As the economy continues its slow recovery, many local governments must deal with increasing budget constraints. Limited revenues mean smaller budgets, and for many cities, the impact can be broad: A school system may struggle with outdated computer equipment; fire and police departments may need to get by with aging fleets; and government building renovations may need to be put on hold.
Fortunately these local governments, public agencies and school districts do have another option for purchasing the equipment they need. Municipal governments have used tax-exempt municipal leasing solutions to acquire essential-use equipment and facilities for more than 30 years, and the trend continues to grow year over year.
“Municipalities lease essential-use equipment,” says Mike O’Hare, senior vice president of SunTrust Robinson Humphrey Equipment Finance Group. “That means fire engines, police cars, snowplows, ambulances, school buses, computer equipment—equipment cities need to keep people safe or to improve education.”
Key benefits of a municipal lease
One key benefit of municipal leasing is that it offers local governments alternative financing that does not require voter approval.[ii] It also preserves capital dollars for projects that cannot be financed via traditional types of leasing.
Because municipalities typically have established budgets for only one year at a time, a municipal lease also includes a non-appropriations clause. This clause allows the borrower to cancel the lease with no penalty at the end of any fiscal period if money is not available for future lease payments.
Municipal leases also provide 100 percent financing, often with flexible payment plans. These terms can help a municipality stay within budget.
“A municipal lease allocates the cost over the life to the equipment,” O’Hare says. Typically, the municipality owns the equipment at the end of the lease. And because municipal leases eliminate underwriting fees and have low legal fees and other expenses, leasing can provide a lower net cost than issuing bonds.
Financing for many goods and services
Municipal leases have far-reaching applications that go beyond conventional equipment.
“A broad array of goods and services can be financed with municipal leases,” O’Hare says. “We recently provided a city in Alabama with leasing that covered a multimillion dollar telecommunications infrastructure system.” Other goods and services that can be financed with tax-exempt leasing include energy management systems, software, medical equipment, courthouses, correctional facilities, video equipment, training and maintenance.
“Because leasing allows a municipality to spread the cost of equipment over time, it helps stretch tax revenue,” O’Hare says. “For nearly any equipment a municipality needs, leasing makes good sense.”
1. "New Study on the Risk of Nonappropriation Offered," Aug. 5, 2013, Equipment Leasing & Finance Foundation
2. "Frequently Asked Questions About Tax-Exempt Municipal Leasing," Association for Governmental Leasing & Finance
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.