The Washington, DC Metro system is the only public transit system in America without a dedicated funding source. Consequently, Metro goes ’round hat-in-hand trying to find contributions from the DC, Maryland, Virginia, and federal governments. This please sir may I have another? approach has left the system short approximately $1 billion per year needed for the next decade to ensure upkeep and upgrades to the buses, trains, and rails. The Senate recently ponied up $1.5 billion, and small fare hikes and increased ridership may add a bit to the pot. (Though the latter obviously increases wear and tear as well)
So today, the Washington Post reports more bad news:
“Metro and 30 other transit agencies across the country may have to pay billions of dollars to large banks as years-old financing deals unravel, potentially hurting service for millions of bus and train riders, transit officials said yesterday.”
Huh? What happened?
“The problems are an unexpected consequence of the credit crisis, triggered indirectly by the collapse of American International Group, the insurance giant that U.S. taxpayers recently rescued from bankruptcy, officials said.
AIG had guaranteed deals between transit agencies and banks under which the banks made upfront payments that the agencies agreed to repay over time. But AIG’s financial problems have invalidated the company’s guarantees, putting the deals in technical default and allowing the banks to ask for all their money at once. “
In other words, the failure of AIG means that the banks can call in their loans whenever they damn well please; as in, tomorrow. The Washington Metro Area Transit Authority (WMATA) could owe up to $400 million; one Belgian bank has already demanded payment of $43 million by next week. They’re going begging to Treasury ASAP, but with other cities including Boston and Atlanta similarly desperate, there may not be much to go around.
The full, depressing situation is here. Above all, the story reveals the dangerousness of the incredible interconnectivity of our modern economic system.