If the Libor scandal did end up hurting local governments to a large degree, you can just add that to the list. Local governments have been easy marks for the financial industry during the last decade, engaging in all kinds of interest rate-swap deals and other vehicles for financing operations. When they turn sour, the locals, not the banks, end up holding the bag.

One city is trying to flip that script. The Oakland City Council unanimously voted to break off a deal with Goldman Sachs, using the city’s leverage to try and get out of the deal that is hurting their taxpayers. The issue concerns a familiar interest rate-swap deal, which financial institutions sell to cities as a way to hedge against higher interest rates, but which have cost cities millions by locking in higher borrowing costs.

The council voted to demand Goldman Sachs to negotiate with the city to get out of a 1998 interest rate-swap deal without having to pay a $15 million penalty. Currently, because of the locked-in rates, the deal is costing the city $4 million a year. Oakland estimates they have lost $17.5 million on the deal so far, and even though the underlying bonds were sold back four years ago, because of that $15 million penalty, the city will have to continue losing money on the deal until 2021.

So the City Council simply voted to terminate the deal. And if Goldman Sachs won’t let Oakland out, the city will stop doing any business with the bank, per the resolution. This is from a press release on the action:

During the unanimous vote, Oakland Councilmember Rebecca Kaplan said, “This is part of a growing movement of accountability on banks who took billions from taxpayers but not paying it forward.” Councilmember Jane Brunner agreed: “As we helped the banks, they need to help cities with these deals.”

City Finance Committee Chair Ignacio de la Fuente, who supported the move, said, “It’s time to take a stand. We need to use the economic power we have to send a message.”

This will bear watching over the next couple months, because Wall Street banks have over 1,000 similar interest rate-swap deals with local governments and agencies, and if Goldman Sachs blinks, it could create space for other governments to join in on this protest movement.

These deals are lucrative to Wall Street, and they won’t be given up without a fight. But cities have a large amount of assets at their disposal, and if they move their money away from Wall Street, that also affects the bottom line. So there is some leverage on the side of local governments to renegotiate these adverse contracts, sold to them under false pretenses. That’s especially true if unions linked to the cities use their pension funds as part of the leverage.

More from the San Francisco Chronicle. Goldman has 60 days to waive the penalty or lose all business with the City of Oakland.