Metro Fighting Bank's Deadline

If the defaults occur, they could cost transit agencies hundreds of millions of dollars and "result in immediate termination of transit services in the nation's largest urban areas," the letter said.

In committee testimony yesterday on an economic recovery plan, a top executive of the American Public Transportation Association, a transit industry group, likened the demands to "ransom notes."

"It's just a matter of pure greed," said Beverly Scott, the association's chairman.

Such deals were a once-common practice that the IRS has ended. They were struck years ago as a way for government entities, such as Metro, to raise needed revenue, and for private companies, many of them banks, to avoid federal taxes.

Transit agencies, which don't pay federal taxes, would sell their rail cars and other equipment to banks and receive large sums of money up front to pay for capital improvements. The banks would shelter their income while "their" rail cars depreciated. The transit agencies would lease the rail cars back from the banks.

In most cases, the transactions were guaranteed by a third party, AIG.

Noting the federal government's role in bailing out AIG, Del. Eleanor Homes Norton (D-D.C.), who serves on the House Transportation Committee, said: "We're interested in bailing out more than the AIGs. Treasury better educate itself very quickly."

Staff writer David Cho contributed to this report.