AIG's collapse may cripple Metro

October 30, 7:27 AMDC Transportation ExaminerKatherine M. Hill

Previous Next

Comment Print Email RSS Subscribe

Subscribe

Get alerts when there is a new article from the DC Transportation Examiner. Read Examiner.com's terms of use.

Email Address   Include other special offers from Examiner.com Terms of Use

AIG’s collapse has a bigger impact than investing headlines: the fold may cause transit cuts across the nation, including a possible $400 million loss in the district. As of this writing Metro owes $43 million to one bank (it decline to provide which bank); the money is due next week. The new bills come on the heels of a federally approved funding package.

Other cities in these woes include Los Angeles, San Francisco, Philadelphia, and Chicago.

How does the nation’s credit crisis and AIG’s bailout by taxpayers affect Metro? The Washington Post explains:

AIG had guaranteed deals between transit agencies and banks under which the banks made upfront payments that the agencies agreed to repay over time. But AIG's financial problems have invalidated the company's guarantees, putting the deals in technical default and allowing the banks to ask for all their money at once. 

Metro made 16 deals from 1987-2003, selling its railcars at an estimated value $1.6 billion for a $100 million return. Poor Metro was screwed on that deal and is screwed again.

Metro says the FTA has encouraged the agency to pursue and accept tax breaks. When Metro took the loans the banks were promised by the IRS that the loans were safe.

WMATA/Metro hasn’t said if it will cut a check for next week’s balance, but has said that it plans to take these problems to court. Various transit agencies across the country are asking for federal assistance; the government has the option of backing transit in the financial crisis and enabling the rails of America to continue to operate against the monetary mess.

 Four senators have written Secretary of Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke for assistance:

"If the Treasury and Federal Reserve do not act quickly, public transit agencies around the nation could become financially crippled and several banks could enjoy unjustified windfalls," read the letter, which was signed by Sens. Robert Menendez and Frank Lautenberg of New Jersey, Sen. Richard Durbin of Illinois and Sen. Barbara Boxer of California.

As of this writing, Paulson and Bernanke have not responded.