There's another example of cash-strapped public agencies entering into questionable deals with private sector opportunists. The horrific deaths of nine people in Washington DC last week, according to reports in the Wall Street Journal, New York Times, and elsewhere, are at least indirectly linked to "tax advantage leases," which are the product of underfunding and contributed to problems of deferred maintenance and outdated equipment. Here's an excerpt from Bloomberg report:
The 1000 Series car on the train that ran into the other was an older model that U.S. safety investigators had called for replacing or overhauling 13 years ago. The National Transportation Safety Board had advised Metro to improve its rail cars after a January 1996 collision that killed a train operator. In a 2006 report, the NTSB said it was dropping the matter because WMATA was citing funding concerns related to lease-back agreements in its decision to resist the recommendations to retire or overhaul the 1000 Series rail cars.
The "tax advantage leases" that prevented the Washington Metropolitan Area Transit Authority (WMATA) from updating its rolling stock seem to be one rather convoluted version of the "public private partnership" that many have been promoting as a solution to the current fiscal crisis of local and state governments. In a nutshell, WMATA leased its equipment to private companies so that they could write-off its depreciation. The private partners got a tax shelter (which the public partner couldn't use because it's tax-exempt) and WMATA got some cash. Win-win, right? Apparently not. WMATA couldn't break the lease to update equipment. As a matter of fact, they still have a number of these leases in effect. Plus, the federal government loses money; in effect, public money is going to fund the METRO system indirectly through tax breaks for a private entity. Essentially, these leases are a very high-cost way for transit to get federal funding, with subsidies for private companies being skimmed off of the top in the form of tax breaks.
According to a 2008 report published by the Tax Foundation (a "nonpartisan educational organization"), nearly all of the major California transit agencies have made millions of dollars worth of similar deals, negotiated between 1988 and 2003: AC Transit, BART, Caltrain, MTA, Metrolink, Muni, Sacramento RT, San Diego Trolley, VTA. Obviously, deals like these raise capital, reducing the need for public investment in the short-term, but they can have a very steep price, not just for safety, but also in lost government revenues. They are also very difficult to trace and understand: the fine print of such convoluted contracts make public administration opaque and effective public oversight difficult or impossible. I would like to know how these deals are disclosed to the public--certainly, the information is not easy to come by for the ordinary citizen. What other restrictive deals are public agencies making to squeeze out extra federal dollars by manipulating the rules in partnership with private companies and giving them a cut?
Right now, fortunately, there are unusual opportunities to secure money for transit because of stimulus spending. Hopefully bad deals like the METRO lease that prevented equipment upgrades can be bought out to preserve safety and accountability. However, we will be plagued by the fallout from more such contracts entered into and sustained by cash-strapped public agencies if we don't start building strong, competent and accountable government agencies that have the resources they need to fulfill their purpose--secure resources and revenues that aren't contingent on unpredictable appropriations or on high-profile disasters. Mass transit agencies should not have to beg and borrow and manipulate the rules to get what they need; they should have dedicated revenue to keep vital public systems functional and safe.