Questionable Citibank & MTA Bond Deal
Citibank’s name has been in the headlines quite often of late during this current economic recession. One of the reasons for this is the complaint filed by the Securities and Exchange Commission (SEC) against one of the company’s subsidiaries, Citigroup Global Markets. The complaint alleges that the company went through with marketing & bringing more bonds into a market they knew was extremely stressed. Unfortunately one of the investors who was caught in the middle of all of this was the MTA. The agency issued $430 million worth of bonds in November 2007 but the deal soured almost instantly. William Neuman of the New York Times has more in this report:
In August 2007, an official at Citigroup sent an e-mail message to a colleague warning of trouble in an obscure corner of the financial world: the $330 billion market for auction-rate securities.
“There are definitely cracks forming in the market,” read the e-mail message, which is cited in a complaint filed last month by the Securities and Exchange Commission against a Citigroup subsidiary, Citigroup Global Markets. “Inventories are starting to creep higher in the market and failed auction frequency is at an all-time high.”
In the following weeks, the problems in the market, which state and local governments across the country relied on to raise money for public projects, became more acute. So did the alarm at Citigroup.
But that did not stop the bank from peddling the securities to investors and working with government agencies — including the Metropolitan Transportation Authority, which runs New York’s sprawling subway, bus and commuter rail system — to bring more bonds into the already stressed market. With Citigroup Global Markets as one of its underwriters, the authority issued $430 million of auction-rate bonds on Nov. 7, 2007.
Almost immediately the deal soured. Interest rates on the bonds, set in weekly auctions, began to climb, to 4 percent from about 3 percent, and finally, by February, to 8 percent. By then, the entire auction-rate market had collapsed as panicked investors worried that they could not get access to their money.
Stunned by the soaring rates, which were costing it up to $560,000 a week, the authority redeemed the securities in March. To do so, it issued a new round of bonds, outside the auction system and at more favorable interest rates. But the move came with a cost: about $5.6 million in fees to bankers, lawyers and others, including the state, according to data provided by the authority.
All told, Citigroup earned more than half a million dollars on the two sales; Goldman Sachs, the authority’s financial adviser, which counseled in favor of the auction-rate sale, made $929,500 for its work on both.
Click here for the complete report.
At times when it rains it pours when it comes to the MTA. I think the best part of this is how calm MTA CFO Gary J. Dellaverson was about the entire ordeal. No matter what sort of bad deal goes down involving the MTA’s finances, Gary is sure to be calm about it in terms of his reaction to the media & general public. I do not know if this is foolish bravado or a planned public stance. Either way, I have to question if the authority was mislead by Citibank. He feels that the agency was not mislead but looking at the evidence, one has to question if that is really the case. I happen to agree with the statement made by MTA Board member Doreen M. Frasca:
I think there was a very surprising lack of foresight in reading the handwriting that was on the wall
Regardless of whether you believe the MTA & other agencies were mislead, Doreen’s point comes across as making a lot of sense. Over the last few years, I have seen so many examples of obvious financial mistakes made by people who are paid big bucks to avoid such pitfalls. Lets hope the MTA does not suffer any more financial setbacks from questionable deals although I doubt this will be the last one.
xoxo Transit Blogger
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Roger Toussaint Will Not Seek Re-Election
The name Roger Toussaint stirs up many different emotions depending on who you ask. Some will tell you that he was a fearless leader who fought the who’s who in New York for the benefit of his members. Ask others & they will say his run as Transport Workers Union Local 100 (TWU Local 100) President was done with an iron fist. Lastly if you were to ask riders, most would selfishly hate him for the inconvenience caused by the 2005 transit strike which was justified. Regardless of your feelings towards the man, his time as President of TWU Local 100 will be coming to an end as he will not seek re-election. William Neuman of the New York Times has more in this report:
The leader of Transport Workers Union Local 100, Roger Toussaint, will not run for re-election of the local, which represents subway and bus workers, a spokesman said on Tuesday.
Mr. Toussaint led the local on a 60-hour strike in December 2005 that disrupted the city. He later served four days in jail for his role in the walkout, which violated the state’s Taylor Law that bans public sector unions from striking.
Mr. Toussaint was first elected local president in 2000, when he ran as a dissident against the union power structure. He was re-elected in 2003 and again in 2006.
Last year Mr. Toussaint was appointed director of strategic planning for the international union, the local’s parent. Without resigning his post as the head of the local, he appointed an acting president, Cutis Tate, to take care of day-to-day union business.
Click here for the complete report.
As far as I am concerned, I feel the best way to accurately describe his run would be to mix the first two emotions I described at the onset of this entry. Regardless of whether you liked Roger or not, you can not deny that he did go to war with top officials in New York trying to get just due for his members. However I can’t say his run was not run with an iron fist as it clearly was.
His run was also filled with some questionable decisions. While the 2005 transit strike was justified, it is inexcusable for him to have accepted a deal worse than what was offered prior considering the punishment the union would face for going on strike. Such decisions like this helped create the feeling that he was no longer the best man for the job. The growing percentage of members who wanted him gone should be quite happy as they got their wish. Lets hope the next leader can continue the positive things accomplished during Roger’s tenure.
xoxo Transit Blogger
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South Ferry Station Delayed
The end of January saw some blundering news on the subway front. For the longest time, weekend riders of the 1, 2, 3, 4, & 5 have put up with a ton of service diversions due to work on the new South Ferry terminal. While the usefulness of a revamped South Ferry is great, I’m sure many riders could not wait for things to get back to normal.
So when news came out last month that the station’s opening would be delayed, I’m sure a huge groan was echoed by many. The main culprit for the delay turns out to be an inch. The platform was off by an inch in some spots. Pete Donohue of the New York Daily News has more in this report:
Oops!
A staggeringly basic blunder is delaying the grand opening of the MTA’s first new subway station in 20 years, the Daily News has learned.
The platform at the $530 million South Ferry station is a wee bit too far from the train tracks, officials confirmed Tuesday.
Recent inspections found gaps between the platform and No. 1 train cars up to 1 inch wider than federal rules allow, the Metropolitan Transportation Authority confirmed.
Riders will have to wait another three to four weeks before they can use the station while workers make some $200,000 in fixes, the MTA said yesterday.
“Oh, my God,” sighed Andrew Albert, a riders representative on the MTA board. “That’s incredible.”
The MTA is conducting a review.
“We’re looking to determine who is at fault, and if it turns out to be one of our contractors, then we’ll pursue having them cover the cost,” MTA spokesman Jeremy Soffin said.
The mistake could have been made in the engineering or construction phase.
The station was slated to open in December 2007, but suffered repeated delays.
Just seven weeks ago, MTA brass predicted the station would open this month.
In addition to the too-skinny platform, water continues to leak into the underground station.
Click here for the complete report.
However it turns out this was not the only snafu. The MTA also dealt with a testing issue which surprise surprise involved platforms. Once again, Pete Donohue of the New York Daily News has more in this report:
Double oops.
The MTA’s recent discovery that the new South Ferry subway platform falls short of federal regulations is the second snafu in its construction, sources familiar with the project said Wednesday.
About six months ago, a test train sent along the tracks leading to the station ran into trouble – literally, a source familiar with the project said.
The platform was too wide for the train to pull alongside, one source said.
Construction workers at the new $530 million station had to trim the platform, sources said – and they apparently shaved off too much.
The Daily News reported Wednesday that the Metropolitan Transportation Authority just learned that gaps between the platform and train cars exceeded the 3-inch cap set by the Americans With Disabilities Act.
The gaffe will delay the subway’s opening another three to four weeks.
“It was a mistake, an obvious mistake,” MTA Capital Construction President Michael Horodniceanu said yesterday, adding that the platform is on a slight curve, resulting in a range of distances from the edge to train cars.
“No one is more disappointed than me that it happened, but it did happen,” Horodniceanu said, answering questions with MTA Chairman Dale Hemmerdinger after the MTA’s monthly board meeting.
Fashioning, shipping and installing a thicker rubbing board along the platform’s edges will take about three or four weeks and cost about $200,000, officials said.
Click here for the complete report.
How sad is it that the station faced this delay? I find it inexcusable that such a costly error was made. What happened to people being on top of their job to avoid such mistakes. Was this poor planning, poor execution, or a combination of both. The mistakes will be taken care of but I would highly suggest they take the time to study what mistakes were made so they can avoid them in the future. Lets hope there are no more delays as we really need this station up & running to its highest capabilities!
xoxo Transit Blogger
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Democratic Leaders In Albany Support Ravitch Tax Plan
It has been a couple of months since the Ravitch Commission released all of its proposals to help the MTA fix its budget woes & create dependable sources of revenue. This blog & many others have gone over the plan & offered our opinions on it. My readers know that I was not impressed with the overall proposals especially the corporate tax which was one of the most ridiculous suggestions possible & anyone who understands finances would know why.
Unfortunately with the doomsday scenario deadline looming, it is with great regret that I have to hope some of these ridiculous proposals get enacted as the other result is not desirable in anyway! Democratic leaders in Albany seem to be willing to go along with the tax proposal & possible other measures which could starve off the ultimate doomsday scenario. Glenn Blain of the New York Daily News has more in this report:
Senate Democrats are ready to support a new payroll tax to help rescue the MTA.
Majority Leader Malcolm Smith, who previously opposed imposing new taxes, said Democrats would support the proposed tax if the business community agrees to it.
“It’s really the last thing we want to take a look at, however, this is a classic example, I think, of shared sacrifice,” Smith said Thursday.
The tax of one-third of 1% is a key component of the financial bailout plan crafted by former MTA Chairman Richard Ravitch. It would affect payrolls in New York City and the other counties the MTA serves.
Smith noted that most business groups, including the Partnership for New York City, have expressed support for the tax. Ravitch’s plan, which has the support of Gov. Paterson, is intended to plug the MTA’s $1.2 billion budget gap and head off draconian fare hikes and service cuts.
Assembly Speaker Sheldon Silver, a Manhattan Democrat, also favors the payroll tax, projected to generate $1.5 billion a year. The fate of another component of Ravitch’s plan – placing tolls on the East River and Harlem River bridges – remains uncertain.
Click here for the complete report.
So in the end even though some of the proposals are downright ridiculous, they clearly are the lesser of two evils. With that in mind, I have to support the passing of at least some of the proposals as our transit system needs the money & in the end that is the most important thing.
xoxo Transit Blogger
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LIRR & Metro-North Collaborate
Late last month, the MTA announced the largest ever procurement between Metro-North & the Long Island Rail Road (LIRR). The announcement was made via an e-mailed press release which stated the following:
The Metropolitan Transportation Authority (MTA) today announced that MTA Metro-North Railroad and MTA Long Island Rail Road are presenting for Board approval five-year joint purchase agreements with manufacturers of train parts the railroads have in common totaling $256.7 million – the largest joint procurement of this type ever executed by both railroads. This joint procurement is the latest step in the railroads’ efforts to work together to improve efficiency and customer service and reduce costs. Metro-North and LIRR anticipate administrative and economic benefits including better pricing and volume discounts that may result in overall savings of 2 to 3%.
Seven manufacturers are participating in this long-term joint agreement, providing both railroads with parts for heating/air conditioning systems, electrical systems, toilets, couplers, trucks (wheel assemblies), brakes and doors. All seven are sole source, original equipment manufacturers. The parts they manufacture were specified as part of the original railcar design, and were rigorously tested for reliability and durability during that process.
To ensure that the railroads have enough parts available for both their scheduled and unscheduled maintenance needs, the agreement also allows the railroads to reallocate funds to support any change in the needs of the operation. The dollar amounts allocated to individual agreements can be varied by 15% as long as the $256.7 million total is not exceeded.
The agreement provides for off-site storage with a “just in time” delivery requirement.
There are a number of benefits to these long-term, joint agreements. The manufacturers are able to maintain their tooling and manufacturing capabilities necessary to produce the parts, which are not available from other sources. While it allows the manufacturers this long-term security, it does not preclude the railroads from identifying and evaluating any alternative suppliers that may be available and deemed qualified.
“This joint procurement is a great example of the ways that we are streamlining across all of our agencies to increase our efficiency,” said Elliot G. Sander, Executive Director and CEO of the MTA. “Achieving increasing uniformity between our commuter railroads reflects our efforts to transform the MTA, from our Regional Bus initiative to the Business Service Center to our restructuring of the subway system management.”
“The Board has been focused on joint procurement initiatives between the two railroads for some time and the original equipment manufacturer agreement clearly demonstrates that the railroads are headed in the right direction,” said James L. Sedore, Jr., Chariman of the Metro-North Committee of the MTA Board.
“This joint procurement project is another step in our effort to be as efficient as possible and find cost savings wherever possible,” said LIRR President Helena Williams. “This will enable us to maximize the buying power of the MTA’s two commuter rail systems when dealing with parts manufacturers.”
“This procurement is an excellent example of the two railroads coming together to pursue the common goals of reliable service and efficient use of time and money in areas of our operation that are the same or largely similar,” said MNR President Howard Permut. “We’re buying smart, and by exploring off-site storage and common parts lists, we’re managing our resources intelligently, too.”
I feel something like this is long overdue & a welcome site during these tough economic times. Even if the economy was not in arguably the worst shape in its history, it is a good sign to see the MTA looking at all ways to run an efficient operation. The MTA deserves kudos for this procurement & I look forward to seeing more of this in the future.
xoxo Transit Blogger
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