The transit agencies were doing the same thing the railroads and airlines and Greyhound and truckers have been doing for years: sale and leaseback. Sometimes the lease would end up with the equipment (fully depreciated for tax purposes) being returned to the original purchaser, sometimes not, but it was a perfectly valid way to work the tax laws. The bank (lessor) got a tax break from equipment depreciation as well as a dependable cash flow from lease payments, and the user got a tax break from not having to carry the equipment as inventory. Transit agencies of course don't get the second part of that - public agencies don't pay taxes - but they did gain the ability to stretch the original equipment money farther. IMO, that's a valid use of public money.

Though eliminating the tax benefit a few years ago killed off new deals, the real cause of the current problem is the failure of AIG and friends. The banks all insisted on insurance for the leaseback deals to make them sure things - no chance of loss even if the agency disappeared after sending the cars to China for scrap. Then the insurance companies (especially AIG, which carried a lot of the insurance for these deals) went belly-up. The banks are using this as an excuse to demand penalties for contract default, even if the agency has never missed a payment and has probably never will. Essentially, it's the equivalent of the bank adding fees and jacking the interest on your credit card because somebody else was bad.

Since the Fed owns 80% of AIG now, why not provide Federal backing for those insurance policies? They haven't been cancelled; the banks just don't think they're worth anything with the insurance companies busted. It won't actually cost the Feds anything as long as the lease payments keep being made, which come out of another Federal pot in part. Alternative is for transit agencies to whack big chunks of service (if there aren't convenient projects to stop) to pay million$ in penalties to banks that do nothing more than improve the banks' profits - the lease is still there and still has to be paid. Greed is Good?

Buses were commonly financed with similar deals. Of course, with a shorter service life (10-15 years for buses vs. 25+ for light rail cars) many of the deals are probably now ended or nearly so.

Without the leaseback deals, I think you will see a lot fewer transit vehicles of all types bought in the future, and the ones we have now will need to be used well beyond their logical service lives.