Leasing for Municipalities
A municipal lease works in much the same way that any other type of lease works. The lessee in a municipal lease is simply the municipality or government entity instead of an individual or business. Leasing allows the asset in question to be owned and its expenses to be written off at tax time without requiring the lessee to pay for the entire cost of the asset up front.
A municipal lease allows governmental entities to obtain necessary equipment and finish projects at low, tax-exempt rates. Lease agreements are like sales contracts with payments made up of principal and interest, and equity grows with each payment. Once the lease period is finished and paid for in full, the equipment is owned with no additional expenses.
Lease-purchase-finance agreements are used by financial officers to efficiently manage cash flows. Through a lease contract, a company can own an asset immediately, but distribute payments over the asset’s useful life. Municipal leasing plans can be set up to fit the cash flow needs of individual lessees. Payments can be set up in different time increments, and with approved credit financing can be provided for the entire cost of the asset.
Benefits of Leasing
Municipal leasing is beneficial to both municipalities and taxpaying citizens, because it allows payments to be spread over the life of assets, thereby lowering yearly costs and stretching tax dollars. Purchasing equipment and setting up a payment plan according to today’s prices also hedges against inflation by allowing future payments to be equal to today’s payments and therefore less valuable in future terms. These types of leases allow certain entities to get the equipment or property they need today without using too much of their annual budget to do so.
Leases entered into by municipalities, although they are government entities, generally do not require voter approval. They are subject to annual appropriation, and certain Internal Revenue Service requirements must be met for organizations to qualify. Generally, tax-exempt leases can be made available to state and local governments, community colleges, public school districts, state universities, municipal special districts, municipal hospitals, and a few other specified entities. To qualify, an entity must have one of the three main characteristics of a government: they must have the power of eminent domain, police powers, or the power to levy taxes. Being supported by government funds or being “tax exempt” does not necessarily guarantee an agency’s qualification for a municipal lease.
These types of entities generally use municipal leasing to get equipment ranging from computers to school buses, and other property. Funds are not committed beyond the current fiscal year, so if an entity’s financial status changes, the agreement can be terminated.
Lease Information and Quotes
As with other types of leases, many financial institutions can provide information about municipal leases, and set lease agreements up for consumers. Many special lease financing institutions and industry-specific institutions also exist that can provide additional contacts and resources for entities who are considering municipal leasing. Using the internet or phone book can provide you with a list of places to start looking, and then all that will be necessary is some time and effort to compare plans and set up something that works with your needs.
By Kristin Cleveland