Leased Equipment

[trainman8119]

Is anyone up on the leasing the CTA did with the L cars from a few years ago.

Was it not that they sold the equipment to private investors with the CTA leasing

it back. Are there buyers lined up for when the new cars come in 2010 (or whenever).

If the CTA does not actually own this stuff, why is it that they are paying the freight

on maintenance....after all, isn't that part of the reason for selling out in the first place.

Would or shouldn't that help the bottom line ??? What happened to all the money

raised in this sale...or is it just all smoke and mirrors to give the investors tax

breaks and the CTA assets off the books????

Just another can of worms I was wondering about.

[Busjack]

It is a federal tax provision, called "Safe Harbor Leasing," and while some private entity is technically the owner, the only substance to it is that the CTA sold the local share of the cost (probably 20%) to the entity, so that the entity gets the federal income tax depreciation allowance (which the CTA, as a money losing entity that doesn't pay income tax, can't utilize). However, the transit authority can't sell the federal 80% share for tax purposes. It is called "Safe Harbor Leasing" because the lessor doesn't need to have any other attribute of ownership. It is not a deal like the Skyway, where you have an income generating asset in which a private investor is willing to invest to get the revenue.

The "Safe Harbor Leasing" has been going on since the 1980s.

Normally, the deal is for the present value of the depreciation on 20%--not the value of the cars. However, Googling finds several financial reports on the CTA site that indicate far more complicated transactions, with the CTA getting more money up front, but obligated to paying rent, indicating that the CTA got, in effect, an equipment mortgage (not much different than acquiring the big green buses on equipment trust certificates). One of these reports refers to the Green Line, and another, by implication, to the NovaBuses. The Green Line report also refers to a 1995 sale of "rail equipment," which I assume consists of the 3200 series cars, and maybe even the Orange Line itself. If one wanted to dig deeper, I suppose that about all of the CTA's recent acquisitions are so treated.

If you really want to get into the tax aspects, see this Internal Revenue Bulletin (if anyone understands that, let me know). The relevant portion is:

The ERTA safe harbor leasing provisions were intended to permit owners of property to transfer the tax benefits of ownership (depreciation and the investment credit) to other persons. The ERTA safe harbor leasing provisions operate by guaranteeing that, for federal tax purposes, (i) a transaction meeting certain stated qualifications (a qualifying transaction) will be treated as a lease even though the qualifying transaction otherwise would not be considered a lease, and (ii) the nominal lessor will be treated as the owner of the property even though the nominal lessee is in substance the owner of the property.

[Busjack]

A Sun-Times article today, while the headline says Los Angeles, indicates that some of the CTA's leases may be falling apart with the demise of AIG.

[Busjack]

A Sun-Times article today, while the headline says Los Angeles, indicates that some of the CTA's leases may be falling apart with the demise of AIG.

More details from the Chicago Breaking News. A lot more background there than what is usually available.

I was going to say "what about Pace" until I got to the end, where it said that AIG was not on the Pace leases. The Pace Budget did indicate that there were leases on the NABIs and 2600s.

Of course, the issue here is that insurance was needed, because who would want to foreclose on a bus, or especially the Green Line?