Skip to Content
Streetsblog San Francisco home
Streetsblog San Francisco home
Log In

Wall Street Swaps Haunting Cities: How Many Transit Agencies Hold Them?

The vast majority of Americans could not recognize the term
"credit-default swaps" until 2008, when the obscure type of Wall Street
deal was pinpointed as a
leading cause of the U.S. financial meltdown. Now another type of swap,
centered on interest rates, is making headlines as a growing number of
urban governments start to regret their bets on borrowing costs.

nyc_subway_mta_walder_transit.jpgA rail car from the New
York City MTA. (Photo: TreeHugger)

auditor general has
the Delaware River Port Authority -- which operates a
commuter rail line and four bridges -- to ban interest-rate swaps,
calling them "nothing more than a form of gambling with public funds."
The Wall Street Journal reported
last week that "hundreds of municipalities" owe money to banks on the
swaps, which were signed in a bid to lower borrowing costs by shielding
cities from a future rise in interest rates.

The New York Times picked up the thread yesterday in a front-page
on the growing risk surrounding the swaps, neatly summing up
localities' current predicament:

The swapswould indeed have saved money had interest rates gone up. But to getthis protection, the states had to agree to pay extra if interest rateswent down. And in the years since these swaps came into vogue, interestrates have mostly fallen.

Several of the nation's largest transit authorities have
interest-rate swaps sitting on their books, according to their financial

New York City's Metropolitan Transportation Authority (MTA)
reported outstanding swaps worth $3.9 billion in its most recent
financial statement [PDF],
released late last year. The counterparties, or trading partners, to
MTA swaps include several recipients of government bailout money,
including Citigroup, AIG, Morgan Stanley, J.P. Morgan, and UBS, which received
indirect aid through the AIG rescue.

Los Angeles' local transit authority, known as Metro, reported five outstanding
interest rate swaps valued at $808,000 in its most recent financial
statement. The largest of the swaps was with Goldman Sachs.

New Jersey Transit, which
planning to
hike fares 25 percent to close its budget gaps, did not
identify the counterparties to its interest-rate swaps in its annual
financial statement. But Bloomberg reported in
that the state's transportation trust fund, a key source
of transit funding, was paying $1 million per month to Goldman Sachs as a
result of a previous interest-rate swap deal.

The Southeastern Pennsylvania Transportation Authority, which runs
transit networks in the Philadelphia metro area, reported interest-rate
swaps with Citibank and Merrill Lynch in the amount of $340 million on
its 2008 financial statement, the most recent available.

One transit system that does not appear to have used swaps to lower
its interest rates, based on its financial statements, is San
Francisco's Bay Area Rapid Transit (BART).

Stay in touch

Sign up for our free newsletter

More from Streetsblog San Francisco

Call to Action: Next Step to Save the Richmond-San Rafael Bridge Bike Lane

There are six lanes on the Richmond-San Rafael Bridge. Drivers still want all of them. The fight to reserve one for people not in cars continues.

May 23, 2024

Alameda Installing Unprotected Bike Lanes on Park and Webster

How many Tess Rothsteins and Maia Correias have to die in dooring crashes before Bay Area cities stop accepting door-side lanes as an acceptable solution under any circumstances?

May 23, 2024
See all posts