The nation's credit markets meltdown has spread deeper into Sacramento – now threatening the region's main bus agency with a debilitating financial blow.
Sacramento Regional Transit is among 31 transit agencies nationally scrambling to avoid a multibillion-dollar hit as investors threaten to end deals tied to tottering insurance-industry giant American International Group Inc. – AIG.
Local officials say Sacramento's bus and light-rail operator could face a $32 million payment demand in January from an investment bank if the agency cannot find a solution. RT is declining, for now, to identify the investment bank.
RT may have to shelve light-rail expansion plans and shrink service for the third time in three years, even though public interest in transit has grown, officials said.
RT General Manager Mike Wiley was in Washington, D.C., with other transit heads Tuesday lobbying the federal government for help.
"We're one of the smaller players, but the percentage impact on us is higher," Wiley said. "Cutting our operating budget by 20 percent is just impossible."
To make matters worse, the Standard & Poor's ratings agency last week lowered RT's credit rating and put the troubled transit organization on its credit watch list.
RT's problems stem from a complicated series of bank lease-back deals, signed in 2005-2007, on 50 light-rail trains, RT officials said.
Under the arrangement, the light-rail trains are owned by the investment bank and leased to RT.
However, the two insurance companies backing the deal are in economic trouble and their credit ratings recently dropped to levels that allow the bank to cancel its deal with RT and demand a closing payment.
RT's main insurer for the deal is AIG, which has received a major government bailout to save it from collapse.
RT officials said they have negotiated an extension with the bank to Jan. 13 for time to find a new insurer or obtain federal backing for its lease agreement.
Sacramento was joined by transit representatives from New York, Los Angeles, Houston, St. Louis, Chicago, Boston and other cities – all in similar situations – on a Washington lobbying session Tuesday.
In a letter to the U.S. Treasury Secretary Henry Paulson urging assistance, Rep. Doris Matsui, D-Sacramento, estimated California transportation agencies, including Caltrans, face exposure of $700 million in total.
RT's Wiley said the agencies and their supporters hope to persuade Treasury officials and the Federal Reserve Board to act as insurer. That action won't require any new federal bailout money for AIG, but would be tantamount to a guarantee behind the investments.
"It's a fairly easy solution," Wiley contended.
Federal agencies have talked with transit officials, however, but have not yet committed to help, he said.
Former RT chief Beverly Scott, now chairwoman of the American Public Transportation Association, described the problem as a crisis that could potentially cripple transit agencies.
"The innocent victims will be the millions of riders who rely on public transit every day," Scott said in a statement from Washington.
Call The Bee's Tony Bizjak, (916) 321-1059.
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