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Business - Written by on Friday, March 13, 2009 9:05 - 0 Comments

Stimulus package workarounds shut down

As part of a stimulus package, every city in Los Angeles county was slated to receive $500,000 from the Metropolitan Transportation Authority (MTA). The problem is, many of these (especially smaller cities) didn’t have any “shovel ready” transport projects for this unexpected injection of funds. 

So what did they do? They took matters into their own hands and auctioned the funds to the highest bidders -  other municipalities who had projects ready to go paid them cash for the rights to the MTA funds (in one case just $.61 on the dollar). The city selling the MTA funds would then be able to take the cash and use it for anything it liked.

Three interesting things about the situation stand out:

  • First, the swaps/marketplace itself is quite innovative/creative. An interesting case in optimizing results in a grass roots way. Grade: A-
  • Second, the low prices paid for the funds suggest that, in some cases, stimulus dollars are being weilded very inefficiently  (A $.61 price suggests a 39% inefficiency) Grade: C
  • Third, the MTA appears to have put the brakes on these swaps. Maybe because of the publicity they generated? Who knows. But cities must now build (invent?) a case for their use, or risk losing them altogether. This seems to create the wrong message and set of incentives. Grade: D 

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