Monday, December 29, 2008
A better transit bailout
Washington Post: With the collapse of the auto bailout bill came the demise of a little-noticed provision that would have had big consequences for mass transit. The legislation would have provided federal guarantees for hundreds of millions of dollars in loans on which transit agencies are at risk of defaulting. We’ve argued that transit agencies’ problems merit federal intervention, and we commend lawmakers, including Rep. Chris Van Hollen, D-Md., for working to that end. But there are better ways to bail out transit than to lard the auto bill with provisions unrelated to the rescue of Detroit.
Transit officials say that some of the biggest agencies in the country, including the Washington Metropolitan Area Transit Authority, are on the precipice of financial collapse as a result of the credit crisis. Starting in the late 1980s, many agencies sold the equity in their rail cars and buses to lenders and then leased the equipment back. The arrangement, known as a leaseback loan, brought cash-strapped agencies needed dollars for capital projects and provided lenders with tax shelters. The loans, guaranteed by American International Group, entered technical default when the insurance giant’s credit rating was downgraded in September.
Transit officials acknowledge that the practice was questionable, but they point out that the Federal Transit Administration encouraged the loans and that transit agencies, unlike industries seeking bailouts, have been meeting their loan payments. But critics, including Max Baucus, D-Mont., and Charles Grassley, R-Iowa, both members of the Senate Finance Committee, counter that federal intervention would amount to an implicit government endorsement of a tax dodge that they say has cost taxpayers billions.
A solution that could satisfy both transit officials and critics of the leaseback deals would be to impose severe penalties on lenders that attempt to call in the loans, forcing transit agencies to pay off the balance immediately. Such legislation should be a priority for the next Congress.