The trouble stems from leasing arrangements made years ago between transit agencies and lenders in which the banks bought transit equipment and facilities, such as railcars and stations, and leased them back to the agencies.
The transit agencies got much-needed cash, and the banks got tax benefits. In 2003, the tax benefits from those kinds of transactions were prohibited by the IRS.
AIG served as the insurer of many of those deals. The collapse of AIG downgraded its credit rating, allowing the lenders to demand full payment from the transit agencies if the agencies did not quickly find other insurers.
The Washington Post says the Washington Metro needs to pay back 43 Million.
In Metro’s case, the regional transit agency could face up to $400 million in payments, the system’s chief financial officer, Carol Kissal, said in an interview yesterday. One bank, KBC Group of Belgium, has told Metro that it needs to pay $43 million by next week. Metro officials confirmed the details but declined to name the bank.
This is a sad time when public transit is at a all time high.