ProPublica

Journalism in the Public Interest

Cancel

Transit Agencies Still Seeking Gov’t Aid

 Editor’s note: As part of our year-end coverage, we’re checking in on the latest on each of our in-depth stories.

2008 was a year of government bailouts, though cash-strapped city transit agencies might not remember it that way.

With 2009 just underway, more than 30 public transit agencies remain on the hook for about $2 billion in payments to banks and other financial firms. The crunch persists after transit officials and their lobbyists made several unsuccessful pleas to Congress and the Treasury Department for relief. The government has been reluctant to intervene in part because the transit agencies’ problems began with their involvement in now-banned tax shelter deals with banks.

But hope remains.

“We’re still working with members of Congress; it’s still an avenue we’re pursuing especially with the incoming administration,” said Candace Smith, a spokeswoman for Washington, D.C.’s Metro transit authority.

ProPublica has been tracking the transit trouble, which stems from the near-collapse of AIG this fall. The insurance giant guaranteed many financing deals between banks and the agencies until its credit rating was slashed in September, sending the deals into default. The defaults allowed banks to demand heavy termination fees from the agencies.

Until the defaults, everyone seemed to benefit from the deals. Banks bought transit equipment from cities and then leased them back to the transit agencies to use at a discount. The banks received sizeable tax breaks, and the agencies enjoyed much-needed cash up front.

But the arrangements, known as LILO (lease-in/lease-out) and SILO (sale-in/lease-out), have cost the federal government billions in taxable income. So in 2004, the IRS banned them. Banks had until the end of 2008 to obtain a kind of amnesty from the IRS in exchange for terminating the tax shelters.

Some banks aimed to collect as much money as possible from transit agencies before last week’s deadline. In turn, the agencies looked to old Uncle Sam for support.

Transit officials first asked the Treasury Department to replace AIG as the guarantor of the deals. Treasury officials refused, reportedly because they didn’t want to be seen as endorsing a tax dodge.

Then came plan B: Transit lobbyists asked Congress to carve out aid from a proposed stimulus package. When that package failed altogether, transit officials told ProPublica that they had “hopeful” discussions with lawmakers on another plan to slap banks with a tax, up to 100 percent, on money they collect past what the transit authorities already promised to pay. This plan remains alive but is stalled with Congress adjourned for the holidays.

Finally, last month, Sen. Chris Dodd (D-CT) stuck a provision into the congressional auto bailout that allowed the government to replace AIG as the guarantor. As we now know, that plan was doomed.

So what’s a transit official to do?

Step one: Remain patient and hope that Congress carries the giving spirit into the New Year.

Step two: Ask banks for an extension. Smith said Metro has settled three of its 16 lease-back deals and received extensions up to Jan. 31 on nine. Four banks have yet to contact the authority, she said.

It’s a similar story in Atlanta, where transit officials have received a temporary reprieve on several of their 19 deals.

Transit agencies in Los Angeles, San Francisco, Chicago, Atlanta, Philadelphia, San Diego and New Jersey are also involved. Transit officials there have warned that absent government support, the agencies might make significant cuts to services.

We’ll check back in soon to see what the New Year will bring.