The enormous deals transit agencies made over the past few years to sell off their assets and then lease them back from banks have created an enormous headache for everyone involved. When AIG and a number of other financial institutions went down a few months ago, the agencies realized that they would have to immediately pay off millions of dollars to banks in order to ensure that the kept important equipment that they had sold – like trains and buses. Now it’s looking like Congress may not step in to help.
We’ll continue to point out here on the transport politic how stupid a deal this was. Trains and buses shouldn’t be sold off and leased back, because transit agencies almost always keep these vehicles for the entire length of their safe use. It is true that the immediate benefit was extraordinary: agencies could basically get back all of the money they had spent on the vehicles, and would only have to pay much smaller monthly bills.
But the truth is that this was a bad business decision, even without the downfall of AIG, because it would have inevitably meant more spending in the long-term, not less.
And yet when transit agencies found themselves in a shitload of trouble, Congress appeared at first to be willing to do something about their situation, agreeing to guarantee the deals so that the transit agencies could maintain their initial lease agreements. This guarantee was attached to the auto bailout bill now under consideration.
Today, though, we get news that Montana Senator Max Baucus (D) and Iowa Senator Charles Grassley (R) are bailing on the transit bailout. They see the deal as unreasonably benefitting the banks that made the deals. Here’s Baucus:
“These banks entered into three-card-monty transactions with transit agencies, and they wanted to take tax deductions on these transit properties that they didn’t really own. Paying the banks off with federal dollars is not the right way to respond.“
And he’s right. The banks basically took advantage of cash-needy transit agencies to get a good long-term bang for the buck, and they shouldn’t have their money guaranteed, which is basically what would be happening here. Even worse, perhaps, is the fact that the deals are giving tax shelter to corporations that put assets overseas; The New York Times documented this well a month ago.
So while the decision not to include a transit help element to the auto bailout makes some sense, Senators Baucus and Grassley have an obligation to find another way to help these transit agencies in desperate need for funds to compensate for their losses in these deals. Perhaps the government could void the deals and hand the vehicles back to their rightful owners for a reduced price, and then ban transit agencies from ever making such deals again? Is it reasonable for transit agencies to benefit from the assets the government has already placed in the coffers of AIG and other companies in order to save them from bankruptcy?
More at the heart of the issue, though, maybe municipalities should work harder to ensure that their transit agencies don’t become so impoverished that they’re forced into these moronic agreements.