type of agreement, a participating entity "swaps" interest payments on a bond. However, the deal can cost the bond issuer money if interest rates fluctuate.

While Wagner on Wednesday focused on the Bethlehem School District, which lost $10.2 million in one of the swaptions, Butler County taxpayers have also lost money.

Last year, the Butler School District paid $5.7 million to get out of a swaption. Had it not backed out, bond payments would have increased significantly. The school district has since sued various companies involved in the transaction, alleging collusion and that important information was withheld.

The Mars School District earlier this year paid $3 million to exit one of its swaps. It still has other swaps active.

The report released by Wagner also shows the South Butler School District had a swaption. The district in March 2008 switched some types of bonds, but it was unclear if that was the swaption referred to in the report.

The Department of Community and Economic Development's records indicate that 626 swap filings were made in Pennsylvania between October 2003 and June 2009, which related to $14.9 billion in debt. The exact number of swaps can't be determined because of double counting.

Between October 2003 and June 2009, 107 of the state's 500 school districts told the state that they entered into swap agreements. The deals became legal in 2003.

Wagner said potential purchasers should use a competitive process to pick financial advisers and then monitor their performance.

Both Mars and Butler school districts have since switched financial advisers.

Dave Davare, director of research services for the Pennsylvania School Boards Association, agreed with Wagner that swaps carry substantial risk and that districts should get independent financial advice.

"By independent, I mean the person that they hire works for the district and is not making any other revenue on this transaction from anybody else involved in the transaction," Davare said.

But he said there are plenty of examples of swaps helping school districts.

"For every district that you can point at like a Bethlehem ... you can turn around and point out a district that has been successful with it," Davare said. "This is not a situation where every district has lost money. Some districts have lost money primarily because they're trying to get out of them too early."

The Associated Press contributed to this report.