Montgomery County, one of the nation's wealthiest jurisdictions, is trying to reap $400,000 through a special provision in last year's Reagan tax-cut measure by selling 34 of its Ride-On buses to a company that would then be able to use the paper transaction to reduce its taxes.
"If the federal government is going to take away some programs," county Finance Director Albert W. Gault said yesterday, "then we'll get some back with this."
In doing so, Montgomery is not alone. Ten other jurisdictions or transit authorities, including New York, Boston, Cincinnati, Philadelphia, Houston and Los Angeles, have already sold some of their buses or subway cars to private investors who write the purchases off their taxes and then lease the equipment back at minimal or no charge.
Moreover, other cities, many of them facing financial difficulties with the continuing slashes in federal aid, are using the 1981 Economic Recovery Act and earlier legislation to sell government-owned real estate to private ventures to get quick infusions of cash, while still leasing the properties back from the buyers.
The city of Oakland has sold its Museum of California History for $22 million and expects to sell an auditorium for about $33 million. The city figures it will net $15 million from the deals and invest the other $40 million in securities that will yield enough interest to lease back the two facilities, according to city official John Flores.
The Baltimore city government has already sold a new firehouse under a similar arrangement and is negotiating to sell its Culinary Arts Institute, a gourmet cooking school. Moreover, Baltimore is exploring whether there are private investors who would buy the city's fire equipment.
Other jurisdictions are considering still other types of sale-leasing arrangements, all in an effort to ease the pain of the Reagan budget cuts. The Washington-based Municipal Finance Officers Association said that last month it attracted 175 people to a seminar on "the new leasing possibilities" and plans another conference soon on the West Coast.
Robert Batchelder, counsel for the American Public Transit Association, said that the provision on transit system sale-leasebacks was written into the 1981 tax-cut law after the New York transit authority proposed it as a way to alleviate its chronic financial problems.
"I can't think of a better way to get private companies interested and involved in transit," Batchelder said.
Robert S. McIntyre, director of federal tax policy for Citizens for Tax Justice, a coalition of labor and citizens groups, had a different view of the provision, saying, "It's absolutely a phantom depreciation."
A Treasury Department spokesman said it is too soon to make a judgment on whether the sale-lease arrangements are having the desired effect of helping beleaguered transit systems or costing the federal government too much money.
At Gault's suggestion, Montgomery County Executive Charles W. Gilchrist proposed the sale of the 34 buses. The legislation was introduced at Tuesday's County Council session and Council President Neal Potter said it will be passed at next Tuesday's meeting.
"It's an outrageous loophole," Potter said. "But maybe it's a way we can get back some of the money the Reagan administration is cutting out."
Montgomery now receives $14.5 million in various types of federal aid, a figure it expects will drop to $9.8 million next year.
Council member Esther Gelman described the transit sale-lease provision as "unbelievable. Who are we kidding? The federal government has turned us all into people looking for loopholes.
"It's so distasteful," she said. "Everybody's buying and selling losses to cheat the federal government."
Nonetheless, she said she will vote for it "to protect our people. You hold your nose, but it will pass."
Under the proposed sale, which Gault said must be completed by March 1 in order to allow a purchaser to take advantage of the depreciation of the property this year, the buyer would pay the county $400,000 when the sale contract is signed.
Gault said the nominal purchase price would be $2.9 million. But that is actually a purchase price that exists only on paper. In fact, he said, the purchaser would then pay the county $500,000 a year plus interest for each of the next five years, but the county would in turn lease back the buses for the same amount.
"There will be only one payment"--the $400,000, Gault said. The rest "are paper transactions."
The advantage to the company nominally buying the buses would be that it could write off the full purchase price from its profits during the five years, thereby lessening its tax burden, he said.
During that time, the county would continue operating the buses and at the end of the five years, he said, the county would buy the buses back for $1.
Gault said he first learned of the tax law provision when New York City's Metropolitan Transit Authority late last year nominally sold $102 million worth of subway cars to Metromedia Inc. for $15.52 million.
"I always say, 'Would I do this for myself?' And if I would, then I do it for the county," Gault said.