Municipal Leasing

The term of a lease is generally one to five years depending on the useful life of the equipment and the needs of the government agency.  In addition there is no down payment required and credit approval is guaranteed.

QUICK DELIVERY: Lease Purchase financing allows the Government Entity to get the equipment they need immediately without waiting for voter approval through a bond issue. This means increased productivity for the Government Entity, and a FAST cash sale for the vendor.

NON-APPROPRIATION: In most jurisdictions, the authority of the administrator to enter into debt or obligation of future funds is severely limited. For this reason, Municipal leases are characterized by a Non-Appropriation clause which specifies that the lease may be terminated in the event funds are not made available in subsequent fiscal years. Title to the equipment usually resides with the lessee so that the government agency’s sales and property tax exemptions apply.

$1.00 BUYOUT: Lessee owns the equipment at end of lease term.

EARLY PURCHASE OPTION: If funds become available, the government agency may buy-out at any time after the completion of the first fiscal year. A detailed Amortization schedule is provided for each transaction.

FLEXIBLE TERMS: The payment type can be tailored to suit the needs of each government. Annual, semi-annual, quarterly and monthly payment intervals are available with terms extending to the useful life of the equipment. Deferrals, down-payments and advanced payments can also be arranged for the Municipality’s benefit. Terms reflective of the useful life of the equipment will have a lower interest expense compared to long term bond issues. Lessees can choose repayment schedules most attractive to their needs, including length of contract, payment interval, and advance or arrears payments. Up to 100% of equipment cost can be financed, and training and maintenance can also be included. Municipal Lease Purchase is an ownership plan, not a rental. After completing the payments the lessee owns the equipment, there is no balloon or residual payment at completion.

NOTHING DOWN: Under most payment plans, no down payment or security deposit is required. However, structuring the lease with advance payments may lower the net cost of financing to the lessee. Often we can also defer the 1st payment up to one (1) year, however a down payment is required with this option.

Municipal Lease Rentals

A municipal lease rental contract may in many instances be more appropriate than a municipal lease purchase. When a decision is being made between a rental or purchase contract, it is essential that the administrator have a clear understanding of the differences between the two alternatives.

Often a governmental entity is constrained by local legislation from entering into lease purchase contracts without bidding or voter referenda. In some instances the equipment may have a limited life-span, therefore there is no desire to own the equipment after a fixed period. In still other situations, rapidly changing technology may lead to the conclusion that long term ownership is not an attractive outcome. In these situations, a municipal LEASE RENTAL may be the appropriate financing answer. A municipal lease rental is NOT A MONTH TO MONTH CONTRACT. Municipal rental is a fixed length financing in which the equipment will be paid for by the leasing company, and will revert to the leasing company at the completion of the contract term. Additionally, with municipal lease rental the interest paid by the lessee is not tax exempt to the investor. The result of this is that a rental will often have higher payments than a municipal lease purchase due to the higher interest rates.

NON-APPROPRIATION Clause. A Municipal Rental does possess the same non-appropriation provisions as a municipal lease purchase. In most jurisdictions, an administrator may not enter into a contract which obligates funds beyond the current fiscal year. With few exceptions, the courts have held that a non-appropriation clause which allows for termination of the contract should funds not be appropriated in subsequent fiscal years would be a legal means to avoid an unauthorized assumption of debt. A validated non-appropriation is the only cause for premature termination of either a municipal lease purchase or municipal lease rental.

The municipal rental also provides some options to the lessee; at the completion of the original lease contract, the lease may be extended in one year increments at the same terms and conditions of payment as the original contract. If the option to extend is not exercised, the leased equipment must be surrendered to the lessor or lessor’s designated agent. In the event that the lessee should determine that ownership of the equipment would be advantageous, a municipal rental can be bought out at fair market value (FMV), not less than 10% of original equipment cost.

When appropriate, a municipal lease rental may serve the needs of the lessee. Payments may be slightly higher than for a lease purchase, however, documentation requirements are usually less and a variety of options are available to the agency throughout the term of the lease. Give us a call for further information on a particular situation or for comparison of purchase and rental alternatives.