Thwarting Buy American Laws to Buy Belgian 

AC Transit had to subvert the intent of federal law to buy its Belgian buses.

Rome Aloise worried that AC Transit's love affair with European buses would set a bad precedent. In the months before the agency inked its exclusive deal with Van Hool in January 2002, the secretary-treasurer of the San Leandro-based Teamsters Local 853 wrote two strongly worded complaint letters. He contended that AC Transit's plan to buy Belgian would harm American bus companies and their union workers, particularly during the economic downturn following 9/11. "If transit authorities across the country acted like AC Transit, I need not tell you what would happen with these jobs," he wrote in one of the letters. "Given our nation's current economic dilemma, these actions are blatant and uncaring."

Aloise noted that a US General Accounting Office report published in September 2001 concluded that other cities developing Bus Rapid Transit systems were doing it successfully with American-made buses. "My main concern is that AC Transit is using tax dollars to fund a foreign company and foreign employment when American jobs are at stake," he wrote. In a recent interview, the 33-year Teamsters' union official called AC Transit's decision to go forward with the deal and subsequently purchase more than 230 Belgian buses "reprehensible."

Aloise addressed his letters to the Metropolitan Transportation Commission, a state agency that oversees state and local funds, because it agreed to facilitate AC Transit's deal with Van Hool. In fact, AC Transit could not have purchased Belgian buses without MTC's cooperation. The reason has to do with so-called "Buy America laws," which stipulate that federal dollars can only be spent on buses assembled in the United States with at least 60 percent domestic parts.

As their name indicates, Buy America laws, passed by Congress in the late 1970s and early '80s, are designed to protect US companies and jobs. Buy America specifically prohibited AC Transit from purchasing Belgian-made buses with federal money. But in July 2001, before AC Transit had even signed the Van Hool deal, MTC agreed to help the agency circumvent Buy America in a series of financial transactions.

In these so-called "fund swaps," MTC has allowed AC Transit to take at least $80 million of federal funds in the past six years — money typically used for bus purchases — and spend it instead on maintenance for its fleet, records show. In turn, the agency then uses general operating funds normally spent on bus maintenance to buy the Van Hools. In one internal e-mail, Kate Miller, AC Transit's manager of capital planning, used the word "wash" to describe the agency's handling of federal dollars.

Despite the money laundering connotation, Paul Griffo, spokesman for the Federal Transit Administration (FTA), said AC Transit's fund swaps are legal. In an e-mail response to questions for this story, he called Miller's choice of words "unfortunate."

However, a new fund swap proposal that Fernandez floated last year raised serious concerns about whether the transactions are financially sustainable. The general manager's idea was to begin replacing its entire fleet with new Van Hools every six years, even though most agencies keep buses on the road for at least twelve. He touted the plan as a way to cut operating expenses, arguing that older buses cost far more to maintain. "From a financial perspective, it makes a lot of sense," he said.

But in the spring of 2007, MTC's own staffers began to question whether Fernandez' plan penciled out. In a March 2007 memo, the staffers noted that AC Transit would need to have plenty of maintenance expenses for the fund swaps to work. But that didn't seem possible if the agency was going to use buses for only six years. "We have a strong fiduciary responsibility for federal money," MTC spokesman Randy Rentschler said in an interview.

A few months later, the Federal Transit Administration effectively killed Fernandez' idea. The general manager had asked the FTA if he could sell sixteen American-made buses bought with federal funds in 2000. But in a June 2007 letter, FTA Regional Administrator Leslie Rogers noted that buses bought with federal dollars must remain in service for at least twelve years. So if AC Transit wanted to unload buses five years early, it would owe the federal government a $1.35 million refund. "If you get rid of a bus in six or seven years, you're essentially throwing away half of its normal life," explained Brian Macleod, a senior vice president of Gillig Corporation, a Hayward-based bus maker that has complained mightily about the fund swaps and employs the Teamsters' union workers that Aloise represents.

Unfortunately for AC Transit, Fernandez had already agreed to sell the sixteen buses to the ABC Bus Company, the American distributor of Van Hools, for a total of $1.36 million. So after refunding the FTA its $1.35 million, Fernandez had almost nothing to show for the deal in which he unloaded buses that originally cost $266,000 each. "It didn't pan out," Fernandez acknowledged, adding that he had decided to shelve the early-replacement plan — at least until all AC Transit's American-made buses are twelve years old.


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