Whose train is that anyway?

Unless you were in seclusion the last few months, you probably heard that all the creative finance from Wall Street went to dust last fall.  What does that have to do with public transit?  Very little one would hope.

Think again.  Several transit agencies participated in a wacky “sale and leaseback” arrangement involving their trains, the banks, and insurance companies including AIG.  The Washington DC Metro, Bay Area Rapid Transit, and Chicago Transit Authority sold their trains to banks, which leased the trains back to the transit authorities.  The deals were guaranteed by insurance companies, most notably AIG, and the agencies all were defaulted when AIG lost its high quality financial rating (and then some) in the fall of 2008.  The upshot: the transit agencies suddenly were obligated pay banks millions of dollars they otherwise would not have had to pay.

As an aside, a bank owning a subway train doesn’t make a whole lot of intutive sense, does it?  Why would a bank want a train?  Well, the answer apparently is that the bank can write off depreciation of the trains on its taxes whereas a transit agency cannot.  Public transit agencies generally don’t pay taxes.  So the banks paid the transit agencies for the privilege of owning the trains as a tax shelter.  Neat, huh.

wilmingont-trust-owns-this-train

This Green Line car courtesy of the Wilmington Trust Company

The T avoided the limelight on this, and probably many people simply assumed that the T didn’t participate in sale and leaseback transactions.  Think again.  I stumbled across the plaque to the right on a Green Line train at Government Center.  Maybe there aren’t many bank-owned trains … but there are at least a few.  Now I know where to send my complaint about the faux wood paneling!  To the bank!

There may yet be a happy ending to this catastrophe.  The transit agencies were left out of the original 2008 Wall Street givaway but Christmas/Channuka/Kwanza may yet arrive at the DC Metro and elsewhere if  Congress agrees to step into AIG’s shoes to guaranty the bank deals … and to avoid the banks having to find a repo guy with a tow truck big enough to haul away all of those trains.