[Congressional Record Volume 155, Number 96 (Wednesday, June 24, 2009)]
[Senate]
[Page S7008]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MENENDEZ:
  S. 1341. A bill to amend the Internal Revenue Code of 1986 to impose 
an excise tax on certain proceeds received on SILO and LILO 
transactions; to the Committee on Finance.
  Mr. MENENDEZ. Mr. President, today I am introducing the Close the 
SILO/LILO Loophole Act. This legislation will close a loophole in which 
banks and other entities are taking advantage of the financial crisis 
to exploit transit agencies and other local public entities to collect 
windfall payments. This bill seeks to permanently end this abusive 
practice, saving the public scarce resources.
  Sale-In/Lease Out and Lease-In/Lease Out, SILO/LILO, contracts are a 
type of financial transaction in which a public entity transfers 
assets, equipment or infrastructure, to a bank or other entity while 
simultaneously entering into a long-term lease with the same bank or 
other entity. From the 1990's to 2003, public agencies, including 
transit agencies and rural electric coops, entered into these LILO and 
SILO transactions. As part of the agreement, the bank required the 
public agency to pay a AAA-rated entity a fee to make lease payments 
throughout the term of the lease. This arrangement provided security 
for the banks and insured that lease payments would be made.
  When the financial crisis hit last year, many AAA-rated entities 
involved in these transactions were downgraded. Banks took advantage of 
these downgrades and some sued these public agencies, citing a clause 
in the agreements that required only AAA-rated entities to make lease 
payments. They did this even though the public agencies in question did 
not miss any of their regular lease payments to the banks.
  Not only is this predatory, but allowing this practice to continue is 
also contrary to public policy. While the SILO/LILO contracts provided 
much needed resources for capital intensive projects that benefitted 
the public, they also provided tax benefits to the banks--tax benefits 
that Congress found to be tax avoidance schemes and effectively 
eliminated in 2003. In 2008, the Internal Revenue Service proposed a 
settlement of the leases, effectively eliminating all future tax 
benefits while allowing the underlying commercial transactions to 
remain in place. If we let these suits against public agencies 
continue, we are basically allowing banks to get these tax benefits 
through another means--taking taxpayer money from public transit 
agencies and other public agencies around the Nation.
  At this moment in time, we have myriad infrastructure needs. Public 
agencies are working hard to fill the demand for infrastructure 
projects. President Obama and Congress acknowledged the need and 
delivered the American Recovery and Reinvestment Act. Now is not the 
time to financially burden the agencies that we rely on for building, 
repairing, maintaining and preserving our infrastructure. The Close the 
SILO/LILO Loophole Act will help lift the uncertainty under which these 
public agencies are operating, enabling them to serve the public 
better. I hope to work closely with Chairman Baucus to end this crisis 
so public agencies can continue to serve the public and not banks 
seeking a windfall.
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