Mass Transit Takes a Number: The Line at the Dole Continues to Lengthen
Stung by heavy termination fees (arising out of some sort of fixed asset sale/lease back arrangement that sounds suspiciously similar to what has been proposed to solve Rhode Island’s public pension problem) resulting from the collapse of AIG, mass transit authorities around the country have asked Uncle Sam for help with the resulting operating shortfalls. From a Tax Foundation November 19 press release.
City transit agencies are on Capitol Hill this week, lobbying for a bailout as they face huge termination penalties from overseas banks due to the collapse of AIG and the unraveling of “Sale In Lease Out” (SILO) deals they entered into from 1988 to 2003.
Last Friday, the Washington, D.C. Metropolitan Area Transit Authority (WMATA) settled with a KBC Group, a Belgian bank that demanded $43 million in termination fee. In Tax Foundation Fiscal Fact No. 153, “Transit Agencies in Bind Due to SILO Deals and AIG Collapse,” Tax Foundation Tax Counsel Joseph Henchman explains that the situation is a result of a series of leaseback transactions these agencies conducted. Federal policy first encouraged and then discouraged these SILO deals, and when AIG collapsed, heavy termination penalties kicked in for approximately 30 transit agencies nationwide. These agencies may now face serious financial shortfalls absent the U.S. Treasury Department becoming a guarantor.
Within the framework of the logic of any bailout, a case could be made to include the mass transit systems as secondary victims of the fiscal collapse, as opposed to, say, the American auto industry, which finds itself in a bind of its own making. But with bailouts now totaling trillions, not to mention the price tag of proposed new spending initiatives, it is clear that the fetters are off and Washington now feels no constraints of any nature about spending astonishing amounts of other people’s money with questionable efficacy to accomplish dubious ends. The source of this newly-found freedom – the nose under the tent – was the original concept of the bailout. Oh, the rush of that initial seven hundred billion.
Cancel all bailouts. No to the mass transits. No to everyone. Were it even shown to be an effective approach, Washington has proven itself incapable of administering such a program responsibly or with any amount of prudence.