This article firsy appeared in the St. Louis Beacon, Feb. 1, 2009 - As hundreds of cities, counties, highway departments and other governmental agencies line up at the trough waiting for the government stimulus plan they hope will ease their economic woes, one item on Metro's wish list wouldn't cost the feds a penny -- at least for the moment.
Metro, the agency that runs the St. Louis area's mass transit system, is hoping the federal government will agree to stand behind the insurers of some of its debt.
One of Metro's current financial headaches stems from the drop of ratings of insurers such as American International Group (AIG), FSA and Ambac. Ambac and FSA backed some of Metro's complicated financial instruments called "structured lease transactions."
In the transactions, which John Noce, the agency's chief financial officer and senior vice president, likened to annuities, Metro sold railcars and maintenance facilities and leased them back using them as collateral. The instruments are similar to annuities, he said.
The contracts for those "annuities" stipulate that Metro's insurer must be AAA rated, Noce said. When the ratings of the major insurers that could back the annuities dropped, sometimes to negative AA, last year, Metro was on the hook to find new insurers. So far it hasn't been able to do that. "There's nobody out there to go to," Noce said.
"We don't need them (the government) to give us any money at all," he said. "All we want them to do is say you have the full faith and credit of the U.S. government behind AIG and behind Ambac. That's all we want. There's no money other than the time it takes an administrative person to prepare documentation to that effect."
"No money" as long as everything goes well, that is. "If (the feds) backed (the "annuities") and those insurance companies cratered, then the full faith and credit would kick in where they'd have to make good," Noce said. But he also said he doubts that would happen. "They're not going to let those insurance companies go under," he said.
Metro is not alone in its financial pickle. Some 31 transit systems in 25 cities across the country are in the same fix with their structured lease transactions.
Before the new administration was sworn in, Metro and the other transit companies appealed to Congress for help. "The reason we went to Congress was (Federal Reserve Chairman Ben) Bernanke wouldn't do it," Noce said.
"We believe -- and our advisers believe -- the Treasury Department could have handled this, but Bernanke didn't want to do it. I don't know (the reasons) he would not (sign on). It wasn't money out of pocket for them."
Congress' response was to attach the provision that would back the financial instruments to the auto bailout bill it voted on just before Christmas. "The last paragraph of that bill was to provide suitable credit -- not funding. That's all we need is backing," Noce said.
The bill failed and the agencies' tight spot continued to squeeze them.
"There was no other bill to attach it to," Noce said. "They (Congress) were running out of time and running out of town. A number of letters were written to the banks telling them to back off, (and) 'don't give the transit systems any trouble.'"
There are two avenues for resolving the problem, Noce said. Congress could handle it or newly installed Treasury Secretary Timothy Geithner could "deal with it right away," he said. "He and his administration would have to wade through the paperwork and prepare the documents."
Metro's lenders recently gave the agency yet another extension in trying to resolve the issue.
"In all honesty, they've probably given me six '30 days'," Noce said but then corrected himself. "I wouldn't call it 30-day extensions because there haven't been any formal documents. It was more like, 'Call us back in a few weeks and let us know what you've found out.' That's how it's been going. It's been 180 days since this problem started. They've been very patient.
"What is happening now is the banks have agreed to stand down and wait for the 111th Congress or the Treasury Department under the new administration to address the issue," he said. "Our biggest fear was the banks would insist we take action at Christmas. Instead, they gave us some time so they are working with us. The big fear (the agencies have) is the document says we're supposed to do certain things, but right now they're working with us, so we are feeling pretty good. But again it's not been solved."
The downgraded ratings could cost the agency money, causing it to dip at least $5 million into its reserves, Noce said.
Noce said Metro agreed to call the lender back after the 20th of next month, but, he added, the agency will call back before then to keep the channels of communication open.
While Metro is hoping the feds will back its insurers, an action that wouldn't cost the government any money immediately, the agency is also hoping the stimulus plan will send some funding its way.
"We're hoping all those projects (the agency and others applied for) go through although I'm not sure what they all are," Noce said.
The funding Metro is seeking includes:
* $50 million to meet the agency's budget shortfall, which is causing severe cutbacks in service at the end of March
* $25 million to repair structural elements of the Eads Bridge, remove hazardous material coating and paint the entire bridge. (The agency owns the bridge below the street deck.)
* $5 million to replace aging buses and Call-A-Ride vehicles with fuel-efficient "green" vehicles
* $45 million for preventive maintenance to the system's original 17.1-mile MetroLink line from Lambert to East St. Louis
* $5 million for an emergency communication system
"The city and county wrapped all of our stuff, too, and put it in theirs," Noce said. "The city put in for $900 million to build a north-south light rail line. I don't think those are all ready to go in 90 days but hey. . ."
In fact, the north-south MetroLink line hasn't been approved by East-West Gateway Council of Governments, which must initiate such projects, Noce said. "But that didn't stop the city and the county," he added. "We didn't put in for an extension. We can't (afford to) operate it."
Kathie Sutin is a freelance writer in St. Louis.