Comments on: AIG’s troubles hurt transit systems, including Metro

By: Could AIG Have Impacted DC Metro Maintenance? - Seattle Transit Blog

Could AIG Have Impacted DC Metro Maintenance? - Seattle Transit Blog — Fri, 26 Jun 2009 22:17:36 +0000

[...] October, we discussed the fact that AIG’s failure cost some transit systems huge amounts of money. In agreements [...]

By: EvergreenRailfan

EvergreenRailfan — Sat, 01 Nov 2008 17:20:27 +0000

Metro only is on the hook for $40 million in any such deal, but look at the two Texas systems on this list, nearly a half a million. Then again, I thought Austin was the only “Liberal” city in Texas.

http://www.taxfoundation.org/publications/show/23882.html

By: joykiller

joykiller — Mon, 27 Oct 2008 23:07:20 +0000

The transit agency can fund the equipment one of two ways: issuing bonds, or entering into a “capital lease” with an AIG or a bank. Either way, the agency benefits from a tax-exempt rate of interest (the bond purchaser or lessor pays no income tax on the interest received, so it can offer a lower rate).

If the agency issues bonds, however, it can’t take advantage of the tax benefits of the equipment’s depreciation, as the transit agency is a tax-exempt entity. An AIG or a bank can, though, and it passes these benefits on to the agency in the form of an even lower interest rate.

By: andrew

andrew — Mon, 27 Oct 2008 21:43:44 +0000

Apparently they have stopped the practice for the most part, and they never used AIG, so that’s good news.

By: FOS

FOS — Mon, 27 Oct 2008 13:43:03 +0000

I think the Metro problem might be a BIG one, if the leasing companies call in their notes.
Every registration I’ve looked at on a Metro coach shows a Leasor on the certificate, not King County – but I’ve never had a fetish of looking at all the registrations either, so I could be FOS.

By: Steve

Steve — Mon, 27 Oct 2008 08:06:50 +0000

Depends on what the agency/corporation gets out of it. If the interest rate that Metro got from AIG was cheaper than the interest rate they’d get from issuing bonds to pay for equipment (since there’s no way a public funded agency (or even most corporations) would have the capital to pay for it all up front), then I’d argue this looked like a good move at the time.

That said, it does make me wonder how Metro decides when the agency needs to replace buses and how buses compare with streetcars on this count. It seems like they do a pretty good job of squeezing life out of old vehicles (the current set of articulated trolley buses have to be nearly 20 years old, right?), but streetcars are reputed to last longer. Ignoring labor, what’s the yearly cost of running a bus all day vs. running a streetcar all day?

By: Brian in Seattle

Brian in Seattle — Mon, 27 Oct 2008 06:33:12 +0000

This is just financial idiocy. Typical short term financial thinking that’s been running rampant over the last twenty years at all levels of society. Why the heck would anyone buy their equipment outright, than turn around and sell it to an entity and rent it forever from the same entity. Why would anyone or any agency/corporation WANT to make payments forever instead of paying the loan/bond off/piece of equipment off and own it outright????.