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How banks have sucked mass transit dry

Published Dec 4, 2008 8:23 PM

Fare hikes, layoffs and massive service cuts planned by New York’s bus and subway system–its “doomsday budget”—have been reported as a done deal by the city’s big business media.

But some New York riders and transit workers have met this doomsday attitude with a fighting spirit of protest and resistance.

Holding signs reading, “The banks should bail out the MTA,” members of the Bail Out the People Movement and transit workers held a press conference on Nov. 20 outside a public hearing where the Metropolitan Transportation Authority announced the cuts. The Straphangers Campaign carried giant petitions signed by subway riders. One protester disrupted the hearing.

The media are attempting to address this public outrage by claiming that the hikes and cuts are necessary–that the financial crisis has drastically reduced the revenues state and city governments get from corporate taxes. But the MTA’s officially stated deficit has nothing to do with state and city budgets. The MTA really owes all that money to the banks—most of it for interest payments.

It's not that the financial crisis isn't compelling the MTA to make drastic cuts and fare hikes. The failure of insurance giant AIG and of firms like Ireland’s DEPFA Bank has investors demanding that the MTA pay hundreds of millions of dollars extra–based on risky, complex borrowing schemes the MTA made in cahoots with these bankers.

Now the MTA’s non-elected board wants its mistakes to be paid for by riders and transit workers.

In 2007 the MTA was already projecting a 2009 budget deficit of $1.4 billion. At the time, the Straphangers Campaign stated that “this is the deficit after state and city subsidies. The reason that the deficit is so big is because the interest is coming due on the $32 billion the MTA has borrowed over the last 25 years. By 2010 about 20 percent of the MTA budget will be debt service.”

“Debt service” means “interest owed to investors.” Some of this is interest paid on loans whose principal was paid off years ago. But the banks keep raking in the money.

The MTA now says it is short $1.2 billion. The New York Times reported Nov. 21 that the MTA’s debt service is $1.5 billion. This means that all the cuts, layoffs and hikes will go to pay interest to banks that invested in the MTA–banks that are now being given trillions of dollars in bailout money.

“If the budget is approved as is,” reported the Times, “subway riders next year would pay 83 percent of the cost of operating the system, up from 69 percent this year.” (Nov. 21) That means the MTA and other cities’ transit authorities are playing the role of collection agencies for the banks.

This is why transit agency heads now find their systems being raided by investors for hundreds of millions of dollars, adding up to amounts that dwarf their officially stated deficits.

‘Kickback scheme’ exposed

Starting in the early nineties, these transit agency heads collaborated with AIG to arrange a “leaseback scheme.” It involved selling transportation equipment to investors, often banks, and then leasing it back.

Call it a “kickback scheme.” The investment was a tax shelter for banks, which used the equipment’s depreciation to reduce the profits they had to report to the IRS. Transit agencies got big upfront payments–which won juicy bonuses for transit agency big shots. And AIG got big fees for acting as the deals’ guarantor.

Each deal had a contract item stating that if the guarantor lost its Triple-A status, the transit agencies would be in “technical default” and owe back all the money immediately. AIG did lose its Triple-A status–a failure that won it $150 billion in bailout money from the government–and now each transit agency owes hundreds of millions on multiple AIG-arranged deals.

How much is owed? The New York MTA won’t say. But the Washington, D.C., transit agency was in federal court on Oct. 29 on this very issue, asking for protection from Belgium-based KBC Bank, which was demanding $43 million. (Washington Post, Oct. 30)

At a Nov. 18 press conference called by the American Public Transportation Association, the D.C. transit manager said that deal was only one of 14 his agency had made. With him were transit execs from New York, Houston, Los Angeles, St. Louis, Chicago and five other cities. They were begging the government to take over the role of AIG and other previous guarantors. “This would prevent any predatory actions by banks against transit systems and the public,” said Atlanta transit CEO Beverly Scott. (APTA press release)

What is evident to all is that the government has no interest in hampering the banks and their profits in any way. It’s busy transferring as much of the public treasury as possible to the banks—$7.8 trillion worth at last count.

If the looting of public transportation is going to be stopped, it’s going to be by the people, not the government. The media want us to think the MTA plan is inevitable. But just two years ago, French youth and unions engaged in massive demonstrations and resistance that scrapped an anti-labor, anti-youth law that then-President Jacques Chirac had already signed into law.

It’s possible to push back fare hikes and layoffs. Key to doing so is rejecting any notion of having to “share the burden” with the banks and their lackeys in the MTA. It’s their crisis. Let them solve it.