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Letters to the Editor 

Week of Wednesday, February 11, 2004

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Mean Sucks

Especially when it comes to a band she likes: I was thrilled to see the Paradise Boys on the cover, but was very let down by the interview ["Sex, Lies, and Audiotape," Music, Jan. 28]. What I like about the Paradise Boys most of all is their sense of humor and positivity. They don't care what you think and want to have a good time.

It seemed like your writer used them as a crutch to put down other local bands in a cute little guide in how to be a hater. Granted, I don't really care for some of the acts mentioned, or "electroclash" in general, and don't really see why the P-Boys are being compared to them in the first place.

A wonderful movement is happening in S.F. and it isn't called anything, but it wouldn't be possible if people were closed-minded and negative.

Vicky Same
Mission

Small Is Beautiful

Especially when it comes to local radio: While I agree in general with Silke Tudor "that Bay Area radio sucks wind" (and thanks to entities like Clear Channel this statement is almost universal), it should be pointed out that the Bay Area plays host to a remarkable variety of college radio and independent broadcasters [The House of Tudor, Jan. 14].

The Bay Area is blessed with no less than six college stations (KZSU, KALX, KFJC, KUSF, KSCU, KSJS), fine noncom stations such as KPFA, KPOO, KALW, and pirate broadcasters like Pirate Cat. All feature a vast variety of excellent noncommercial, independent, and underground programming. It is on their frequencies that one will hear the newest and most exciting music produced today.

Most of their transmitters broadcast with less than 500 watts of power so extra effort may be required to tune in, but at any given location in the Bay Area and beyond one can easily receive at least several. Almost all can be found on the FM dial at frequencies below 92 MHz. Why most locals are oblivious to what is surely an unrivaled resource confounds me.

Bill Cuevas
Music Director, KZSU
Stanford

Muni's Rolling Tax Shelters

There's nothing wrong with them, and they make us money: Matt Smith's column "The Tax Man Cometh" is inaccurate and misleading in several respects [Jan. 21].

Leverage leasing transactions, such as the one completed by Muni in 2002, have customarily been used by public entities, in effect, to sell to private parties the depreciation rights to capital equipment that the public entities cannot use because of their tax-exempt status. The transactions have had various structures over the past 25 years and have provided much-needed funds for local transportation projects. For years, the Federal Transit Administration (FTA) encouraged transit districts to pursue innovative financing strategies such as leverage leasing transactions.

The Breda transaction was undertaken after extensive briefings of, and deliberations by, the Board of Supervisors. In the end, the board authorized Muni to proceed with the transaction. As a result of the transaction, Muni realized substantial funding for local transportation projects.

One of the key risk factors considered by the board and Muni was whether the city would bear any financial risks if the federal government disallowed the favorable tax treatment to the private investors. Contrary to Mr. Smith's contention, there is no guarantee by Muni or the city to the private investors "that the deal would always pass muster with the IRS," and contrary to Mr. Smith's unnamed tax expert, Muni is not "responsible for the benefits of the tax break to the private investors" if the federal government denies such favorable tax treatment.

In all respects Muni's Breda transaction was undertaken in accordance with existing law. Currently, the FTA has indicated that it will not approve any further transactions pending the outcome of congressional review. That said, there has been no suggestion that Congress will seek to undo any transactions completed prior to this suspension. To suggest otherwise is simply misleading and inaccurate.

Michael Burns
Executive Director
Municipal Transportation Agency
San Francisco

Matt Smith replies: My column cited Assistant Treasury Secretary Pamela Olson saying the IRS would audit existing deals. I said this should be cause for concern given the nature of the contractual arrangements by which Muni allowed its Breda light-rail cars to be used as a corporate tax shelter.

My assertion that Muni and the city guarantees investors "that the deal would always pass muster with the IRS" stems from a portion of the series of contracts that made up the tax-shelter deal called the "Tax Indemnification Agreement."

The agreement lists ways the deal might sour, and thus require Muni to make the investors whole. The list includes specific scenarios under which the IRS might not interpret the transaction the way lawyers who drew up the agreement hoped it would.

I sent this agreement to structured leasing specialist Greg Dorbeck, who said: "It's laid out in text that the City and County of San Francisco is expected to indemnify all the trust holders and the equity investors from this risk, and that doesn't make any sense. This whole deal is predicated on an authority [the IRS] that hasn't given its blessing to the transaction. Someone has to get a ruling that the trust will work, and it's incumbent on the investors to do so. It's not the city's problem."

Burns suggests that the Breda transaction "was undertaken after extensive briefings of, and deliberations by, the Board of Supervisors." Actually, the board hearing dedicated to this topic was dominated by supervisors' complaints that Muni had spent months of staff time and millions of dollars in consulting fees on the deal, then sprung it on the board at the last possible moment.

The aforementioned notwithstanding, Burns' letter does include one useful piece of information: "Currently, the FTA has indicated that it will not approve any further transactions pending the outcome of congressional review." Burns appears to be referring to a specific deal to create yet another tax shelter that's currently on hold.

As if turning the city's 118 light-rail cars into private tax shelters wasn't enough, Muni last year laid the groundwork to turn the city's buses and electric trolleys into rolling tax shelters. The agency contracted with three financial consulting firms to advise it on leasing 330 diesel buses and 273 trolleys. Investors would write the vehicles' wear and tear off their income taxes, then lease the buses and trolleys back to the city. Like the corporate tax shelter involving the Breda light-rail trains, this would be a mere paper transaction; the buses would never leave the city's hands.

In another apparent similarity: A July 2003 presentation to Muni management by the French bank Société Générale said Muni's risks included potential third-party liability claims as well as possible changes in U.S. tax law.

Muni's consultants completed an information memorandum dated Oct. 30 describing the new tax shelter, which the memo says was shopped around to potential investors. This was the same month the U.S. Senate Finance Committee held hearings describing municipal-asset-based lease deals such as Muni's as "abusive tax shelters based on a gross breach of ethics."

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