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BART’s Tax Shelters

• anigbrowl 13y ago
  Sale and leaseback is a long-established capital allocation tool. The value it provides is short-term liquidity; another way to think about this is the opportunity cost of illiquidity. There's nothing nefarious about it.
  • malandrew 13y ago
    In this case it most certainly is nefarious because it's not being used as a capital allocation tool, but as a means to get tax reductions where there should be none. This loophole allows local agencies to get paid for letting private corporations get tax deductions that they should not be getting. I may be totally off base here, but near as I can tell the correct market-based solution is probably not to make this illegal (although that probably can't hurt) but to give local agencies like BART the ability to file tax deductions in the same way the private enterprise doing the LILO is. This would remove the incentive to perform a LILO since the local agency would be gaining short term liquidity in the form of "tax returns", assuming their they can deduct taxes beyond the $0 taxes they owe by virtue of being a government institution.
    • anigbrowl 13y ago
      I'm not clear why you think they shouldn't be getting them. Depreciation is a normal deductible business expense. The suthor is clearly angry about this but hasn't really made his case for what he thinks is wrong. BART gets about 5% of the deal value up front in cash with no interest payable, which seems about right given historical interest rates. The alternative is floating a bond at interest which costs a lot more over the long term.