APTA | Passenger Transport
December 1, 2008

In This Issue
» BREAKING NEWS
» NEWS HEADLINES
» COMMENTARY
» IN DEPTH
» AROUND THE INDUSTRY
» APTA NEWS


 
NEWS HEADLINES

Public Transit Agency Officials Continue to Seek Help For Long-Term Leasing Agreements

Officials from 11 public transit agencies met in Washington in late November to urge Congress to intervene on their behalf with the U.S. Treasury, lest an unforeseen effect of the credit crisis impact public transportation operations across the nation in the coming weeks.

The crisis was brought on by the credit downgrading of American International Group (AIG), which guaranteed most of the agencies’ loans acquired through the Sale-in/Lease-out/Lease-in/Sale-Out (SILO/LILO) program.  AIG’s collapse has given the lending banks the authority to demand a replacement guarantor for those loans or find the borrowers in default—a move that would force the public transit agencies to immediately produce millions of dollars not in their budgets. This would almost certainly lead to severe service cuts and termination costs exceeding $2 billion.  The situation will likely be exacerbated by the recent credit downgrade of Ambac, another guarantor of many transit lease agreements. 

Transit agencies that have never missed a payment and do not expect to do so are nevertheless threatened with default. The catch-22 comes from the fact that although the payment funds are adequate and safe, the holders of these funds—the agencies—have suffered downgraded credit ratings, allowing investors—the banks—to bring default actions.

The group meeting in Washington addressed its concerns to staff of Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, and the committee’s ranking member, Charles Grassley (R-IA).  In attendance were general managers and other leaders from systems in Atlanta, Boston, Chicago, Houston, Los Angeles, New Jersey, New York, Sacramento, St. Louis, San Jose, and Washington, DC.  The officials want Congress to ask Treasury to guarantee the agreements. 

Dr. Beverly Scott, APTA Chair and General Manager, Metropolitan Atlanta Rapid Transit Authority, said in recent testimony that 31 of the nation’s transit systems “would be crippled in the coming months if nothing is done to resolve this crisis. The innocent victims will be the millions of riders who rely on public transit every day.”

Scott noted that the U.S. Treasury could, under the recently passed financial rescue package, “take over the role of AIG and other insurers in SILO/LILO transactions. This would prevent any predatory action by banks against transit systems, and because the Treasury would be backing its own securities, there is no financial risk on the part of the federal government. APTA has urged the U.S. Treasury to take this action immediately.”

A member of Sen. Baucus’ staff who declined to be identified noted that there are several options for moving forward. Either senator could introduce legislation. Alternatively, an announcement—either at a hearing or in a public letter to the Treasury secretary—could note that this will be done when Congress re-convenes Dec. 8. Also still being considered is a 100-percent excise tax on any revenue banks would gain from calling loans on transit agencies.

« Previous Article Return to Top | Return to Main Next Article »

APTA CALENDAR CONTACT US APTA HOME PAGE PRINTER-FRIENDLY VERSION
AMERICAN PUBLIC TRANSPORTATION ASSOCIATION
© Copyright © 2008 American Public Transportation Association 1666 K Street NW, Washington, DC 20006
Telephone (202) 496-4800 • Fax (202) 496-4321

Search Back Issues