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BART's tax shelters
August 4, 2013 8:02 PM   Subscribe

How transit agencies pay for corporate tax shelters so they can pay their own bills. posted by latkes (17 comments total) 14 users marked this as a favorite

 
And, of course, the SF Chronicle and other local papers have been covering this extensively... not.
The details are way over my non-business head, but this story sure rings true. What a mess.
Well done.
posted by cccorlew at 8:27 PM on August 4, 2013 [1 favorite]


Public equity deals, in a way.
posted by jamjam at 8:40 PM on August 4, 2013


This kind of makes me want to be an IRS investigator tbh.
posted by silby at 8:45 PM on August 4, 2013 [1 favorite]


Why is this bubbling up again? BART was hardly the only agency to participate in this sort of deal, and most of this stuff came to light back in 2008.

Transit agencies can be fascinating things, because many jurisdictions typically participate in them. As a result, they often operate above or around those jurisdictions for legal purposes -- there are times when it seems like BART operates almost completely independently of anything else that goes on in the Bay Area. (WMATA is even more of a mess, because it's smeared across three "states" -- it's a legal nightmare to figure out who's actually responsible for the system, and which laws apply, when something goes wrong.)
posted by schmod at 9:51 PM on August 4, 2013 [1 favorite]


Fantastic post. I had no idea about this and I'm glad I do now.

Well, only sorta glad because now I'm steaming mad about. Nonetheless, good work.
posted by dry white toast at 10:11 PM on August 4, 2013


This is bubbling up again because BART's unionized workforce is threatening to go on strike, and management's response, according to the last graf of Mr BondGraham's post, is to insist that the workers are merely "greedy" and the agency, in resisting union demands, is prudent.
posted by notyou at 10:15 PM on August 4, 2013 [2 favorites]


This is a fascinating scam.
posted by Blazecock Pileon at 11:54 PM on August 4, 2013


If I understand this correctly, this equates to a relatively large drop in public revenue (tax) in exchange for a smaller amount going to a corporatised public asset. Without this technique the local government would have received more tax and could have well afforded to put money directly into BART. And it wouldn't even have been a politically-popular tax cut: the only people saving money were a few financial firms. Basically, closing this loophole should be a politically-popular thing because they could afford to cut everybody's taxes slightly, and still give more money to BART! Win-win.
posted by Joe in Australia at 2:00 AM on August 5, 2013 [1 favorite]


I don't know a ton about this, but I think tons of public agencies do Lease and Lease Back deals with the private sector. There is nothing special about this for BART. BART didn't do anything differently than enter into a standard deal with a financial services provider.

The main reason is that private companies are able to get tax deductions for the depreciation of the assets (the infrastructure) whereas public companies can not. The deductions for the depreciation of trains have a value which the public entities transfer to private companies for some kind of fee.

I think many investment banks offer this as a package all over the world.

This can be done with all different types of large infrastructure investment. I heard from a friend that the Government has closed a lot of these loopholes, but the business still exists. I also think there is some kind of rule that handles infrastructure (tracks, electrification) differently than it handles mobile assets like BART train cars. But, I think that anywhere in which a public entity buys an expensive asset (power plant etc..) someone would want to set up a Lease and Lease Back.
posted by jazh at 3:01 AM on August 5, 2013 [1 favorite]


The ability to push through mind-numbing boredom and minutiae is a modern superpower. Tedium becomes an invisibility cloak and a protective force field. The people inside can do almost anything they want.
posted by wilberforce at 3:19 AM on August 5, 2013 [9 favorites]


Without this technique the local government would have received more tax and could have well afforded to put money directly into BART.

the tax play turns more on the reduction of federal tax. so it's sorta similar to municipal bonds: the feds foregoing revenue to finance state and local borrowing.

FWIW, LILOs (and all the variants: SILOs, etal) have come under tremendous scrutiny for the past decade or so. IIRC, I don't think they can be done anymore between IRS rules, tax court decisions, and changes to the tax code. (some of which were pretty recent, I thought).
posted by jpe at 5:08 AM on August 5, 2013 [1 favorite]


The problem is that even if there was "more tax" money in the coffers that doesn't necessarily mean that BART would have been allocated it anyhow. Different departments or orgs all have to fight over that money and they don't have the power to demand they get the money they need or want. So this way they have control over getting that money. Oh and it's a bad idea and kind of morally bankrupt for civil servants to do it.
posted by Napierzaza at 6:44 AM on August 5, 2013


So I guess this is what happens when we start telling departments that manage necessary services to "get creative" when it comes to making up for budget shortfalls. At least it looks like regulations have put a damper on this behavior. I'd hate for my local fire department to get the same idea.
posted by RonButNotStupid at 7:15 AM on August 5, 2013


the tax play turns more on the reduction of federal tax. so it's sorta similar to municipal bonds: the feds foregoing revenue to finance state and local borrowing.

The difference is that federally backed municipal bonds are government policy (so, elections, oversight, etc) and basically everybody can participate in the upside (my retired police officer, two-time Nixon-voting pops loved him some "Obamabonds") while LILOs are not policy and only the big money gets to play.
posted by notyou at 7:20 AM on August 5, 2013


I'm sad that my reaction on reading this was to shrug and say "yep, that's finance in action". It all makes a certain logical sense. The capital expenses of BART are a tax credit that BART can't claim. So they sell the tax credit to a for-profit entity. BART gets cash up front, some bank gets a tax break, everyone wins! Great example of the hazards of an overcomplex tax code.
posted by Nelson at 8:05 AM on August 5, 2013


Nelson: "Great example of the hazards of an overcomplex tax code."

Actually, you'd probably need to add to the tax code to make this sort of thing go away.

This whole scheme is very, very clever, and I'm not entirely convinced that it's completely shady.
posted by schmod at 8:30 AM on August 5, 2013


Let me summarize.

BART helped a big foreign corporation steal money from the working men and women of the United States in the form of unearned tax breaks.



Isn't it less work just to earn money rather than get it through fraud?

This kind of tax chicanery is the reason Uwe Boll used to get so much money for such bad movies.

Bad Tax code writing is responsible for BloodRayne, and DungeonSiege
posted by Megafly at 4:50 PM on August 5, 2013


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