30 Transit Agencies in Bind Due to SILO Deals; Belgian Bank Holds Off Collection Pending Hearing

October 31, 2008

Yesterday we released Tax Foundation Fiscal Fact No. 153, “Transit Agencies in Bind Due to SILO Deals and AIG Collapse,” outlining the situation that now has 30 transit agencies facing heavy termination penalties from foreign banks. It’s a result of (1) a series of leaseback transactions these agencies conducted which included heavy termination penalties, (2) federal policy first to encourage and then to discourage them, and (3) the collapse of insurer AIG. As a result, approximately 30 agencies nationwide may face serious financial shortfalls absent action by the U.S. Treasury Department.

The fiscal fact includes a list of the agencies affected and the assets they’ve pledged in the deals, which total some $16 billion worth of railcars, buses, facilities, and other equipment. If forced to pay the termination fees, the agencies would have to come up with somewhere between $1.5 billion and $4 billion. The deals were encouraged by the Federal Transit Administration as a way of increasing funding without it being an on-budget appropriation; the U.S. Treasury Department never liked the deals and finally outlawed them in 2004.

The most pressing demand, that by Belgian bank KBC against Washington, D.C.’s WMATA, is in a holding pattern now after KBC agreed not to collect $43 million for ten days until after a court hearing. Metro entered 16 such agreements with the termination penalties and evidently assumed it would never have to pay them. Metro says it could be on the hook for up to $435 million if each agreement is terminated.

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