In an effort to convince Bank of America to renegotiate a financial deal that is estimated to cost the city’s transit authority about $4 million a year, the president of SEPTA’s blue collar union is asking members to withdraw any deposits they keep with the banking giant.
“We’re in the process of doing that …,” said John Johnson Jr., president of Transport Workers Union, Local 234, noting that his organization has more than 5,000 members, at a press conference Tuesday at City Hall. “My executive vice president and I are drafting a letter to our members right now.”
Johnson contends that interest rate swaps held by the Southeastern Pennsylvania Transportation Authority are costing it about $1 out of every $6 it generates. Similar financial deals cost the city and SEPTA a combined $40 million, he said.
Hours earlier, Johnson and about 20 union members were thrown out of the lobby of the Bank of America branch at 16th Street and John F. Kennedy Boulevard.
With the assistance of another organization called Fight for Philly, the group invaded the lobby and asked to have a letter urging national bank officials to re-open negotiations with the transit authority. A bank official, who declined to give his name, promised to fax the letter to the bank’s corporate headquarters in Charlottesville, N.C. After he spoke to protestors, he retreated out of sight. Shortly thereafter, a single Philadelphia police officer appeared and asked the group to move their protest outside, which they did.
The demonstration came as City Council investigates the possibility of suing several large banks over similar deals.
According to Councilman Jim Kenney, who appeared with Johnson at the press conference, Council has retained an independent law firm to advise Council whether it should proceed with plans for a suit.
“They have some social responsibility,” said Kenney of the banks, adding that if the city does sue he’d like to see SEPTA and the school district join the legal action. “We’re hoping that the law firm that we have engaged comes back with a favorable idea to go forward with a lawsuit. Hopefully, if we can sue them we can get them to the table to renegotiate.”
At issue are a number of deals involving interest rate swaps.
Like transit agencies at 12 large cities across the nation, SEPTA and its bankers reached a deal that changed the way government agencies borrowed. Typically, municipalities and public agencies issued bonds with variable interest rates. Under the interest rate deal, they agreed to pay a fixed rate on their bonds, and banks offered a variable return. They were supposed to create certainty in the amount of future interest payments owed by the public bodies.
It was expected that with interest rates rising, the variable return would generate money for the municipalities and government agencies. As interest rates fell, municipalities and agency started to lose money.
For the last three years, SEPTA has trimmed its capital budget by 25 percent because of funding shortfalls. According to its budget proposal for FY 2013, these reduced funding levels will “severely hamper SEPTA’s ability to bring the system to a state of good repair and will curtail the Authority’s ability to advance system improvements.”
The city has swap deals with Bank of America, Citigroup, JPMorgan Chase and the Royal Bank of Canada, which are costing the city $35 million every year. Already the city has paid at least $34 million in penalties to Wells Fargo, Bank of America, Citigroup and JPMorgan Chase to terminate some of these bad swap deals in 2010.