Riding the Gravy Train: How Wall Street Is Bankrupting Our Public Transit Agencies by Profiteering off of Toxic Swap Deals

Source: Refund Transit Coalition, June 2012

Across the country, the state and local budget crises have hit public transit agencies very hard. As public officials try to cope with record revenue shortfalls caused by the economic crisis created by the banks, public transit is on the chopping block. In city after city, transit riders are facing fare hikes and service cuts. But while riders are forced to bear the costs of solving transit agencies’ budget problems, the big banks on Wall Street are gouging many of these same agencies and the governments that fund them for more than half a billion dollars each year through toxic deals known as interest rate swaps.

Wall Street banks sold these swap deals to state and local governments and transit agencies as a way to save money and lower borrowing costs. However, when the banks crashed the economy in 2008, the federal government aggressively drove down interest rates as part of the bank bailout. These artificially low interest rates have changed the math on these deals, and governments and agencies are now losing millions of dollars every year as a result. The banks are reaping a windfall at taxpayers’ and riders’ expense, and it is a direct result of the bailout-era interest rates.

We have identified a dozen places around the country where banks have entered into toxic swap deals directly with transit agencies or with the governments that provide substantial funding to them: Baton Rouge, Boston, Charlotte, Chicago, Detroit, Los Angeles, New Jersey, New York, Philadelphia, the San Francisco Bay Area, San Jose, and Washington, DC. In these 12 places alone, banks are overcharging taxpayers and riders $529 million a year…