San Francisco Muni may have to pay $68 million to banks and insurers as a result of some “creative financing” done 8 and 9 years ago. As previously described in the Antiplanner, in the early 2000s the Federal Transit Administration encouraged transit agencies to sell their equipment to banks and then lease it back. The banks would get the tax advantages of depreciating the equipment (which, as government agencies, the transit agencies wouldn’t get), and the banks and agencies would split that advantage.
As the Antiplanner noted before, this meant that, for each $100 million worth of capital purchases, transit agencies would get about $3 million more, but the cost to taxpayers would be about $6 million (because the banks would get the other $3 million). The problem today is that the transit agencies also insured the lease payments and the funds were tied to the insurer’s credit ratings. IF and when those ratings fall, the transit agencies are on the hook to repay the entire amount to the banks.
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The good news is that the IRS ruled such tax shelters illegal in 2004. The bad news is at least 30 transit agencies are in the same boat as Muni and may be scrambling for funds to cover their bets. This so-called creative financing was nothing but a dirty little scam that the FTA and local transit agencies played on unwilling taxpayers–just one more reason to privatize transit.
This so-called creative financing was nothing but a dirty little scam that the FTA and local transit agencies
I agree wholeheartedly that this was a terrible scam. However, don’t the banks deserve some blame here too, aside from the Clinton and Bush FTA administrators and the local agencies who willingly bellied up to the plate?
Takes two to tango as they say, and the agencies certainly did not foist these deals on poor hapless naive innocent financial institutions, unlike the functionally bankrupt transit agencies and their managements in hopelessly over their heads and abilities in dealing with Wall Street high finance. I’m sure the banks really played up the downsides of these deals when they were negotiating them (/sarcasm)
How would privatization help though? If there was money to be made running transit services without subsidies, don’t you think entrepreneurs would be all over it? Anyone can put buses on the road without distraint.
“If there was money to be made running transit services without subsidies, don’t you think entrepreneurs would be all over it? Anyone can put buses on the road without distraint.”
I know you are being sarcastic. I wish to point out to the readers who might miss the sarcasm, that in most municipalities which have a transit agency, competitors are strictly prohibited by law.
Distraint or distress is “the seizure of someone’s property in order to obtain payment of rent or other money owed”, especially in common law countries – Wikipedia
Prioritization may not solve the problem but it helps. The privatization of transport refers to the process of shifting responsibility regarding the provision of public transport or service from the public to the private sector. The taxpayer is not burdened by the inclusion of a hyper expensive train line or fancy transit station, the company is. And they’ll be reluctant to or dumbfounded to build something like that. The 1970s were an era of deregulation within the U.S. Back then public transport (i.e. railroads in 1976 and airlines in 1978) were deregulated. The use of passenger trains continued to decline proportionately and air travel grew. Don’t forget public owned bus companies in the U.K. Those companies were reorganized in 1985 into private companies (with the exception of London). Cost savings mainly resulted from reduced employment costs and increased productivity. There is some money to be made in the transit market, but I don’t think it’s for big business. If anyone can buy a van(s) or series of small shuttle buses, they can be (or should) allowed to transport people to and from. Transit passengers would love the idea of a competitive efficient transit system for them even if it’s a small private cottage industry setup, the people that hate it are the heavily regulated taxi industry and super-subsidized public transit sector but they don’t really care as fares on average only make up less than half of the revenue obtained. Chicago is already planning a large bus rapid transit setup to handle the passenger load as it’s famed elevated rapid transit system is falling apart faster than a toothpick tower. At the time they were bidding for the 2016 Olypmics, several state and local lawmakers took a tour of Chicago’s mass transit system inspecting for signs of decay. ‘L’ platforms right smack in the loop are falling apart. In 2007, 22 percent of the trains were forced to operate at reduced speed due to deteriorated track. The “L” it would cost nearly as much to rebuild as portions of the NYC subway, yet Chicago is one-third the population so a fraction the tax pool to pay for it.
Lazy, even with jitneys, you’re still taking advantage of the public domain.