News: CJ Exclusives

Transit Assets Used For Tax Shelter

Localities urged to use deals to raise capital; also, water improvements and apartment myths

Since 2001, 16 U.S. companies have bought public transportation assets from cities through 35 leasing agreements that allow the buyers to save millions of dollars on taxes as the assets depreciate, even though they don’t operate the equipment.

Washington lawmakers say that this growing practice is an abuse of tax law and that it costs the federal government revenue. Opponents of these leasing arrangements say cash-strapped cities are not enjoying much benefit, with the disproportionate gains going to private companies. The U.S. Department of Transportation has since delayed about 15 leasing transactions worth $3.1 billion.

The Bush administration says the tax shelter will cost the federal government $33.5 billion during the next 10 years.

Records on the previous 35 dealings, which involved $9.5 billion worth of publicly funded transportation assets, show that:

• In part, due to these public transit lease agreements, Wachovia paid no taxes on a $3.6 billion profit in 2002 and received a $159 million tax refund.

• The states will lose an estimated $6 billion in tax revenue because of the shelters.

Overall, the agreements resulted in almost 600 percent return on investment in taxes saved for the biggest investors.

The companies blame the nation’s convoluted tax system for creating incentives to shelter profits from taxation that would not exist under a simpler system. Says a Bank of America spokeswoman, the company “followed the letter of the law, and if the government changes the law, we will act accordingly.”

Further, defenders of the tax shelters say that the Department of Transportation actually encouraged transit authorities to pursue the contracts as a creative way to secure capital. In fact, the Federal Transit Administration even published a guide for wining approval of the agreements on its web site.

Reported by the Fort Worth Star-Telegram.

Water used more efficiently

Despite an increasing population, greater electricity production and higher agricultural output, Americans are using less water than they did 30 years ago, says a new report from the U.S. Geological Survey.

The agency examined 50 years of water use through 2000. Consumption in 2000 is largely unchanged since 1985 and is 25 percent less than its peak in the 1970s.

Americans consume 408 billion gallons a day of fresh and saline water. Eleven percent goes to homes and most businesses, while nearly half (48 percent) goes to power plants, more than a third (34 percent) to agriculture; and 7 percent for such uses as mining, livestock, and individual domestic wells. Power plants account for 96 percent of saline water withdrawals.

How has water been conserved?

Electric utilities, which once needed huge amounts of water to cool electrical generating plants, now conserve water by closed-loop recirculation. Other industries have conserved by using water-saving technology — driven by energy-saving and environmental-protection laws passed in the 1970s.

Irrigation remains the largest use of freshwater, and more of it is groundwater — rising from 23 percent in 1950 to 43 percent in 2000.

And, interestingly, low-flow bathroom fixtures and water-saving appliances ordered by a 1992 federal law — the bane of millions of consumers — have had little impact.

In contrast to the record of industry, Amy Vickers, author of Handbook of Water Use and Conservation, says 15 percent to 20 percent of municipal water is lost to leaky pipelines and other unmeasured waste.

Reported in USA Today.

Myths of apartment communities

Apartment communities help meet the housing needs of a rapidly growing population in the North Texas county of Tarrant, according to the head of the local apartment association.

As in many cities, however, local policymakers oppose apartments in Tarrant County, because they believe certain myths about multifamily communities, writes Marlene Walker of the Fort Worth Star-Telegram. These misconceptions include:

• Concerns about property values. It is a myth that apartments diminish adjacent property values — an Urban Land Institute report found that between 1987 and 1995 the average annual appreciation for single-family houses within 300 feet of an apartment community was 3.12 percent, compared to 3.19 percent for houses not near apartments.

• Apartments are bad for the business climate. It is a myth that apartments are a detriment to attracting business to a city: a 1998 National Association of Home Builders study found that the construction of a 100-unit apartment community results in 122 new jobs, $579,000 in local taxes and fees, and $5.2 million in income to local business.

• Apartments stress local schools. It is a myth that apartment populations overwhelm local schools: on a unit-by-unit basis, single-family homes have three times as many school-age children as apartments, Walker says.

• Apartments are the same thing as public housing. Furthermore, contrary to myth, apartments aren’t synonymous with “public housing.” Participation in federally subsidized housing programs is not mandatory unless developers use government money to acquire or finance multifamily properties, in which case they are typically required to set aside a certain percentage of units for Section 8 low-income housing.

Reported by the Fort Worth Star-Telegram.

Lowrey is a Charlotte-based associate editor at Carolina Journal.