“The next potential victims of the nation’s credit crunch: nearly 1.5 million people who ride buses and trains each weekday in Los Angeles County. Transit officials say riders could soon be facing serious service cuts.
“That’s because the Los Angeles County Metropolitan Transportation Authority might have to quickly come up with hundreds of millions of dollars to pay investors, under terms of deals it made involving American International Group, the troubled financial and insurance giant.
“‘I’ve lost a lot of sleep over this,’ said Terry Matsumoto, the chief financial service officer and treasurer for the MTA. He said it was ‘absolutely’ certain the agency would have to cut service if the deals sour.
“The problem, Matsumoto said, could extend beyond the MTA to other large transit agencies that entered into similar deals between the late 1980s and 2003, when tax laws were changed to discourage such transactions. Among those is Metrolink.
“The news comes at a tough time for the MTA. The agency recently lost $133 million in state funds, and declining sales tax revenues mean it will have less money to help keep its buses and trains rolling.
An AIG spokesman declined to comment, citing the confidentiality of deals with its customers.
“Between the late 1980s and 2003, the MTA sold its rail equipment, more than 1,000 buses, a parking garage and maintenance facilities to investors that included Wells Fargo, Comerica and Phillip Morris in separate deals.
“Sale-Lease-back deals are a common way to raise money in the corporate world. A manufacturer, for example, could sell its factory to investors and then lease it back. The manufacturer gets a large chunk of cash and the investors get a steady stream of lease payments, as well as a tax break for their depreciating property.
“‘It’s a great way to get a shot in the arm in terms of cash without actually divesting yourself of your property,’ said Bill Holder, an accounting professor at USC.
“Many of the nation’s largest transit agencies participated in such deals. Among them are the San Francisco Muni system, the BART rail system in the Bay Area, the Chicago Transit Authority and the Washington, D.C., Metro system.
“Metrolink, the Southland’s commuter rail agency, also sold most of its train cars and locomotives in four lease-back deals — three of which involved AIG — and made a $35.5-million profit as a result, said spokesman Francisco Oaxaca. Metrolink, like MTA, must now find another firm to replace AIG.”
Transit services across U.S. threatened by deals with AIG, by Steve Hymon, LAT Bottleneck Blog, October 18, 2008
What a mess. I’d like to call the MTA stupid, because they are, but it appears they’re stupid like a lot of transit agencies. But our own stupid MTA wants a half cent increase in LA County sales tax to do more stupid things with? I think not. I think LA County voters aren’t stupid. Vote No on Measure R.
You think good business practices and common sense and, y’know, laws would keep us all safe from this kind of insanity, but then you turn your back on it and it nearly kills you. Capitalism – it’s like an urban raccoon, never turn your back on it.