Assessing New York Metropolitan Transit Authority Safe Harbor Leasing Deals
PAD-82-30: Published: Mar 15, 1982. Publicly Released: Mar 15, 1982.
- Full Report:
In response to a congressional request, GAO assessed the costs to the Federal Government of the safe harbor lease arrangements engaged in by the New York City Metropolitan Transit Authority (MTA). GAO then compared these costs with those incurred by the Federal Government under the Urban Mass Transit Administration's (UMTA) 80 percent grant program.
Under the safe harbor leasing arrangements, MTA transfers buses and rail passenger cars to a firm for tax purposes only, retaining legal title to the property. MTA then leases the property from the firm, and the firm's installment payments coincide both in timing and amount to the MTA rental payments. At the end of the lease, MTA may repurchase the equipment for one dollar, and the firm can deduct the depreciation expenses from its taxable income. Currently, the UMTA grant program pays 80 percent of the cost of new mass transit vehicles, which is far more than the contribution made to equipment costs by the down payment on a safe harbor lease. Enough UMTA grant money is available to meet the mass transit needs of most jurisdictions; however, the case of New York City is unique because of the enormous estimated capital requirements over the next few years. Because UMTA estimates that it will only be able to finance about 20 percent of the MTA capital needs, MTA must self-finance much of its own equipment. Clearly, the cost to the Federal Government of a safe harbor lease is less than the cost of an UMTA grant; however, there are virtually no controls over the total costs of these leases, while the total costs of UMTA grants are directly controllable. With the New York MTA, it is possible that a total substitution of tax leasing for the UMTA grant program could produce the same dollar subsidy to the city, but on a national level. Such a total substitution is unlikely to produce the same dollar subsidy since UMTA is expected to finance the needs of most other jurisdictions.