Public Transit: The Cost of Financial Carelessness
Will bailed-out banks bankrupt transit systems at a time when those systems are critical to our energy independence?
November 02, 2009
Mitchell Moss has a column today in the New York Times advocating a legislation solution to restrain the greed of banks who threaten to reduce transit ridership.
During the 1980s and 1990s the federal government encouraged leasebacks for budget-strapped transit systems. New York, New Jersey, Atlanta, San Francisco and Washington, among others, sold their equipment to banks and leased it back. Then, the Bush-era IRS declared those deals illegal. It granted amnesty to the existing leaseback arrangements, but forbade any new ones.
Recently, banks have found a loophole that would allow them to cancel the remaining leases (almost every major city's transit system has one) and collect early-termination fees in the billions of dollars. In consumer terms, it's like a credit card company terminating their zero-interest promotion on a technicality, closing the account and jacking the rate up to the legal limit. The transit systems can't afford it, and transit riders would suffer the higher fares and deferred maintenance.
The bill "would levy a 100 percent excise tax on any lump-sum payments demanded by the banks," Moss explains. "This would effectively force the financial industry to stop demanding default penalties and go back to the old lease payment schedule -- at no cost to taxpayers."
"Yes, the transit groups were unwise to get involved in the leasebacks," Moss argues, "but that’s no reason to let banks continue to exploit loopholes in them at the expense of transit riders."
Transit ridership has been on the rise since gas prices and U.S. environmentalism started climbing, a few years ago. This is no time to let unbridled greed throw water on a big part of the solution to our oil and climate problems.