Recent news report indicate that up to 30 transit agencies may need to cut service in order to meet payments demanded by banks because of the financial meltdown. These payments are a part of “sell/leaseback” arrangements the transit agencies entered into over the last decade or so as a way to “creatively finance” some of their capital improvements.
Under federal tax law, a private company can get tax advantages from depreciating its capital investments. Public transit agencies are not taxpayers, so they get no such advantages. So, about two decades or so ago, somebody had a great idea: why not sell buses and trains to private investors? They can get the tax benefits from depreciation, and meanwhile they can lease the equipment back to the transit agencies at a rate that accounts for the tax benefit. The investors and transit agencies effectively split the tax benefits.
