Financial service corporations

Buying and immediately leasing back water and wastewater systems to cash-strapped municipalities in the USA, is merely a "tax shelter sham" employed by financial service corporations, warns the consumer organization Public Citizen. The financiers can write off depreciation on public infrastructure assets to cut their corporate tax bills. This "deprives the federal government of millions in tax revenue while lacking any productive economic substance", says Public Citizen. It adds that lease-back deals can also restrict municipalities from using local courts in legal disputes and exposes them to "financial risks". Proponents of these deals like the Mayor of Rochester, Minnesota, which is considering a lease-back scheme for its water and wastewater systems, state that they are an allowed transaction under US tax regulations. He added that "investors assume all the risk for any changes in federal tax law". The Rochester proposal is under review by the League of Cities and the State Finance Commissioner and other leaders of the Legislature.

Contact: Water for All Campaign, Critical Mass Energy and Environmental Program, Public Citizen, CMEP@citizen.org, http://www.citizen.org/cmep/Water/

Source: Currents, Nov 2003
City of Rochester Press Release, 30 Sep 2003

Tags: financing