Update, see below
I never expected the financial crisis to have such a direct impact on transit, but according to the Washington Post, transit agencies could be forced to come up with billions in cash due to AIG’s failure and take-over by the fed. Apparently, some transit agencies are leasing equipment from banks, and AIG has been providing insurance that the agencies will make their payments. AIG’s takeover triggered a clause in the contracts that allows the banks who own the leases to demand immediate repayment, and many of them need the money to stay solvent due to the credit crunch. Double-Whammy. Weak, and AIG spent how much on lavish parties and excutive retreats?
Here’s how WaPo describes the deals :
In a once-common practice that the IRS has ended, many transit agencies entered into arrangements in which they sold equipment such as rail cars to banks. The banks then turned around and leased the equipment back to the transit agencies.
Both sides benefited. The transit agencies were given a large sum of money up front, which could pay for various infrastructure upgrades. And the banks were able to rely on frequent lease payments while also writing off taxes on the depreciating property.
The deals were approved by the Federal Transit Administration, which promoted the lease agreements, transit agency officials said.
…
AIG, which collected fees paid by Metro and other transit agencies, guaranteed that lease payments to the banks would be made on time. But AIG’s financial problems have triggered a clause that allows the banks to demand their money all at once.
More than 30 agencies have entered into the deals, including King County Metro, though I don’t know exactly how big the problem with Metro is. I’ll get back to as soon as I know.
Update:
The metro mentioned in the article is DC Metro, sorry if that is confusing. But KC Metro is affected, according to this site, as is Sound Transit.
Update 2:
According to Rochelle Ogershok at KC Metro, Metro no longer has any of those AIG deals, which is very welcome news. I was worried about nothing.