Last year, as the administration began phasing down federal assistance to urban public transportation, Congress gave transit a major financial boost by providing for the first time equal tax treatment of public and private transportation.

Congress acted after the public transit industry brought to its attention the fact that fiscally strapped airlines and private railroads could reduce their cost of purchasing new capital equipment through use of a mechanism known as leverage leasing. This financing device permitted profitable corporations to own transportation equipment, gain the advantage of the investment tax credit and depreciation, and lease the equipment to private transportation operators who would share in the owner's tax savings. Because the investment tax credit has never been available for property used by the public sector, on the theory that the government's demand for capital goods is inelastic, this common and highly useful tax leasing vehicle was not available to public transportation agencies.

The theory behind the denial of the investment tax credit was demonstrably false in the case of public transit--which has projected capital needs of over $50 billion in the next decade. So Congress redressed part of this long-standing inequity by permitting public transit to gain the advantage of the new accelerated depreciation schedules (ACRS), and did so by grafting a public transit amendment onto a little-noticed leasing provision authorized by the new law to assist undercapitalized industries. The investment tax credit was still not permitted. But the new ACRS deductions save public transit an economic benefit roughly equivalent to what it had sought--about a 25 percent reduction in the cost of rail passenger cars and a 15 percent reduction in the cost of buses. These savings would be reinvested by the transit industry in additional capital improvements.

Unfortunately for public transit, the little-noticed new device was known as safe harbor leasing, and the overall provision-- of which transit is a relatively insignificant part--has become the whipping boy for all that is now argued to be wrong with the 1981 Economic Recovery Tax Act.

The number of bills that have been introduced in the Congress to entirely repeal or modify safe harbor leasing have reached floodgate proportions; most notably Senate Finance Committee Chairman Robert Dole has recommended a total repeal retroactive to Feb. 19, 1982.

The problem for public transit in this legislative scenario is that total repeal will send private transportation back to the old conventional lease financing techniques permitted before 1981 and still available. While a less efficient means to assist capital-starved industries, this device will nonetheless soften the blow to industries that have made capital spending decisions relying on the availability of safe harbor leasing.

But for public transit, which gained access to safe harbor leasing only becase Congress was seeking a legislative vehicle to provide parity for the public sector in lease financing opportunity, repeal would mean a total loss of desperately needed benefits.

Repeal now would strike at the heart of the New York MTA's unprecedented efforts to rebuild its aging regional public transportation infrastructure. After approval of the tax law last summer, MTA put in motion a five-year, $7.9 billion capital spending program--mostly funded with local resources--designed to restore the system to a state of good repair and reliable operation. About $500 million was projected to be available from lease benefits, so repeal would force MTA to reformulate its program and cut back substantially on equipment acquistition orders.

Repeal would also dash the hopes of the 14 other cities whose transit agencies have already benefited from the new law, and the dozens of others that plan to take advantage this year.

The federal transit assistance program is properly criticized for doing little to reward those cities that provide local funds in excess of what is required to match federal grants. Transit leasing, however, is the first and only federal transit subsidy that benefits cities in direct proportion to local investment in capital equipment, because tax lease benefits are only available in conjunction with the expenditure of local monies. For this reason the General Accounting Office has already commented favorably on the new provision, arguing that the federal government gets a bigger bang for its buck than through the direct grant process.

It would be strange irony, indeed, if in Congress' haste to repeal safe harbor leasing as a result of perceived private sector abuses, it destroyed a very positive and necessary step it had taken to help that transportation service that is most critical to the economic well-being or our nation's largest cities.