Restating the Obvious

I blame the Community Reinvestment Act

Transit Agencies on Capitol Hill to Lobby for Bailout

After Collapse of AIG and “Sale In Lease Out” Deals, DC Metro Settles with Belgian Bank; Los Angeles MTA, Chicago Transit and Others Face Multi-Million Dollar Liabilities

Washington, DC- City transit agencies are on Capitol Hill this week, lobbying for a bailout as they face huge termination penalties from overseas banks due to the collapse of AIG and the unraveling of “Sale In Lease Out” (SILO) deals they entered into from 1988 to 2003.

Last Friday, the Washington, D.C. Metropolitan Area Transit Authority (WMATA) settled with a KBC Group, a Belgian bank that demanded $43 million in termination fee. In Tax Foundation Fiscal Fact No. 153, “Transit Agencies in Bind Due to SILO Deals and AIG Collapse,” Tax Foundation Tax Counsel Joseph Henchman explains that the situation is a result of a series of leaseback transactions these agencies conducted. Federal policy first encouraged and then discouraged these SILO deals, and when AIG collapsed, heavy termination penalties kicked in for approximately 30 transit agencies nationwide. These agencies may now face serious financial shortfalls absent the U.S. Treasury Department becoming a guarantor. “All told some $16 billion in taxpayer-purchased assets were sold to European banks, and now agencies face termination penalties of somewhere between $2 billion and $4 billion,” said Henchman.

Many agencies are now coming clean about the liabilities associated with agreeing to termination fee clauses that they never intended to pay. Below is a list of agencies that have revealed what those liabilities are: Los Angeles MTA: approx. $165 million DC WMATA: approx. $400 million (WMATA settled with one of its 16 SILO creditors, KBC Group. The Belgian bank demanded a $43 million termination fee penalty, but the two settled for $17 million.) Chicago Transit: $76 million (PACE did not use AIG as a guarantor and is thus not affected. Metra has restructured its deals at a cost of $75,000.) New Jersey Transit: $150 million San Francisco BART: $40 million Atlanta MARTA: $391 million Philadelphia SEPTA: $21 million Some agencies, such as New York’s MTA and Seattle’s Sound Transit, have specifically declined to disclose their liabilities.

A full list of agencies can be found at http://www.taxfoundation.org/publications/show/23882.html. The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

* * *

This story has been around for a while, just one of many byways of the financial markets that are getting exposed. It isn't about mortgages, it's about unsupervised financial markets.

Share:

Facebook  MySpace  Digg  Stumble    Mixx  Fark  del.icio.us   LiveSpaces

 

Member Comments

View Comments: | Post a comment

No comments posted for this article.

You must first login before you can comment.

Existing Member Login
Not a Member?	Create a Member Account
*Your email address:		<--Email REQUIRED!
*Password:	Forgot Password?	<--Password REQUIRED!
	Remember my email address.