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Thursday, August 13, 2015

Municipal Leases 101 - Requirements and Benefits


What are municipal leases? Municipal lease programs are available to city and state agencies such as police and fire departments, school districts, municipal hospitals and other government entities. Although it’s common for government agencies to prefer owning their own equipment, municipal leases can provide an affordable way to finance large purchases that may otherwise not be possible with tight budgets and limited cash reserves.

Requirements
Sometimes called a “muni-lease,” there are certain requirements for government entities looking to acquire equipment through a municipal lease. Rules can differ depending on the state, but many of the basics are the same across the board.

  • Who can obtain a lease? Two groups, direct issuers and tax-exempt private parties or organizations, are eligible for obtaining a lease. Direct issuers are comprised of states, cities, counties, various types of districts, local governments and Native American tribal governments. The second group includes 501(c)(3) organizations and certain tax-exempt manufacturers.
  • Does credit matter? Credit is important when obtaining a municipal lease, and Tiger Leasing will look at a variety of credit reporting scores to determine if an entity is eligible for a municipal lease. Different credit considerations include repayment sources, demographics, financial wherewithal and essentiality of service or assets.
  • What kind of documentation is needed? Documentation for a municipal lease-purchase is similar to a standard lease program, however often times it will include certain changes such as the inclusion of a nonappropriation clause. According to an article from the independent equipment finance and leasing trade publication the Monitor, “Most states’ laws consider ‘debt’ to include any obligation to pay money in a future fiscal period. A nonappropriation clause removes the legal obligation to make payments in a future fiscal period.” Working with equipment leasing professionals who are well-versed in municipal leasing documentation is important to avoid legal risks.

Benefits
There are several benefits to obtaining a municipal lease for financing an equipment upgrade. The unique position of the lessee as a government entity makes the leasing program an affordable option.

  • Lessees are tax exempt, lowering payment rates well below typical commercial rates.
  • Cash is not tied up in equipment, but rather available for other expenses.
  • The lessee does not need direct voter approval.
  • Different departments can pool equipment needs into one municipal lease and enjoy lower interest rates. 
  • Municipal leases can overcome tight budget constraints, allowing for much-needed upgrades.

If you’re considering a municipal equipment leasing program, contact us for more information or apply online using our secure application.

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posted by Tiger Leasing @ 9:00 AM

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