Financial crisis could force Metro, other transit agencies to pay billions

Source: Agencies  |   2008-10-25  |     ONLINE EDITION

TRANSIT agencies around America may have to come up with billions of dollars to repay investors as long-term financing deals disintegrate, a result of the global credit crisis that could eventually affect millions of commuters.

The problems stem from the collapse of insurance giant American International Group, which had guaranteed financing deals between transit agencies and banks.

Officials say about 30 transit agencies across America have entered into these types of deals, including those in Atlanta, Chicago, Los Angeles, San Francisco and Washington. The fallout could mean less money for new trains and buses at a time when ridership in many areas has been steadily climbing because of high fuel prices.

Rob Healy, vice president for government affairs at the American Public Transportation Association, said some agencies could be forced to increase fares, cut bus routes and delay long-term capital improvement projects.

"You've got agencies struggling to meet increased demand, they are hamstrung by the higher cost of fuel ... and this is exposing them to additional costs," Healy said.

In a once-common practice that the US tax agency has ended, many transit agencies entered into arrangements in which they sold equipment such as rail cars to banks. The banks then turned around and leased the equipment back to the transit agencies.

Both sides benefited. The transit agencies were given a large sum of money up front, which could pay for various infrastructure upgrades. And the banks were able to rely on frequent lease payments while also writing off taxes on the depreciating property.

The deals were approved by the Federal Transit Administration, which promoted the lease agreements, transit agency officials said.

Washington's Metro transit agency made 16 of the deals, selling 600 rail cars worth more than US$1.6 billion. In return, the agency made US$100 million.