MARTA seeks piece of federal bailout

Top MARTA officials were in Washington on Wednesday trying to convince federal officials to include the transit system in the government’s massive economic bailout package.

MARTA could be on the hook for nearly $400 million after the collapse of a series of highly complex financial deals involving AIG, the huge insurance company recently rescued by the federal government, transit system officials said.

About 30 other large transportation systems are in a similar bind, industry experts said, sending officials scrambling to seek relief from what could be a $2 billion liability.

For MARTA, the issue involves 20 lease-back deals made over the past decade or so, in which equipment such as rail cars and rail lines was sold to companies, mostly banks, before being leased back to the transit system for a period of time, usually 20 to 25 years.

The sales were attractive to both sides.

The private companies were able to depreciate the value of the equipment and write off the loss on their taxes, a step not available for publicly funded transit systems. In return, MARTA received up-front payments from the companies —- about $110 million in all, a big boost for the chronically cash-strapped system.

Insurers, in most cases AIG, guaranteed the lease payments would be made on time.

But AIG’s problems caused its bond rating to tank, technically putting MARTA in default on the deals. MARTA now faces penalties equal to the amount of tax benefits the banks and other companies expected to receive over the life of the deals.

MARTA and the other transit agencies say they’ve identified a solution: Have the federal government step in and take AIG’s place in guaranteeing the deals. They believe the authority for such a move is included in the Troubled Asset Relief Program, or TARP, the government’s $700 billion economic bailout plan.

MARTA officials are still unwinding the deals in an effort to determine how much money could be at stake. But they estimate their liability at up to $391 million —- a figure roughly equivalent to the system’s entire operating budget.

The prospect of paying out large chunks of money is virtually unthinkable for MARTA, which is running a $43 million operating deficit and recently cut 180 positions.

Beverly Scott, MARTA’s CEO, declined to say what steps MARTA would take should any payments have to be made, but any service reductions or fare increases would be a big blow given that ridership has soared in recent months amid rising gas prices.

“To have somebody come and make a demand note is like somebody coming to you and saying, ‘Pay your whole mortgage now,’ ” Scott said in an interview. “It would just be staggering.”

So far, only one company has formally asked MARTA to pay up —- a $50 million claim that’s due in mid-November. Scott declined to name the company.

The IRS has prohibited these kinds of lease-back arrangements in recent years. Those already on the books were allowed to continue, though the companies may claim only a small portion of their expected tax benefits, perhaps 20 percent, said Rob Healy, vice president for government affairs at the American Public Transportation Association.

If a transit system defaults on a deal, however, companies can claim penalties worth the full value of their tax benefits, Healy said, which provides an incentive to make claims.

Healy said the government could fix the problem with “virtually no risk” for taxpayers while preserving an essential public service.

In a letter circulated Wednesday, the top Democrat and top Republican on the House Transportation Committee urged Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to do what’s necessary to fix the situation. Failure to do so “would result in the immediate termination of transit services in the nation’s largest urban areas,” they wrote.