Wall Street owns the county's trains

Steve Hymon, over at the Bottleneck Blog, has an incredible story today about how the fiscal crisis may sink the county's Metropolitan Transportation Agency.

Basically, to sum it up, MTA does not own a lot of its own equipment: it has a "sales-lease" model with investment banks and other corporations:

Between the late 1980s and 2003, the MTA sold its rail equipment, more than 1,000 buses, a parking garage and maintenance facilities to investors that included Wells Fargo, Comerica and Phillip Morris in separate deals.

Sale-Lease-back deals are a common way to raise money in the corporate world. A manufacturer, for example, could sell its factory to investors and then lease it back. The manufacturer gets a large chunk of cash and the investors get a steady stream of lease payments, as well as a tax break for their depreciating property.

Metrolink, the Southland's commuter rail agency, also sold most of its train cars and locomotives in four lease-back deals -- three of which involved AIG -- and made a $35.5-million profit as a result, said spokesman Francisco Oaxaca. Metrolink, like MTA, must now find another firm to replace AIG.

That would be the same AIG that recently got $85 billion in taxpayer money last month because of federal concerns that it might collapse. Now AIG has to start paying back investor loans with some of its assets, which include- wait for it- MTA/Metrolink's train cars and locomotives.

What does that mean for MTA? Between $100 and $300 million potentially, if the agency can't find new investors to take on their assets. And what would that mean for riders?

As a frame of reference, Matsumoto said that $100 million equals about 10% of the MTA's bus service. However, the MTA board has not yet discussed what cuts might be made.

"I've lost a lot of sleep over this," said Terry Matsumoto, the chief financial service officer and treasurer for the MTA. He said it was "absolutely" certain the agency would have to cut service if the deals sour.

The agency has started talking to some investors in hopes of getting them to accept terms more favorable to the MTA, but Matsumoto said he doesn't know if investors are willing to renegotiate.

Under a worst-case scenario, Matsumoto said, the bill could rise to $1.8 billion -- more than half the MTA's annual budget for this year.

"There is no practical way we could ever pay that back," he said.

The agency is hoping now to get a piece of the $700 billion bailout deal that congress passed earlier this month:

The agency has met with congressional staffers and asked the U.S. Treasury Department for help, hoping to get a piece of the $700-billion bailout package recently approved by Congress. Some of that money is to be used to buy troubled assets.

"They didn't tell us to go fly a kite; that's hopeful," Matsumoto said. "But I don't know how practical it is. We weren't talking to decision-makers."

MTA Board member Richard Katz said: "The feds need to be concerned. If they bailed out the companies, they also need to bail out the public agencies impacted by the companies' actions."

Apparently, this type of arrangement is not unique, so other transit agencies across the country may be making similar requests.

This is one of two local AIG-related stories- I will post the other one later on.