Remember those transit agencies that are in trouble because of the credit crisis? It turns out this is all the fault of “public-private partnerships.” At least, that’s what U.S. Representatives James Oberstar (who chairs the House Transportation Committee) and Peter DeFazio (who chairs the Highways and Transit Subcommittee) said in a letter to Secretary of Transportation Mary Peters last week.
Recall that transit agencies decided to exploit a loophole in federal tax law (since closed) that allowed them to “leverage” their capital investments to get an extra 3 percent out of those investments. They “sold” their capital investments to some bank, then leased them back. The banks would get to depreciate those investments on their taxes (which the transit agencies, not being taxpayers, couldn’t do), saving about $6 million out of $100 million. They split the savings with the transit agencies.
