Grassley Eyes Bill in Wake of D.C. Metro Crash

WASHINGTON — In the aftermath of a fatal subway accident here this week, the top Republican on the Senate Finance Committee has warned a transportation group that he may consider drafting legislation that would prevent tax-advantaged lease-back deals from blocking transit authorities from maintaining or upgrading their subway cars.

Sen. Charles Grassley, R-Iowa, made the warning in a June 24 letter to William W. Millar, president of the American Public Transportation Association, after learning that the Washington Metropolitan Area Transit Authority, when urged to retire old subway cars by the National Transportation Safety Board, told the NTSB that lease-back transactions required it to keep old cars in service for many years.

“If transit agencies are allowing banks — rather than experts on passenger safety — to dictate system upgrades and maintenance, Congress may need to legislate further,” Grassley told Millar, asking him to provide a list of transit agencies that have participated in “sell in-lease out” or “lease in-lease out” deals.

Grassley also asked for other information, including the banks and other counterparties to these transactions, the payments the agencies have made and continue to make, and a list of safety and reliability projects that have not been funded by the agencies.

Grassley sent a letter to House Majority Leader Steny Hoyer the same day after learning the House was considering legislation to provide additional funding to WMATA, saying that any such funds “should be dedicated to improving the safety and reliability of the public transit system” and should not go to the bank counterparties in lease-back deals.

“It would seem from the response that WMATA disregarded risks to passenger safety in order to fulfill a contract entered into as an accommodation party to a tax shelter,” Grassley told Hoyer. “By entering into tax shelter contracts, the WMATA appears to have allowed banks — rather than experts on passenger safety — to dictate what kind of trains Metro riders use and for how many years they are in service.”

The letters come after a crash between two trains on the Red Line of WMATA’s Metro system Monday killed nine people and injured 70. Officials confirmed yesterday that the crash involved the 1000 Series cars that were involved in an accident at the Woodley Park Metro station in 2004.

Grassley said that the NTSB recommended in 2006 that WMATA either retire or overhaul the Series 1000 cars. But agency replied that it was “constrained by tax advantage leases, which require that WMATA keep the 1000 series cars in service at least until the end of 2014,” according to Grassley.

In an interview, Candace Smith, a spokeswoman for WMATA, said the series 1000 cars’ useful life expires in 2014 and that they have received their mid-life overhaul.

“Those cars did not cause that crash,” Smith said. “We did everything the NTSB told us to do that was related to the crash.”

Carol Kissal, WMATA’s chief financial officer, said “the cars need to be maintained and they need to be operational.”

Kissal said agency has 50 of the series 1000 cars under 11 current SILO or LILO deals. It has unwound five of these deals since October with Bank of America NA, Bank of New York Mellon, Regent Bank, SunTrust Bank, and Norlease Inc. The termination have taken out 250 of the authority’s approximately 1,000 car fleet from SILO and LILO obligations, she said.

Chris Zimmerman, a member of WMATA’s board, said he does not understand the agency’s response to the NTSB cited by Grassley. The LILO and SILO contacts have not forced the cars to remain in service, he said. WMATA would need to spend about $1 billion to replace all of its 1000 series railcars and does not have the funding for that.

“We don’t have replacements,” Zimmerman said. “Without those cars, that’s 200,000 people who wouldn’t get to go to work.”

Under lease-back transactions, transit agencies or other governmental entities, sell or lease an asset such as transportation equipment to a private party, typically a bank, in exchange for cash, usually about 4% to 6% of the asset’s value.

The private entity is able to write off the depreciation costs of the equipment on its federal taxes while leasing the equipment back to the transit agency or government. The Internal Revenue Service and tax-writing lawmakers have decried these deals, claiming they are only done for the tax breaks provided to the banks.

Congress passed and the president signed the Rail Safety Improvement Act of 2008, authorizing $1.5 billion of federal funds for WMATA through fiscal 2019. The district, Virginia and Maryland are required to match the federal funds. The federal funds may be used only for “maintenance and upkeep of the rail system” and not for expansion.

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