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OPINION
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Page 4
Saturday, January 9, 1982
The Michigan Daily
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Ei mtudnsate nit
Edited and managed by students at The University of Michigan
Feiffer
420 Maynard St.
Ann Arbor, MI 48109
Vol. XCII, No. 81
Editorials represent a majority opinion of the Daily's Editorial Board
Nursing home regulations
N THE LAST twelve months, the!
Reagan administration has made a,
great many profound and far-reaching
etanges in regulations governing
~any forms of business activity in the
sation. Few, however, may offer as
telling-and depressing-commentary
41 the nature of the administration as
recent proposals to change federal
nursing home regulations.
For some time the administration
leas been working on plans to reduce
federal regulation of nursing homes,
claiming that the existing rules made
tie cost of nursing home care too high
gid were unduly restricting the ability
of the free market to provide care for
the elderly.
.But as the administration's plans
Pve drawn nearer to completion, it
bas become increasingly apparent that
t e new regulations will be aimed not
so much at improving conditions for
ktursing home residents as increasing
profits for nursing home owners.
,The specifics of the administration
plan have not been announced,
however it seems certain that among
t14e many rules that will be dropped are
tbiose requiring homes to conduct staff
training programs and those requiring
homes to provide programs to im-
prove the "physical, social, and men-
tal well-being" of patients.
.....Bell stri
ECRETARY OF Education Terrel
Bell once again is attempting to cut
back student loans. So what else is
fw?.
But now Bell has a new plan -
discrimination.
Depending on the college a student
attends, he or she 'may not be eligible
for National Direct Student Loans.
Under a new Bell proposal, any in-
stitution whose student default rate on
NDSLs is greater than 25 percent, will
be ineligible for federal money to loan
tostudents.
In the NDSL program, colleges get
money from the government which
they loan to students at 5 percent in-
terest if the student demonstrates
financial need. Under Bell's plan,
however, if a student has the misfor-
tune of attending a college or univer-
sity that has a large student default
rate,,he or she will be unable to get an
In a sense, the theories espoused in
the administration's justification for
wanting to reform nursing home
regulation are legitimate: Homes
should be left as free as possible to give
the most individualized and personal
care to their residents at the most
realistic prices.
But the nature of the changes the
administration wishes to make seem to
indicate other, more sinister motives.
They seem to indicate that the ad-
ministration is willing to abandon
years of efforts to reform the nursing
home industry to provide an im-
mediate cash benefit to nursing home
owners. Staff training now seems to be
regarded as optional, not essential; ef-
forts to make residents' lives more
pleasant apparently will be regarded
as luxuries.
In a society with an extreme em-
phasis on youth, it is often .easy to
forget the problems which face the
elderly. Yet the problems themselves
do exist, and the method in which our
government deals with them says a
great deal about both our government
and its leaders. In opting for profits
over human dignity, Ronald
Reagan-himself the age of many nur-
sing home patients-has shown little of
his insidious mettle.
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NDSL. Bell's plan would also apply to
Work-Study programs and Supplemen-
tal Educational Opportunity Grants.
In effect, Bell's proposal
discriminates against students depen-
ding on the college or university they
attend. This plan is not unlike the
discriminatory practice of redlining
used by many insurance companies, in
which an individual's insurance rate is
determined by his or her neighbors'.
Bell's proposal could easily deny
many students the opportunity of a
college education. True, there is a
large problem with individuals'
defaulting on student loans, but
penalizing current students is not the
way to solve it. The Education Depar-
tment should find other ways to put
pressure on colleges and universities
with a high rate of default - ways that
do not forced the students to suffer for
the mistakes of their predecessors.
Turning /
By Mark Blackburn
President Reagan's federal budget cuts,
recession and continuing voter resistance to
new bond issues have combined to put an
ever-worsening squeeze on state and local
revenues.
Now some American cities appear to have
found a new way to ease the pain-in a
variant on a corporate tax scheme that lets
them join big business in what some see as a
raid on the U.S. Treasury.
THEY ARE selling, or thinking of selling,
buses and public buildings to investors
and then leasing them back, a paper transac-
tion that lets the buyer write the purchase
price off his taxable income and share the tax
benefits with the seller.
At the end of the transaction the city is ex-
pected to regain title, and both parties are
millions of dollars ahead. Thanks to the loss of
federal tax revenues, the net effect is that of a
direct federal grant with a rake-off for
wealthy individuals or private firms.
The device that the cities are resorting to is
known as a sale-leaseback, or tax lease, and
corporations have rushed to arrange them in
recent months under provisions of the Reagan
tax bill, the Economic Recovery Tax Act of
1981, that eliminated all previous restrictions
applied to such transactions by the Internal
Revenue Service.
IN EFFECT, corporations now can use tax
leases to sell tax benefits, principally
depreciation, that they can't use themselves
when they buy new equipment. Ford Motor
Co., for instance, recently sold several hun-
dred million dollars worth of equipment to
IBM and leased it back, effectively selling tax
benefits it could not employ because it had no
taxable income to subtract them from.
Other notable corporate tax leases haVe
been performed under the new law by Oc-
cidental Petroleum and the LTV Corporation.
The Treasury Department estimates that
such leases will cost it $27 billion in lost
revenue through 1986, but it backs them as a
stimulus to business.
The new law also allows cities to use tax
leases in buying new transportation equip-
ment, prompting New York City to sell 102
buses to Metromedia and then lease them
back. San Francisco intends to follow suit.
USING THE SAME concept but different
provisions of the tax code, the city of Oakland,
Calif., is arranging to sell a museum and an
auditorium to private investors, who will
lease them back and effectively share with
oopholes to grants
the city depreciation benefits it cannot take OAKLAND IS GIVING the deal extra
itself because it pays no federal taxes. wrinkle by coupling it with a pair of bond
Oakland, which expects to realize $10 issues that will provide it immediately with
million to $14 million from the deal, is the first the $10-14 million it wants out of the deal, plus
municipality to apply the technique to enough money to buy the buildings back in 15
existing public buildings. But others are years.
thinking about it, and investment bankers arei The money will be invested in government 1
getting ready to take the concept nationwide. securities paying 1.5 percentage points more
Philadelphia is considering the sale- than Oakland needs to pay investors in its tax-
leaseback of public schools, and Alameda, free bonds, allowing the city to put the pur-
Calif., is considering an auditorium deal like chase money aside while skimming some ex-
Oakland's. Rochester, N.Y., and the southern pense money off the top.
California cities of Orange and Laguna Beach Goldman, Sachs will take a commission of
also are studying the Oakland method. "In- $1.6 million on the bond sale, while the in-
novative financial techniques pretty quickly vestors will receive tax benefits equivalent to
make the rounds of municipal finance of- an after-tax income of about $14 million over"
ficers," says Irvine Davis, executive director' 14 years.
of finance for the Philadelphia School EXACTLY WHAT will happen after the
District. depreciation benefits run out in 15 years is not:O
"THERE WILL BE more and more of entirely clear. But Bill Reynolds, a City o'f
this," predicts Robert Greenburg of Butcher Oakland finance specialist who put the deal
& Singer, a Philadelphia investment bank together, believes that at that point everyone
with experience in both municipal finance may get their money back, and Oakland will
and sale-leasebacks. resume title to the buildings.
Wall Street firms that offer or plan to offer The investors are to put $12.5-13 million into
municipal sale-leasebacks as a "product" in- the deal during the first five years of its life,
elude Goldman, Sachs & Co., which advised earning more than 20 percent on their money
Oakland on the museum/auditorium deal, after taxes. If, in fact, they or Integrated
and E. F. Hutton & Co. Resources also recoup the initial investment
Not everyone is entirely happy with what after 15 years, as Reynolds predicts, the real
Oakland is doing, however.. "I'm personally return will be fa'r higher.
uncomfortable with it," says Jack Crist, The fine; points of the deal are complicated
finance director for the city of Sacramento and require the services of municipal-finance
and president of the California Society of specialists and tax lawyers to carry out. But
Municipal Finance Officers. "It's a great, the net effect is simple enough: Oakland im-
temptation, no doubt about it. But ultimately, mediately gets about $14 million, the in-
the taxpayer pays. There is no free lunch." vestors get about $14 million and Goldman,
Oakland officials defend the technique they Sachs gets $1.6 million. The U.S. Treasury
have pioneered as a way of securing money loses the same amount-$29.6 million.
the federal government has otherwise cut off, CITY OFFICIALS who have looked from
and the Treasury Department apparently afar at what Oakland is doing tend to shake
sees no problem with it. "It doesn't bother their heads-and wonder whether they can, orA
us," says Phillip McCarthy, an attorney with should, do the same. Some, like Crist of
Treasury's tax policy division. Sacramento, conclude that they should not.
OAKLAND PLANS to sell its museum and Others conclude that they should.
auditorium for between $52 million and $56 Kenneth Frank, city manager of Laguna
million to a limited partnership called Oakart Beach, says that to him the Oakland method
Associates, which will lease the buildings looks crazy but intriguing. Without such
back to the city and depreciate the purchase techniques, he says, "there's no way to raise
price over 15 years as the Reagan tax bill money."
allows it to do. "The guy who loses out is Uncle Sam," says
Oakart is being put together by a New York Bruce Rupp, city manager of Alameda. "The
investment brokerage named Integrated guy who wins is the local taxpayer. It's a good
Resources, Inc., which was brought into the idea in this day and age."
deal by Goldman, Sachs. ' The corporate use of tax leases has been
The limited partners in Oakart will be assailed by congressional liberals, however,
wealthy individuals in the 50 percent tax including Senator Claiborne Pell, D-R.I., who
bracket, and Integrated Resources will begin has des'ribed them as an "outrageous and
soliciting potential investors when the deal unjustified raid on the U.S. Treasury."
becomes final early next year. The expec-
tation is that there will be more than 35 of Blackburn wrote this article for the
them, investing at least $150,000 apiece. - Pacific News Service.
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