Bridge Finance Deal Goes Horribly Wrong for San Francisco

Lots of people these days are trying to get to the bottom of California's $26 billion budget deficit. Is it a case of too-low taxes and tax giveaways to heartless corporations? Does the state have a problem with spending money it doesn't have? Or are they just really, really bad with money? According to a report in today's San Francisco Chronicle, comically bad mismanagement is indeed at least partly the answer.

The story begins with the Metropolitan Transportation Commission's 2003 decision to set up an interest-rate swap deal with the Ambac Financial Group, by which the Commission (which manages the Bay Area's seven state-owned bridges) could issue bonds with Ambac's AAA credit rating. This worked like gangbusters for five years, as the Commission used the resulting low-interest bond issues to pay for work on the Bay, Benicia and Carquinez bridges. In 2008, however, it became clear that Ambac had substantial holdings in subprime mortgage securities, and as they went bankrupt, their credit rating went to junk.

All told, the Commission spent $120 million extricating itself from the deal with Ambac, and Bay Area bridge commuters are likely to notice a jump in the tolls they pay in the future. Just another example of what bureaucrats tend to do with your money.