Date: 1983-07-14
Speaker: M ETZENBAUM (democrat)
Chamber: S

Mr. President. I ani pleased to be a cosponsor of this aiendient. Frankly. Mr. President. this aiendment is tle end result of extensive. and I mean extensive. negotiations with the staff of the Armed Services Committee over a period of several days. t he distinguished chairman of the Subcommittee on Seapower. and the distinguished Senator from Michigan. Both of those Senators were most responsive to the concerns I raised on the first day of debate in connection with fit budget waiver. That issue pertained to tlie matler of the military leasing program. I vish to express to the Senator from Maine and to the Senator from Michigan ny appreciation for their assistance in working out this construet ive compromise. There are at least eight leasing programs inl the defense authorization bill. Why do these programs trouble m1e? First. longterm leases are always more expensive than outright purchases. The committee report itself states that. As a gentral rule. ilongerm charter of assets w.ill be more expensive in undiscounted terms to ithe U.S. Governnint over ilte total prograni than atit isition throutgh provuT il ill. The Joint Tax Committee annotiices that Pentagon leasing found that. Economic reasoning leads to tli contsion that lit Govrniiii s capital cost is greater when It leasew on a longterm basis than when it buys. And the Treasury Department has concluded that. To tie extent that a lese arrangmenitnt simply involkes substituting private financing for public financing. it is more costly than a direet purchiase. Let us take a look at the program itself andi how it has worked. Take. for example. the Navys leasing of 13 TAKX cargo ships for 25 years. The Joint Tax Committee has found that the Government will pay an extra $270 million in discounted terms by leasing rather than purchasing. A study by Coopers and Lybrand. commissioned by the Navy. concluded that the Governments cost of leasing would exceed the cost of purchasing. Mr. President. that did not deter the Navy. No. indeed. The Navy went right out aid put together one of the best tax shelters oi the market. We all know the old line that you can go out and buy a piece of tle rock. Well. now you can go out and buy a piece of the Navy. What do you get if you buy into one of thiese deals? You get investment tax credits. you get accelerated depreciation deductions. and should the IRS rule against any of these t.ax benefits. have no fear. the Navy contract guarantees tle tax benefits. If the ItS rules against the investor. the Na y will pay tle extra tax bill. the lawytr fees and the court costs. That is a pretty sweet deal for everyone except the taxpayers of this country. Our amendment prohibits use in the future of any such indemnification during fiscal year 1984. The indemnification provision is similar to my amendment on this subject which was adopted by the Senate during considcration of the supplemental appropriations bill. I wish to note. Mr. President. that the amendment will not affect exist ing contracts. It remains my opinion. however. that those indeninity clauses are invalid. I want to make it clear that nothing in this amendment should or can be construed as validating those provisios. Mr. President. I previously complimented Senators COHEN and LEVIN for their cooperation in this matter. I only wish I could say the same about t he Secretary of Defense. Last February Caspar Weinberger appeared before the Senate Budget Committee. At that time I expressed my dismay over the "sweetheart" leasing deals that had already been completed. And I asked him to hold off on future leasing activity. Not only did he refuse to give me such a commitment. lie stated: "We do not have immediate plans to do any other leasing." Now low and behold. I open up the defense authorization bill and I find that the Department of Defense is. in fact. engaging in other leasing activities which are bum deals for the American taxpayer. Thank you. Cap Weinberger. formerly known as Cap the Knife. now Cap the man who gives away millions of dollars of tIle taxpayers money. Take. for example. the Air Force C140B replacement program. The C140B is a mediumsized corporate jet used to shuttle diplomats and highranking officials in the United States and Europe. The Air Force wishes to replace the current fleet. so the Air Force signed contracts last month to lease three planes for $15.9 million for 1 year. At the end of the year. the Air Force must either exercise its option to purchase the planes for $54.8 million or pay a termination penalty of $5 million. And what would it cost if the Air Force simply went out and purchased the planes today? I have just said they are going to pay $15.9 million to lease them for 1 year and if they do not purchase the planes for $54.8 million at the end of the year. then they have to pay a penalty of $5 million. It is an amazing fact of life that what this contract provides is that it will cost the same $54.8 million that the Air Force will have to pay next year for yearold planes. for planes that It has leased for a period of 1 year for $15.9 million. In the process. the taxpayers are out of pocket $15.9 million in lease payments. Mr. President. that is insane. It is bad business and it is irresponsible. Let us take another examplethe Navy program to lease DC9s. When my staff asked the Department of the Navy for an explanation of their plans to lease DC9s. the Navy admitted that. from the point of view of cost. it would be a better deal to procure the planes Instead of leasing them. So why has the Navy already leased four DC9s? And why does it plan to lease 4 to 6 more? Let me give you one very good reason: By leasing the DC9s. the Navy is able to use Its operations and maintenance account to acquire these aircraft. And that acquisition comes at the direct expense of readiness. And what of the Navys leasing of 15 aircraft to train pilots? Do not bother looking in the authorzation bill. It will not be found. That is because the Navy says that it is not a lease. Rather. it is a "service contract." which is also funded out of the operations and maintenance account. And at what cost to the American taxpayer? It is my understanding that the program cost will be at least 16 percent above the cost of outright procurement. Mr. President. it is for these reasons as well as many others that I at pleased that we are able to join together in offering this amendment that will require the Department of Defense to properly account for its longterm leases. And it will prohibit tax benefits from being guaranteed. I think that It makes substantial progress in uncovering the "hidden procurement" budget that now exists in the O&M account. I again thank My colleagues from Maine and Michigan for their cooperation. Mr. President. I am about to ask for a rollcall vote on this amendment. I am well aware of the fact that I. myself. have oftentimes said. Why did that Senator ask for a rollcall vote when the manager of the bill was prepared to accept the amendment?" I shall explain that to my colleagues. because I do not wish to place them under any undue burden or to tie up the Senate for an additional 15 minites. It is my opinion that on the subject of leasing by the Department of Defense. we shall be coming back to the floor of the U.S. Senate time and time again because. notwithstanding the efforts of the Senator from Maine and the Senator from Kansas and the Sellator from Michigan and the Senator from Ohio. the Department of Defense will find another way to get around that which we are attempting to tell them they should not be doing. They will come up with a new formulation. Therefore. I believe that the Issue of leasing will come back to the floor of the Senate time and time again. I want to be able to point out to my colleagues in future months and years that. on this night. they voted specifically to put a halt to this process except under the procedures outlined and provided for in the amendment which we offer. It is therefore. under those circumstances. Mr. President. that I ask for the yeas and nays.