Leasing

Municipal Leasing

What is tax-exempt financing?

Today’s public works administrators face a diverse array of budgetary and operating challenges. With increased demands for updated equipment, budgets are rarely up to the task. As budgetary challenges increase at the local level, funding the immediate and long term needs of your community become more difficult.

The need for financing to purchase new equipment and facilities is growing. Tax-exempt lease financing is the most successful method used to purchase equipment while improving the management of cash flow. The tax-exempt feature of lease-purchase financing is proven to be beneficial to government agencies across the country.
A tax-exempt lease is the best solution. This type of financial instrument is also referred to as “government lease-purchase” and/or a “municipal lease”. While they are documented as a lease, they have characteristics similar to a loan in that they own it at the end and they can be paid-off early if desired.

The interest earnings under a properly structured and documented lease are exempt from federal income tax under the same tax laws that enable a municipal bond to carry a tax-exempt rate. Because the lessor does not pay federal tax on the interest earned, the tax-exempt lease carries a much lower interest rate than other kinds of leases.
These financing vehicles are structured as a lease to accommodate the fiscal funding restrictions of political subdivisions. In most cases, their obligation terminates if the department fails to appropriate funds to make the renewal year’s lease payments. Because of this provision, neither the lease nor the lease payments are considered debt. Benefits to Government Agencies

• They do not have funds to pay cash.
• Leasing will help them overcome budget restrictions.
• It allows them to acquire equipment they urgently need.
• Leasing enables them to save money by replacing maintenance intensive older equipment.

They have funds but want to keep their funds for future or unexpected needs.

The interest on a tax-exempt lease is approximately the same as the interest that can be earned on funds properly invested, so the cost of keeping their funds “in the bank” is minimal.

A lease can offer the opportunity to preserve cash for projects for which leasing is not an alternative.

They want to spread the cost of their equipment over its useful life rather than charge one fiscal period with the entire cost.

Equipment leases are relatively simple to complete and allow the departments to implement the buying decisions quickly. In comparison, bonds take longer to implement, could require a vote, and are too expensive for smaller acquisitions.

Tax-exempt leases have no origination costs.

Because most equipment categories incur regular inflation that outpaces the cost of tax-exempt leases, your department can actually save money by leasing now rather than waiting until you have enough cash to buy it. In other words, the interest cost you may be trying to avoid will be more than replaced by the inflation in the cost of equipment – and, if you lease now, your community will benefit immediately from the added service your equipment provides.

Vac-Con®’s Municipal Financing Offers:

• Low fixed rates
• No down payment required
• No closing or up-front costs
• Flexible terms from 1 to 7 years (longer terms available)
• Flexible payment frequency- annually, semiannually, quarterly or monthly
• Flexible payment date- up to one year after delivery
• Fast and easy closing