The impact of the AIG collapse is being felt far and wide. Thirty municipal transit agencies, including those in Atlanta, Chicago, DC, San Francisco, and Los Angeles, are facing the prospect of being forced to come up with hundreds of millions of dollars. The crisis is a result of complicated (but legal) tax dodges between the transit agencies and private banks (explained here in the Washington Post). Basically, the banks paid the agencies large sums upfront that would be repaid in installments over time. Exploiting a loophole in the tax code, the banks saved hundreds of millions in taxes, but split the profit with the transit agencies. The deals were guaranteed by AIG, but now that the insurer is on the skids and the federal government has declared an end to the tax dodge, the banks are demanding that cash-strapped transit agencies hand over hundreds of millions in cash in the next few weeks.
Sunday, October 26, 2008
AIG's Self-Afflictions and Exposed Tax Shelters Threaten to Bring Down Public Transit in Major Cities
The Dollars & Sense blog has the disturbing news on banks demanding millions back from mass transit agencies around the country now that stumbling insurance giant AIG cannot guarantee tax shelters that agencies provided for banks: