From the Wall Street Journal:
Public transit agencies may get relief from the federal government from soured tax shelter leasing deals, as part of the auto-industry bailout bill Congress is weighing this week.
A provision under discussion as part of the draft bill would spare transit agencies in major cities like Houston, Chicago and Los Angeles from having to pay millions in penalties to banks with whom they entered into the deals.
Under the tax shelter arrangements, transit agencies agreed to sell assets like train cars to financial institutions, and lease them back from the firms. The transit agencies received cash upfront, while the banks reaped tax depreciation benefits from owning the equipment.
However, many of the deals were insured by American International Group Inc. When AIG collapsed and its credit rating was downgraded, the transit agencies were in technical default of the leaseback agreements, triggering millions in penalties.
Washington's transit agency settled with Belgium's KBC Bank last month, in a case where the bank sought $43 million in penalties.
The final details of the auto bill were still under negotiation late Tuesday between congressional leaders and the White House. Senate Majority Leader Harry Reid (D., Nev.), said he hopes the Senate can vote on the package Wednesday.
A provision in a draft version of the bill obtained by Dow Jones Newswires would have the federal government guarantee the obligations of the transit authorities. Transit agencies had lobbied Congress for that guarantee, because it would remove them from default in their leaseback arrangements.