Attention, Ken Lay

This sounds like something Enron would have dreamed up. Cities across the country are being visited by financiers with a startling offer: Lease us your sewer systems, transit lines or civic centers, and we'll give you a pot of money.
January 2004
By Otis White  |  Contributor
President of Civic Strategies Inc.

This sounds like something Enron would have dreamed up. Cities across the country are being visited by financiers with a startling offer: Lease us your sewer systems, transit lines or civic centers, and we'll give you a pot of money. Wait, there's more: At the end of the lease, you'll get them back. And still more: We won't hang our names on your civic center, slap our logos on your trains or put anything funny down your sewers while we're leasing them. What's going on here? You guessed it: These are tax shelters aimed at avoiding federal income taxes through the ownership of assets that generate a lot of depreciation. Cities have many of these depreciating assets but can't use the tax write-offs because they don't pay taxes. Financiers want to lease the unused tax credits from cities, then parcel them out to their clients. Many transit systems have taken these deals, including those in Boston, New York and San Francisco. Now the dealmakers have offered St. Paul, Minnesota, up to $30 million to lease its sewer systems. There's nothing wrong with this deal at the local level. But one U.S. senator calls it "good, old-fashioned tax fraud" and is trying to plug the loophole. Otherwise, he says, the U.S. Treasury could be deprived of $500 million in taxes over the next decade.


A few years ago, Chicago had the worst reputation of any big city for public housing. Its high-rise projects were horror shows of gang violence, drug-dealing and dilapidation. Management at the Chicago Housing Authority was so bad that the federal government seized control in the mid-1990s. In recent years, the housing authority (back in local hands) began knocking down the disastrous high-rises. But a funny thing happened as the buildings were toppled, the Wall Street Journal reported recently. Those that remained suddenly worked better. Crime declined, occupancy rates rose, and residents were happier. High-rise public housing has begun to work as it was intended. Why? Because, according to a sociologist who has studied Chicago's projects, the problem wasn't the height of the buildings, it was the placing of so many of them shoulder to shoulder, segregated from the rest of the city. Another plus: As the housing authority tore down units (it has knocked down about half of the 20,000 high-rise apartments so far), it did a better job of managing the ones that remained. Four years ago, for instance, the housing agency had a backlog of 40,000 unfilled work orders. Today, it has 2,500, and claims that most non-emergency maintenance requests are filled in 10 days. Doesn't matter, though. The remaining high-rises are coming down, to be replaced by low-rise townhouses and small apartment buildings.


On the suburban housing front: A developer in Los Angeles' Orange County is building 22 homes that are half residences and half businesses. The idea is to sell these houses not just to the CPAs or lawyers who meet with clients in a converted bedroom but real come- and-visit-us businesses, such as day-care centers. "This will be in the architecture history books in 20 years," predicts one urban historian. Others aren't so sure. Said an official of one nearby town, which rejected a similar project, "Nobody minds the CPA or attorney, but people have a problem with the electrician or the plumber who parks his work truck in the driveway. And you can't make one legal and the other illegal just because it isn't pretty." The developer says the homeowners' association will decide what is and isn't allowed. Biggest problem so far: getting county approvals. A special zoning classification had to be created (HBBE for "home-based business enclave") and the building department was initially flummoxed by the hybrid. Which code should apply, it asked: the commercial building code (which required, among other things, sprinklers) or the residential? It eventually settled on the residential designation.


Boston is a nice town, but that's not the main reason it's hard to leave. Getting a flight out of Logan Airport can be a nightmare. For nearly three decades, the airport has been unable to add capacity because its owner, the Massachusetts Port Authority, unwisely agreed to a court injunction in 1974 forbidding it from building new runways. Thankfully, a superior court judge has lifted the injunction at long last, and Massport officials say they intend to start construction on a long-overdue fifth runway next spring. Along the way, Massport has had to fight a highly organized East Boston neighborhood abutting the airport and several municipalities, including Boston, whose elected leaders have consistently sided with the neighborhoods against airport expansion. Now, Mayor Thomas Menino says he is disappointed in the ruling "but right now it looks like I'll accept the decision." Logan has had not only city hall to fight but also Mother Nature. When winds blow strongly from the northwest, the airport has to close three of its runways, cutting departures and arrivals in half. The new runway, airport officials say, will help keep capacity up even in those conditions.