Sure, it’s good news that WMATA doesn’t need to cough up millions of dollars it doesn’t have in order to pay back the Belgian bank KBC on loans that AIG’s credit could no longer support. That is, loans that AIG could no longer support in the wake of the financial catastrophe, before the federal government bailed out AIG. What exactly did this settlement accomplish that that bailout failed to do? It’s a question Economist blogger and former DCist editor Ryan Avent posed from the start: “One might ask just what the hell was the point of giving AIG government credit worth $122 billion (and counting) if it wasn’t going to prevent the deals the firm guaranteed from falling apart.”
As the L.A. Times reports, both sides are happy with the arrangement, whose details have been hushed on the order of a judge who oversaw the deal. The Washington Post account suggests that WMATA paid somewhere between the $17 million that they originally offered when the Belgians first demanded a cashout and the $43 million the bank demanded in upfront fees.
Why keep the details secret? It’s a deal that affects directly people who live in the metro area, and a deal with ramifications for people who live in Atlanta, Chicago, Los Angeles, and San Francisco, and 26 other transit agencies whose tickets have been called up since the failure of AIG. By the sound of it, WMATA got the better side of the bargain; shouldn’t those other transit agencies that each had a ticket backed by AIG be privy to the same deal?
Arguably, WMATA had the stronger hand in negotiations. With the original “sale-in, lease-out” deals, banned by the IRS in 2004, transit agencies sold transit assets to banks, who then leased them and benefited from a tax shelter. In 16 deals backed by AIG, WMATA quote-unquote sold 600 rail cars to KBC. The deal falls through, for reasons that begger the imagination, when a U.S. federal bailout is not enough to restore confidence in AIG. Couldn’t WMATA have simply told the Belgians to come pick up their property?
Okay, that’s silly. But it isn’t silly to ask what WMATA spent in order to arrive at an equitable solution. Given the trouble that transit authorities from Maryland, Virginia, and D.C. have had in finding a long-term funding solution for WMATA in the past, any change in its financial situation — in particular the potential loss of its trust fund — is gonna be a setback. And while it might be reasonable for Treasury officials to feel “reluctant to step in because they do not want to be seen as rewarding tax shelters for banks and other private investors,” the IRS has already closed the tax shelter. At this point, is a bad signal of confidence worse than reduced services in Los Angeles, Sacramento, Santa Clara, Atlanta, Chicago and others?
Photo used with permission under a Creative Commons license with Flickr user FutureAtlas.
