The item, found in volume 2 of the budget's financial plan, sounds innocuous enough on the surface: "The city will transfer tax benefits relating to a city-owned asset to a private party." It's the statement's lack of specificity, however, that has caused rampant speculation about its potential ramifications.
"If the city can do this then one wonders why other state and local governments won't turn around and do the same thing," says James Parrott, chief economist at the Fiscal Policy Institute. "And that would have significant implications for federal tax collections."
According to Raymond Orlando, an analyst for the city's Office of Management and Budget, the item is just one of many creative ideas for addressing a $4.8-billion deficit. It is designed, he says, to take better advantage of the fact that governments don't pay taxes. "Basically, the city has lots of assets," Orlando tells GlobeSt.com. "And we cannot take depreciation benefits for tax purposes off these assets. But private parties can take depreciation benefits. There might be a meeting of the minds where we'd say 'hey, we have this asset, you have a tax liability that you could apply this depreciation against, why don't we do a deal?'"
Parrott likens the idea to a never-implemented city plan pitched several years ago. "It sounds similar to a proposal the city had back in the mid-'90s to sell the parking meter system to a private entity. It was a way that the city would generate some revenue by selling a city asset without changing the operation of the city. The meters would stay in place. People would still have to plug the meters. With the current proposal, the city still operates the space, not paying more or less for the use of the space. It's a financial transfer to generate one-shot revenues for the city.
Though far from whole cloth, Orlando says the idea would essentially be implemented through a "sale for tax purposes" arrangement, under which a city-owned asset would officially be sold to a private entity, though its occupancy and use would remain unchanged. "We would do a lease for the economic useful life of an asset to a private party, which would constitute a sale for tax purposes, and for that they'd pay us," he says. "They'd be purchasing the tax benefits from us. Maybe that would be up front, maybe it would be over time."
Orlando added that no decisions on which, or even what type of properties are under consideration. "We are currently reviewing city assets for tax benefit transfer." And as to the estimated $100-million payday the program would bring, " It is an estimate of what we could receive taking a look at the cities various assets," he says.
According to Mayoral spokesman Jordan Barowitz, the item, while appearing in the current version of the budget, is far from a done deal. "It's subject to approval by the City Council and we have to research the legal ramifications of it," Barowitz tells GlobeSt.com.
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