Public transportation officials from around the nation met with congressional leaders to urge immediate action on the transit leasing crisis caused by AIG losing its AAA rating, on Tuesday.
“Thirty-one of the nation’s largest transit systems, including MARTA, would be financially crippled in the coming months if nothing is done to resolve this crisis,” said Dr. Beverly Scott, chair of the American Public Transportation Association (APTA) and CEO of Metropolitan Atlanta Rapid Transit Authority (MARTA). “The innocent victims will be the millions of riders who rely on public transit every day.”
Scott was joined by the heads of ten other public transit agencies: Washington Metropolitan Area Transit Authority, New York MTA, New Jersey Transit, Santa Clara Valley Transportation Authority, Los Angeles MTA, Sacramento Regional Transit, St. Louis Metro, Chicago Transit Authority, Massachusetts Bay Transportation Authority and Houston Metro.
The transit leasing agreements, known as Sale-in/Lease Out and Lease-In/Lease Out (SILO/LILO) transactions, were promoted by the Federal Transit Administration from the late 1980s through 2003, as an innovative, legal way for public transit systems to gain additional revenue. To secure these transactions, sale proceeds in the form of Treasury securities were placed into an account that insurers, such as AIG, guaranteed.
The contract terms also stated that the insurer had to have a AAA credit rating. With the collapse of AIG, it lost its AAA bond status and transit systems are now in “technical default” and the investors seek to recoup 100 percent of the tax benefits that would have been allowed.
“The U.S. Treasury has the power under the recently enacted Emergency Economic Stabilization Act of 2008 (P.L. 110-343) to take over the role of AIG and other insurers in SILO/LILO transactions,” said Scott. “This would prevent any predatory action by banks against transit systems and the public, and because the Treasury would be backing its own securities, there is no financial risk on the part of the federal government.”