Metro Seeks Court Order on SILO Payments

November 12, 2008

Attorneys for DC’s transit agency appeared before a federal judge today seeking an injunction preventing a Belgian bank from obtaining $43 million in termination fees:

The hearing, before U.S. District Judge Rosemary Collyer, is being watched by transit agencies and other public entities across the country. Many of them entered into similar deals years ago that are also in danger of default because of the recent credit downgrading of American International Group. AIG, the insurance giant that U.S. taxpayers rescued from bankruptcy, guaranteed many of the agreements. Transit industry lawyers estimate that 30 transit agencies in 18 states could face $2 billion to $4 billion in payments if the deals go into default, forcing the agencies to cut service and harm local economies.

Late last month 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 Post article has some numbers from some transit agencies about the extent of their liability. We’ve been discovering from information requests and calls from reporters and activists that some agencies are trying to deflect inquiries about how much they owe. Here are the exceptions:

Transit agencies in Atlanta, New Jersey and Sacramento are following the Washington case closely, he said. In Atlanta, the Metropolitan Atlanta Rapid Transit Authority could face nearly $400 million in payments, a figure roughly equivalent to the system’s entire operating budget, officials said. One company, which officials declined to name, has told Atlanta transit officials to pay a $48 million claim that is due mid-November, an agency spokeswoman said.

New Jersey Transit could face up to $150 million in payments, according to board Chairman Kris Kolluri.

“We’re watching the WMATA situation very carefully,” Kolluri said in a telephone interview.

Read the Fiscal Fact here.


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