On Dec. 19, 2008, Reps. Jim Moran (D-VA) and Chris Van Hollen (D-MD) led a group of Members of the House and Senate today in sending a letter to the President urging that he incorporate relief for WMATA and 31 other transit agencies as part of the President’s auto rescue plan.
The relief had been included in the domestic automobile relief act agreed to by the White House and the House, but that failed in the Senate last week. The Administration announced today it will provide assistance to the domestic auto industry through the $700 billion rescue and recovery fund, and the Senators and Representatives are urging the President and Secretary Paulson to also extend relief to the nation’s public transit agencies, as called for in Section 18 of the House-passed Auto Industry Financing and Restructuring Act (HR 7321).
“Metro and 31 of the nation’s largest transit systems are on the hook for as much as $12 – $14 billion in losses,” stated Congressman Moran. “The credit crisis has imperiled these agencies’ lease agreements, through no fault of their own. We call on the President to act quickly to protect our public transit systems and the riding public.”
“Now that President Bush has indicated the Administration intends to provide temporary assistance to our ailing auto industry so that it can chart a course towards long term viability, it’s critically important that he also act to protect WMATA and the rest of our nation’s public transit systems from becoming collateral damage due to troubles they had nothing to do with at AIG,” said Congressman Van Hollen. “The contracts in question were approved by the Federal Transit Administration, and the President has already agreed to what we are asking for as part of the House-passed auto bill. We are simply asking the President and Secretary Paulson to follow through on that agreement so that transit systems and their ridership don’t take an unnecessary hit as we work to revive our struggling economy.”
31 of the nation’s transit agencies, including WMATA, have been severely harmed by the credit and financial crisis through so-called “lease-back” transactions — in which transit agencies arranged for banks to purchase their Metro cars who then leased them back to the agencies. These agreements required that they be insured by an AAA credit rated insurance agency. When insurance giants like AIG lost their ratings, the sale lease-back arrangements unraveled, requiring the transit agencies to pay out huge sums of money to the banks that brokered the agreements.
Metro has been the first system tested by this crisis. They could face up to $400 million in direct payments to banks on 16 sale-leaseback transactions that were completed and reviewed by the Federal Transit Administration between 1997 to 2003. Metro does not have access to such large amounts of capital in the near term because of the international credit crisis.
The following is the full text of the Delegation’s letter to the President:
December 19, 2008
The Honorable George W. Bush, President
The White House, Washington, D.C. 20500
Dear Mr. President:
We are writing to thank you for your commitment to work with the Congress to address the grave financial threats to the future of the U.S. automobile industry, as well as for your agreement last week to incorporate a provision (Section 18) in the House-passed Auto Industry Financing and Restructuring Act (H.R. 7321) to direct the Treasury to guarantee transit agencies’ leaseback transactions. Section 18 of H.R. 7321 would have provided critical financial protection to 31 transit agencies serving virtually every major metropolitan region in our country from the threat of technical default due to a downgrade of any of their insurers.
In the wake of the Senate’s inability to act on this bipartisan legislation, your administration has now agreed to use money from the $700 billion financial rescue and recovery fund to prevent GM and Chrysler from “collapsing.” Consistent with Section 18 of the Auto Industry Financing and Restructuring Act, we would very much hope that you would consider, as part of your Administration’s deliberations and actions, comparable actions to provide any affected transit agency lessee of “qualified transportation property” an option to request that your designee (the government) serve as guarantor of the lessee’s obligations. As we had agreed in the legislation, under this provision, the government would set the terms and conditions of such a guarantee within the next 14 days and would provide authority to the government terms and conditions, including a fee to recoup within three years any payments the government made to such a lessor in its role as guarantor.
During this difficult period, Section 18 of the Auto Industry Financing and Restructuring Act reflects a bipartisan consensus that public transit agencies should not suffer collateral damage as a result of credit downgrades in the financial industry that the transit systems did not cause and which have nothing to do with their ongoing operations. We look forward to your response and the opportunity to continue to work together on this urgent issue.
James P. Moran, Member of Congress; Chris Van Hollen, Member of Congress
Cosigners include: Sen. Robert Mendendez, Sen. Barbara Mikulski, Rangel, Lipinski, Hinchey, Tauscher, Scott, Schiff, Ellison, Berman, Blumenauer, Thompson, Sires, Green (TX), Holt, Rothman, Matsui, Napolitano, Pascrell, Maloney, Edwards (MD), Schakowsky, Lewis (GA), Norton, Roybal-Allard, Brady, Carnahan, Loretta Sanchez, Clay, Pallone, Lee, McNerney, Cummings