Municipal Lease/Purchase financing is designed to complement, not replace bond financing. Leases afford government agencies the opportunity to acquire equipment and other assets during the current fiscal year instead of having to wait until the next budgetary cycle or beyond. Municipal lease purchase offers the following advantages:
- 100% financing to include delivery and installation costs.
- Terms available up to ten years, sometimes longer (depending on the collateral).
- Tax-exempt interest. Lease payments include principal and an interest portion. The IRS has determined that interest paid in this manner is exempt from federal and state income tax. This means the government can take advantage of lower interest costs.
- No debt created. Lease payments are subject to annual appropriations, which mean that the obligation is not subject to statutory debt limitations. Since no debt is created, municipal leases do not require voter approval.
- Budget enhancement. Leasing allows public agencies to acquire needed improvements now rather than wait until next FY or beyond.
- Leveraged dollars. Leases may be designed to match finance terms to the expected useful life of the asset and spread the cost over a multi-year period.
- Flexibility. Payments may begin upon installation or delayed until the next fiscal year. In addition, payments may be made in monthly, quarterly, semi-annual or annual installments.
- Equipment and Real Property financed through a tax-exempt lease may be funded into escrow to facilitate project financing or progress payment requirements.
- Cost effective. Lease approval and documentation is very inexpensive to initiate.
Today, Municipalities are facing unprecedented budget challenges. Shrinking revenue sources are forcing budget cuts in critical service areas. Whether you are a public school district, community or state college, city, county, township or village, you should consider this important alternative financing solution. Cash saved on large asset purchases can be used to pay to prevent further cuts in or restore vital services.