Questions & Answers

What is a Municipal Lease/Purchase Agreement?

A Tax-Exempt Municipal Lease/Purchase Agreement is essentially an installment sale
contract that fully amortizes during the term of the Agreement. There is no balloon
payment or purchase option at the end. The Lessee owns it from day one. The issuer
(lessee) is able to acquire and utilize equipment or facilities and pay for them over a
specified time period. If structured properly, the interest portion of the lease payment is
exempt from federal and state income tax resulting in low tax-exempt interest rates to the
borrower. However, care must be taken if the property has a private use or involves
federal funds

Why is a Municipal Lease/Purchase generally not considered debt?

Why is a Municipal Lease/Purchase generally not considered debt?

Who is eligible to utilize tax-exempt leasing?

Basically, any municipality or political subdivision who can issue tax-exempt securities
may utilize tax-exempt leasing. Examples: State & Local government agencies, special
assessment districts, public hospitals, fire districts (including volunteer departments),
public transit districts, school districts, etc. The interest can also be done at a taxable
rate.

Why should Government Officials consider Lease/Purchase Agreements?

Lease/Purchase Agreements should be used to compliment, rather than replace,
traditional bond financing. Many times Lease/Purchase Agreements can be a more
timely, efficient, and cost effective means of financing essential equipment and facilities.
In addition to the low cost of issuance, uncomplicated financing documents save both
administrative and legal expenses. For issuers expecting to do multiple transactions over
a period of time, additional savings can be attained by use of a Advance
Payment/Purchase Agreement

What type of equipment should I consider leasing?

Virtually any type of essential use equipment may qualify for a Lease/Purchase
Agreement. In general, terms may be offered from two to ten years or more, depending
on the useful life of the asset.