2004 Adopted Resolutions
72nd Annual Meeting
Boston

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URGING SUPPORT FOR THE CONTINUATION OF SALE-LEASEBACK FINANCING

WHEREAS, the U.S. Senate adopted a comprehensive corporate tax bill, S. 1637, on May 11 which includes a provision that would eliminate sale-leaseback financing for state and local governments as well as for other tax-exempt entities; and

WHEREAS, the proposed elimination is included in a bill that would repeal a U.S. export tax regime which violates World Trade Organization rules and replace it with a variety of new tax cuts to corporations; and

WHEREAS, the repeal is necessary in order to remove a tariff (which began in March at a rate of 5 percent and is scheduled to increase every month by 1 percent until it reaches 17 percent) which is being imposed by the European Union as a penalty on a wide range of U.S. exportsuntil the illegal tax regime is repealed; and

WHEREAS, encouraged by federal agencies over the last two decades, cities, counties and states have used sales-leaseback financing to help finance a number of critical infrastructure improvement and expansion projects such as subway systems, water and waste-water treatment systems; and

WHEREAS, sale-leaseback financing works in many respects like a person refinancing a home and using the equity to pay for adding an extra bedroom, for example, to pay for new subway cars needed to address a growing number of passengers, a city could access the equity it owns in a subway line by temporarily selling it to an investor (such as a bank) who agrees to lease it back to the city, in which case the city receives a significant fee and the investor is allowed to depreciate the property and receive a tax deduction over the period of the lease, and at the end of the lease, ownership of the property reverts back to the city; and

WHEREAS, federal agencies such as the Federal Transit Administration approved sale-leaseback projects through the Fall of 2003, at which time the U.S. Treasury Department issued a letter urging that no more projects be approved, and since that time the market for sale-leaseback financing has virtually shut down and left at least 20 proposals submitted for approval (approximately 15 are pending before the Federal Transit Administration) in a state of uncertainty; and

WHEREAS, the Senate voted 92-5 on May 11 to approve S. 1637, which includes new stringent rules developed by the Treasury Department that would be appliedretroactively to November 18, 2003 and in effect shut down sale-leaseback financing for all pending and future proposals in order to raise an estimated $39 billion in revenues, which would be used to help provide $170 billion in a variety of tax cuts to corporations over the next ten years; and

WHEREAS, if the Senate proposal is enacted, state and local governments will lose an estimated $5.4 billion over the next ten years at a time when many are still struggling to recover from the worst fiscal crisis since World War II; and

WHEREAS, the leadership in the House has introduced legislation, H.R. 3967, that does not embrace the retroactive effective date in the Senate bill, instead it would allow pending proposals to move through the approval process under existing rules, and members on the Ways and Means Committee are also considering offering amendments that would continue sale-leaseback financing for state and local governments,

NOW, THEREFORE, BE IT RESOLVED that The United States Conference of Mayors urges members of Congress to support final legislation that would allow state and local governments to continue to use leasing as a means of financing critical infrastructure projects that benefit the public; and

BE IT FURTHER RESOLVED that all members of Congress are urged to support and adopt final legislation that provides for:

††† a transition period that would allow all pending proposals to move through the approval process under the tax rules in effect at the time they were submitted.

††† the continuation of sales-leaseback financing with changes in the tax rules for future transactions that impose appropriate amounts of increased risk on lessors while at the same time permitting transactions, as modified to comply with new requirements, to continue.

††† appropriately limiting the availability of these transactions involving foreign assets.

††† requiring the lessors to make and maintain substantial equity investment in the leased property.

††† limiting the amount of risk that a city or tax-exempt entity (lessee) may assume in leasing transactions to not more than a specified amount of the investorís (lessorís) risk of loss in value in the leased property.