In September of 1929, the City of New York proposed an ambitious 100 mile proposal for what was known as the IND Second System. The plan would have greatly improved service on the city's subways and would have increased access for residents. Remnants of the plans remain to this day with unused platforms and tunnels, but by and large, the plans are lost to history.Before the ink on the plans was even fully dry, America and the world were struck by the disastrous October 24, 1929 crash of the stock market. The dreams of transit planners weren't the only ones shattered on that black Thursday, but the consequences have been long-lasting for New Yorkers, whose subway system hasn't launched a major expansion since the 1940 unification of the three systems.
Today, I fear similar consequences will ripple out from the Credit Crisis.
Six months ago, Americans were languishing with high gas prices and were clamoring for alternatives. People wanted to reduce their dependence on foreign oil, they wanted to expand transit, and they were thinking about moving to more walkable neighborhoods.
Now, the recession has knocked the legs out from under gas prices, which have dropped precipitously in the last month. The price of oil has dropped to under $70, down from a peak of $147 in July. Whether Americans will start driving more as a result is as yet unknown, but the consequences may be severe for the environment and for new urbanism.
Also, with many Americans out of work, initiatives, like California's High Speed Rail vote, which will be on the ballot this November may suffer. Taxes are rarely popular, but sometimes Americans are willing to tax themselves to improve communities. Recessions are never a good time for these initiatives, and 2008 might not turn out to be such a great year for transit after all.
But the consequences of the Credit Crisis are already manifesting themselves. The Washington Post reported today that WMATA and other transit agencies are having their debts called in by banks in the face of AIG's collapse. Apparently, one Belgian bank has demanded that Metro fork over $43 million by next week.
The situation is certainly a complicated one, but the federal government encouraged transit agencies to leverage funding from the private sector by selling interest in rolling stock to banks. Since transit agencies are exempt from taxes, the banks got a large write-off. Don't worry, FTA approved all the deals and there was nothing illegal going on.
The hitch comes into play, however, because the third-party guarantor in most cases was financial giant AIG, whose woes over the last few weeks took all the deals into default. Because the IRS will grant amnesty to companies that drop their tax shelters by the end of 2008, banks are under a lot of pressure to kiss the transit agencies goodbye.
WMATA, which made around $100 million between 1997 and 2003 is potentially on the hook for quite a pretty penny. And they're not alone. According to the Post's article, transit agencies in Los Angeles, San Francisco, Atlanta, and Chicago could all face major service cuts or other financial hardships as a result of this fiasco.
It would be a shame for the economic crisis to kill plans for transit expansion, especially after the momentum that transit has gained over the last few months. How the government deals with the economic situation and America's infrastructure problems will depend very much on who is elected in a little less than two weeks.
Transportation reauthorization is coming up next year with the expiration of SAFTEA-LU. This could be an opportunity to redefine the way America approaches infrastructure and metropolitan planning. But the threat is very real that the Credit Crisis will divert needed attention from transportation. And with falling energy prices, Americans might go back to the illusion that they can continue to drive SUVs everywhere indefinitely.
I hope I'm wrong. I hope that this all blows over, not only for transit's sake, but because a recession is never a good thing--for anyone. Still, we cannot afford to ignore the plight of transit. Perhaps the Treasury Department has a bailout with the transit authority's name on it.
Thoughts?
3 comments:
Matt, great analysis. I think, however, that there is a "glass half full" attitude that can be taken toward transit expansion during recession.
Recessions mean significantly lower input and materials costs. Energy prices have collapsed, and you are correct to note that low energy prices are bad for transit usage, but it is great for infrastructure building. The costs of other raw materials: steel, aluminum, concrete, etc. have also come own significantly in price. In some cases we can buy building materials at a fraction of what we would have been paying a year ago. Recession also means rising unemployment. Government can demonstrate good-will and a desire to stabilize the economy by investing in public works projects, like transit, that put people back to work at least until the economy is back on track.
Of course, this requires leadership that is willing to spend money when money is hard to come by. When it comes to transit, it could really go either way; the deal breaker will probably be whether or not we put the right people in the positions with decision making power.
I like the example of 1929 New York. I'm convinced that the price of oil isn't going to remain (relatively) low past the election, which would lead to a call for more transit. In that event, I think transit will weather the storm somewhat. I know that in my case, when money gets tight I'd love to have the option to sell my car!
The potential foreclosures of transit systems is the latest debacle in the morass created by the get-rich-quick financial charlatans. The finance-lease back deals seem not unlike the whole subprime house of cards.
Funny how the banks are considering demanding payment now. Maybe, despite the taxpayer bailout, AIG is sinking fast.
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