Toxic Pre-Recession Bank Deals Haunt Struggling Transit Agencies

[M II A II R II K]

Toxic Pre-Recession Bank Deals Haunt Struggling Transit Agencies


June 8, 2012

By Angie Schmitt

Read More: http://dc.streetsblog.org/2012/06/08...nsit-agencies/

Riding The Gravy Train PDF: http://refundtransit.org/wp-content/...ansitSWAPS.pdf

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The financial products that got transit agencies in trouble are called interest rate swaps — deals that were supposed to protect transit agencies against increases in borrowing costs. Instead, after the economy fell off a cliff in 2008, interest rates are now at historic lows, and transit agencies are stuck paying many times the current competitive rates.

- Refund Transit’s survey of 12 major transit providers found that public transportation agencies were overpaying by $529 million thanks to these deals, which were sold as a way to minimize risk and save money. Los Angeles’s transit system is losing $19.6 million annually compared to the interest rates they would otherwise be paying. Detroit — where low-income workers face up to three-hour transit waits and are occasionally stranded — loses $54 million annually. The state of New Jersey’s transit system loses $83 million, according to the report.

- “Banks sold these deals as insurance policies that would let taxpayers lock in lower interest rates without having to worry about rates shooting up in the future,” the organization says in the report. “However, these deals were actually more of a gamble than an insurance policy.” Larry Hanley, president of the Amalgamated Transit Union, said banks should not be profiting from conditions they helped to create, especially since banks themselves were insulated from the economic crash by taxpayer funds. “We got them out of their mess,” he said. “Today we are lending the banks money at 0.5 percent a year – the taxpayer is lending them the money – but then in turn, they are gouging the taxpayer through these agencies and through the city governments.”

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