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Westly wants Schwarzenegger to explain jet deal

Scripps Howard News Service / Sacramento Bee | Jan 04, 2006

SACRAMENTO, CA -- State Controller Steve Westly and a taxpayers' rights group are calling on Gov. Arnold Schwarzenegger to disclose financial and tax records about his 747 investment deal with Singapore Airlines, saying Californians need to know if he is putting his interests before theirs.

Westly, who is seeking the Democratic nomination for governor in 2006, and the Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights, urged Schwarzenegger to release records about the jet deal and say whether it has drawn scrutiny by Internal Revenue Service auditors.

"The controller believes that Governor Schwarzenegger must disclose details of this tax shelter scheme," said Westly campaign spokesman Nick Velasquez. "If this is an example of the kinds of thing that can be found in his taxes, Californians need to know about them when deciding if the governor is putting his own interests before their own."

Schwarzenegger spokesman Rob Stutzman quickly dismissed the calls, saying: "There's no need to disclose documents about any specific business deal, particularly any deal inside the governor's blind (investment) trust."

The Bee reported Tuesday that a Schwarzenegger company has deferred paying income taxes on millions of dollars in revenue generated since late 1997 under a deal that saw it buy the 747 from Singapore Airlines for $133 million and lease it right back to the airline until 2006.

The jet deal gave a newly created Schwarzenegger company, Legend International Air, access to large tax deductions because of the depreciation on the aircraft and interest generated on the $120 million bank loan he used to finance the purchase.

The deductions offset rental revenue from the airline, facilitating a tax deferral for years.

One tax fairness advocate called the 1997 jet purchase and leaseback deal a "tax deferral shelter," despite claims by Schwarzenegger's top advisers in 2003 that the millionaire didn't participate in tax shelters.

The Bee also reported that the Internal Revenue Service is examining leasing deals arranged by investment banker Babcock & Brown between 1993 and 1999. Babcock & Brown executives helped Singapore Airlines arrange the 747 sale and leaseback deal with Schwarzenegger's company during that period.

Stutzman and Steven L. Guise, the governor's Los Angeles tax attorney, declined to say if the IRS was auditing or challenging any of Legend's tax deductions.