In its push for the Breda lease-leaseback, Muni appears not to address the ruling.
When I asked Muni about the IRS's recent lease-leaseback ruling, spokeswoman Maggie Lynch answered thus: "The IRS requires that the lease be tax-positive over the life of the transaction, and this lease will fulfill that requirement."
Aaron Farmer
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Her statement might be understood in several ways. For example, Muni's "investors" are mostly subsidiaries of foreign banks; it's possible they will use their lease of the Breda cars to receive tax benefits under the laws of their home countries, and, somehow, leave the deal "tax-positive" in the United States.
Muni hadn't responded to a request for clarification by my press deadline.
Four years ago, Massachusetts considered a lease-leaseback transaction that would have rented the assets of that state's Water Resources Authority to private interests, which would have rented them right back to the state to gain federal tax deductions. The state's primary watchdog agency, the Inspector General's Office, cried foul.
"In such cases, the federal government views such transactions as shams meant to disguise a tax avoidance scheme," the inspector general said in his report on the matter.
Ultimately, the question of whether the Board of Supervisors should rush to approve Muni's $1 billion proposal to lease most of its rail fleet into a series of tax shelters isn't about philosophy, or morality, or even smelliness. It's a matter of examining readily ascertainable facts.
How does this transaction plan to skirt the federal government's ruling outlawing this type of deal? Is it reasonable to think the Breda cars will last 30 years? Is the deal's proposed maze of Cayman Islands lenders, obscure money-handlers, and apparently conflicted insurers trustworthy? What, specifically, happens if one of our new offshore partners goes bankrupt? Or pretends to? And who, precisely, is receiving the estimated $10 million in overhead costs on this deal?
Supervisor Aaron Peskin, who sits on the Finance Committee with Chris Daly and Sophie Maxwell, was skeptical at first, he said. But Monday, Peskin said he was thinking of supporting the deal.
"It definitely raises the hair on the back of my neck," Peskin said. "If there's no harm done, God bless. But if it's a pig in a poke, shame on us."
Shame, indeed. Before deciding that the city should pay out $1 billion over 30 years through obscure offshore financial firms, our public officials ought to know a lot more than the meager information Muni officials have provided the Board of Supervisors. The supervisors should insist on having time to make sure this isn't the last puff of the flimflam boom.
