The Metro Crash and Tax: Known Unknowns

We know that a 1000-series Rohr car was involved in the recent Metro crash, that the National Transportation Safety Board had recommended that the 1000-series cars be replaced, and that at least one reason Metro provided for not replacing the 1000-series cars was that “tax advantage leases…require that WMATA keep the 1000 Series cars in service at least until the end of 2014.” In a future post, I will explain more about the general type of deal (sale-leasebacks) in which Metro was involved.  However, I first want to emphasize that there are at least two very important things I, at least, do not know about the crash and the sale-leaseback deals.

First, I do not know whether the 1000-series cars caused or exacerbated the damage and injuries from the crash.  We know that the cars are old, and that the NTSB recommended they be replaced, but as the excellent “Dr. Gridlock” writes, “Those cars do need to be replaced. They’re approaching the end of their useful lives, and it would make no sense to fix them again. But at the moment, we have no idea whether the age of the 1000 Series had anything to do with the cause of the accident or its consequences for those aboard.”  This information will come only after the crash is fully investigated, and perhaps not even then.

Second, because I have not been able to locate the sale-leaseback contracts, I do not know how those contracts would have treated replacing the cars.   (If anyone has the contracts, it would be wonderful if you wanted to send them to me).  When WMATA says that  it could not replace the cars because of “tax advantage leases,” I do not know whether that means the leases actually require that the cars remain in service (i.e., switching out the cars would trigger a termination fee), that switching out the cars would be possible but expensive under the lease (i.e., would not trigger a termination fee but would trigger some other kind of cost), or something else.

Obviously, the relevance of tax deal to the damage caused by the crash depends on the answers to these questions, answers I do not have.

(Title hat-tip: Donald Rumsfeld.)

(Edit: This is the second post in a series. One, two, three, four, five.)

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1 Response

  1. Jens says:

    “I do not know how those contracts would have treated replacing the cars”

    You might want googling for how it worked in Germany. I think BVG (Berlin Public Transport Authority) has a similar problem with its cross-border leased cars. If you are interested, but have difficulty finding information (I suppose most is in German), please drop me a message.

    I would suppose that the contract requires the cars to remain in service, or at least, that they be kept in a condition so they can be legally used in service (that includes any maintenance that the railway safety authority imposes). Otherwise, they would lose significant commercial value, probably bad for the envisioned tax benefits …

    Regarding the contracts: In Germany, they are usually secret …