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Committee authorizes MTA to pursue early, no-cost terminations of 2002–03 Breda lease transactions with reporting safeguards
Summary
The committee approved a resolution allowing the MTA to enter consensual early terminations of certain 2002–03 leveraged lease transactions for Breda light rail vehicles provided there is no net city cost and that the MTA report terminations to the Board within 30 days; the budget analyst recommended and the committee adopted added safeguards.
The Budget and Finance Committee approved language authorizing the Municipal Transportation Agency to enter into early, consensual terminations of leveraged lease transactions related to 139 Breda light rail vehicles executed in 2002–2003, provided the termination creates no net financial cost or liability to the city or the SFMTA and that the MTA report to the Board within 30 days of any termination.
An MTA representative described the original structure, which allowed equity investors to take tax benefits at the time of the transactions, and said subsequent IRS and tax-law changes left investors unable to claim those advantages. "Because interest rates are significantly lower today than in 02/2002, 02/2003, the value of the federal securities have increased substantially," the MTA representative said, arguing that consensual terminations could eliminate liens and simplify financial reporting without additional city liability.
Budget Analyst Mr. Rose supported the concept but urged safeguards: change resolution text to state explicitly that there would be "no net cost or liability to the city or the SFMTA," require prior Board approval for any early termination that imposes out-of-pocket city costs, and require a written report to the Board within 30 days of any termination.
Deputy City Attorney Andrew Shen recommended aligning the resolved clauses with the budget analyst's edits. The committee accepted those edits and voted to send the amended resolution forward without objection.
Next steps: MTA may negotiate consensual terminations under the limits approved by the committee; any termination that would require city funds must return for Board approval and MTA must file the 30-day written report when a termination occurs.
