Say No to Investment Tax Credit (“ITC”) for Aerospace & Rail

Recently the Equipment Leasing and Finance Association (ELFA) made a recommendation to National Economic Council Director Lawrence Summers to re-institute the ITC as part of the pending economic stimulus package.

Ten Percent ITC was available when I first became a lessor in January of 1979.  ITC led to severe oversupply portfolio devaluations of the two asset classes i.e. Aerospace and Rail in the early 1980's in which I continue to invest.   Large backlogs and idle equipment make ITC a two fold problem.  We are oversupplied in both categories right now as 2000 commercial aircraft are stored and over 200,000 railcars are idle with both numbers rising daily.  The Boeing backlog of over 3400 aircraft has never been greater and it is nearly eight years out. The backlog for rail car production of over 35,000 cars is several quarters out and is still healthy.  Therefore ITC for Aerospace and Rail will not increase near term production given these backlogs but it would have a destabilizing effect on existing portfolios, if ITC encourages or accelerates deliveries in any way as it always does.  Paucity of debt for both categories impairs capital formation far more than any lack of equity investors. ITC will do nothing to stimulate debt for leveraged leasing.  Many of today's financial industry based equity investors are swimming in tax operating loss carry forwards or are tax neutral.   So ITC will put them at a competitive disadvantage for new business and ITC will weaken the value of their existing portfolios in these categories.

Vincent Kolber

January 23, 2009

Stimulus with Entitlement Action Possible

Simultaneous stimulus/entitlement action

CNN's two hour very informative "IOUSA" documentary this weekend concluded on the comments of former Senator Bill Bradley and Brookings Institute's  Alice Rivlin in agreement on a key approach to our economic crisis.  Namely that stimulus should only be implemented with entitlement reform on a simultaneous basis.  The CNN program highlighted the enormity of the unfunded entitlement liabilities of Social Security and Medicare which total over $60 trillion according to Obama's advisor Austin Goolsbee.    Add the direct borrowings of the federal government now more  than $10 trillion which are accelerating and the nation is facing a greater than $70 trillion liability juggernaut.  This liability juggernaut (the "LJ") amounts to more than $550,000 per taxpayer.  The big surprise last week was that Obama put Social Security and Medicare entitlements as reform candidates firmly on the table during his ABC Sunday morning interview and during his remarks to appoint Nancy Killefer as performance chief.  A simultaneous stimulus/entitlement action would enable the stimulus to be offset by a reduction of the LJ and thereby enable another of the widely touted axioms of PayGo to actually occur.  Rather simple fixes to the entitlement programs such as delaying the starting age for benefits will wipe trillions off the LJ and give the stimulus the opportunity of meeting PayGo.   

Please do all you can to demand "Stimulus with Entitlement Reform Only" and maybe for once and in the context of the prevailing crises with our newly elected charismatic leadership, federal government could do the right thing. 

Vincent Kolber

Chicago , Illinois

January 12, 2009

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