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PAD-82-30 1 (1982-03-15)

handle is hein.gao/gaobabdai0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 PROGRAM ANALYSIS DIVISION March 15, 1982 B-206479 The Honorable Adam Benjamin, Jr. Chairman, Subcommittee on Transportation Committee on Appropriations House of Representatives Dear Mr. Chairman: Subject: Assessing New York Metropolitan Transit Authority Safe Harbor Leasing Deals (PAD-82-30) At the request of your office on February 10, 1982, we assessed the costs to the Federal Government of the safe harbor lease arrangements engaged in by the New York City Metropolitan Transit Authority (MTA). We then compared these costs with those incurred by the Federal Government under the Urban Mass Transit Administration's (UMTA) 80 percent grant program. Our analysis indicates that from the Federal Government's perspective, safe harbor leases are less costly than the grant program. We obtained our information on the mechanics of the UMTA grant program from UMTA officials in the Department of Transpor- tation. Information on the MTA lease was obtained from your office; we did not contact MTA. BACKGROUND The arrangement between MTA and Metromedia, Inc., is typical of safe harbor leasing arrangements permitted under the 1981 Economic Recovery Tax Act (ERTA). MTA transfers qualified capital investments (buses and rail passenger cars) to Metromedia for tax purposes only, retaining legal title to the property. Metromedia purchased the property from MTA for the full pur- chase price, made a down payment, and gave a promissory note for the balance. At the same time, MTA leased the property from Metromedia. The constant level installment payments specified in the promissory note coincide in both timing and amount to MTA's rental payments under the terms of the lease. At the end of the the lease (12 years for buses and 30 years for rail passenger cars), MTA may repurchase the equipment for one dollar. In return, Metromedia can deduct the accelerated cost recovery system (ACRS) depreciation expenses from its taxable income. (971469)

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