Senators late yesterday were trying to determine if they had enough votes to approve automaker bailout legislation containing provisions that could prevent 31 transit agencies from having to make $2 billion to $4 billion in termination payments on leaseback deals that technically defaulted after their guarantors' ratings were downgraded.
The House passed similar legislation Wednesday night by a vote of 237 to 170.
The provisions, which have drawn staunch opposition from Senate Finance Committee leaders, would allow the transit agencies to request the federal government or its designee to guarantee the so-called sale-in/lease-out, lease-in/lease-out deals they entered into with banks to finance equipment and rail purchases or projects. The deals would have to have been approved by the Federal Transit Administration before Jan. 1, 2006, to qualify under the provisions.
Senate Finance Committee chairman Max Baucus, D-Mont - who, along with ranking minority member Charles Grassley, R-Iowa, has warned the provisions would make the U.S. government an active participant in abusive tax-shelter transactions - complained yesterday that he has been unable to get colleagues to strike them from the bailout bill.
"I do not want our nation's subway systems to be at risk. I am open to considering ways to help keep them financially sound," Baucus said in a release. "But I am unwilling to do so at the expense of American taxpayers ... The bill asks taxpayers to guarantee transit agencies who knowingly and willfully entered into deals that had no economic substance and were designed for the sole purpose of avoiding taxes."
Under these deals, the transit agencies sold or leased assets to banks and private companies in exchange for cash, usually about 3% to 6% of the assets' value. The transit agencies got upfront payments. The banks used the depreciation costs of the equipment to decrease their federal taxes while leasing the assets back to the transit agencies.
