CalFirst Government and Education Group is the premier source of Municipal Financing for state and local municipalities. These entities include School Districts, Police and Fire Departments, State and County Governments, DPW Districts, Transit Authorities, Hospitals, and any other organization that can incur debt where the interest paid is exempt from federal income taxes.
Whether you are a school district looking to acquire school buses, or a fire chief looking to acquire a new fire truck, we are sure you will find the information within helpful in making the right decision.
What is a Municipal Lease?
A Municipal Lease is a tax-exempt financing vehicle designed to meet the special needs of state and local municipalities. Tax-exempt Leasing is an economical method of financing that allows qualifying government entities to acquire capital equipment under extremely attractive terms, favorable interest rates, and very streamlined documentation.
Through a Municipal Lease, the governing body acquires equipment and obtains full ownership of capital assets on an installment basis. Lease payments are usually made over a period of 2 to 10 years.
Section 103 of the Internal Revenue Code states that interest on “obligations of a State, Territory or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia” are exempt from federal income taxation. Thus, CalFirst is able to pass these savings onto the Lessee in the form of lower lease rates.
In a Municipal Lease, the equipment is sold directly to the tax-exempt entity (as opposed to the leasing company), and title to the equipment passes to the Lessee upfront, which means the governmental entity becomes the owner of the equipment the day it is delivered.
A Municipal Lease contains a non-appropriation of funds clause that states the entity may be released from its payment obligation under the condition that the legislature/funding authority fails to appropriate funds. Voter referendum is often not necessary.
What are the Advantages?
State and local governments have utilized leasing for decades as a significant means to acquire the equipment and real property essential to providing a host of public services to their constituencies. Below is a list of some of the key advantages of municipal leasing:
100% financing, with no deposit, and typically no large initial cash outlays. Avoid making a large capital outlay and acquire the equipment over an extended period of time.
Flexibility to match payments to seasonal or changing cash flows.
Voter approval is typically not required to enter into a municipal lease.
Municipal leasing provides non-taxable income opportunities for Lessors; thus the savings are passed back to governmental agencies in the form of lower lease rates.
Documentation is streamlined and much simpler than bond issuances.
Avoid the substantial issuance costs of issuing general bond obligations, such as legal fees, underwriting costs and election expenses.
The municipality has the ability to non-appropriate in any given fiscal year. Only the individual fiscal year’s payment obligation counts against the political subdivision’s debt limit. The payments are a current expense item payable through the normal budgetary appropriations process.
Equity builds with each payment. At the end of the lease term, full ownership is vested with the municipality, with no additional cost payment required.
Any state, territory or possession of the United States, or any of their political subdivisions, can qualify to take advantage of tax-exempt financing, including:
- Cities, Towns, Boroughs and Villages
- School Districts
- Public Universities
- Public Hospitals
- Community Colleges
- Police Departments
- Fire Departments