Municipalities may leverage annually appropriated funds from their budget by three or four times the annual amount available. They may, for example, turn an annual $100,000 budget appropriation into a $300,000 or $400,000 equipment acquisition by borrowing at tax-exempt rates. These loans may be paid off early or re-financed in a forthcoming bond issue.
While municipal leasing is technically referred to as "Tax Exempt Lease/Purchase", it is in reality a series of one-year installment sales payments (including non-appropriations language in the contract), renewable each year for the duration of the payback period. Equipment lease contracts may amortize over two to ten years.
Generate Income or Cost Savings by Using Lab Equipment; Let It Fund Itself as You Use It!
Tax Exempt Interest = Lower Monthly Payments
The interest portion of the lease payment is exempt from federal and state income taxes, resulting in low tax exempt rates to the municipality.
No Public Debt Created / No Vote Required
Since the lease payments due in the transaction are subject to annual appropriation, the obligation created by the lease is not subject to constitutional or statutory debt limitations in most states. Since public debt is not created, voter approval for a Municipal Lease/Purchase transaction is not usually required.
No Cash Down Payment
Municipal financings may provide for 100% of the lab equipment purchase price plus related expenses. The government makes only periodic lease payments.
Leave cash available for growth, other uses or simply in reserve for unforeseen circumstances. These cash resources, if used for other purposes, have the ability to earn a higher return than the cost of the lease.
As you lease, you pay for the lab equipment as you use it, not before. You can pay for the lab equipment out of future profit, not out of current working capital. No business pays its employees’ salary in advance; it pays people as they contribute. It should be no different with a contributing asset like business equipment.
Flexibility and Speed in Acquiring Equipment
Leasing has a much shorter lead time to arrange financing. The procedural aspects of traditional bond financing may be complicated by rigid constitutional requirements which serve capital project financing control, but are inflexible for equipment acquisitions.
Leasing = Good Business Sense for Municipalities
The benefits of the new lab equipment will often generate enough cash flow or save enough money to make your lease payments for you.
- Leasing enables you to leverage appropriated funds by three or four times the annual amount available.
- Leasing doesn't create public debt nor is complicated by bond financing requirements, and no vote may be required.
- Leasing minimizes the demands on capital, cash flow and bank lines of credit; preserving those funds for other uses or unforeseen opportunities or emergencies.
- Leasing allows the new lab equipment to pay for itself as you use it.