Tuesday November 18, 12:49 pm ET
By Brian Westley, Associated Press Writer
The officials warned that 31 of the nation's largest transit systems could face at least $2 billion in payments in the coming months if hundreds of the deals go bad. The fallout could cripple rail and bus systems at a time when ridership is soaring.
"Time is not our friend," said Beverly Scott, general manager of the Metropolitan Atlanta Rapid Transit Authority. "The innocent victims will be the millions of riders who rely on public transit every day."
Insurers such as American International Group Inc. had backed the long-term deals, but downgrades of AIG's credit have put many of the arrangements in default. That has triggered a clause allowing banks to demand early termination fees and other penalties.
Transit officials want lawmakers to request the U.S. Treasury to guarantee the deals instead. They say such an arrangement would put the federal government at little risk.
The Treasury Department has said it is aware of the problem, but declined further comment. Several members of Congress have been pressing for a solution in recent weeks.
"I made the point that it would be wrong to ride to the rescue of private Wall Street firms and then leave public transit agencies out in the cold," Rep. Chris Van Hollen, D-Maryland, told The Associated Press last month.
General managers and other officials from transit agencies in New York, Los Angeles, Houston, St. Louis, Chicago and Boston were among those who gathered in Washington to lobby lawmakers.
In a once-common practice, many transit agencies entered into arrangements in which they sold rail cars and other equipment to banks, then leased them back at a discount.
Both sides benefited. The transit agencies were given a large sum of money up front, which could pay for various infrastructure upgrades. And the banks were able to rely on frequent lease payments while writing off taxes on the depreciating property.
The IRS ended such leasing arrangements in 2004 and is pressuring banks to stop the tax shelters by the end of the year.
Metro, the Washington area's transit system, agreed last week with a bank immediately seeking $43 million from one such financing deal following talks overseen by a federal judge. Terms were not disclosed on the judge's instructions.
Metro general manager John Catoe noted Tuesday that Metro still faces 14 similar financing deals. He said having to settle all of them in court would lead to hefty legal costs and other expenses.
The other three agencies seeking government help are in Sacramento and San Jose in California and New Jersey Transit.