What is a Municipal Lease?

Municipal Lease Purchase agreements are basically structured as an installment sales contract. Lease terms can vary from two (2) to seven (7) years. The municipality typically owns the equipment for $1.00 at the end of the lease. Payments may be made monthly, quarterly, semi-annually or annually. The lessor or investor in a Municipal Lease purchase is tax exempt on the income received from this type of financing. The lessor or investor passes this tax saving on to the lessee in the form of lower interest rates.

Section 103 of the Internal Revenue Code of 1986 specifies that any state, territory, or possession of the United States, or their political subdivisions, can qualify to take advantage of tax exempt financing. This includes:
  • State governments & agencies
  • County governments & agencies
  • City government & agencies
  • Other public entities funded by state or local taxes
Why Lease Purchase?

The typical method of funding municipal capital purchases is bonds. To establish the real cost to the taxpayer, it is necessary to add the issuance costs and underwriting discounts to the bonding rate. In short, issuing a bond can be very expensive. The municipality may take a loan from the bank, however this purchase is subject to capital budget approval & must be shown as debt.

Lease purchases are recognized as current obligations. The lease purchase is subject to annual appropriations & the municipality may cancel if funding is not appropriated for the lease. Lessors protect themselves from this cancellation buy only leasing "essential use" equipment.

What can be leased?

The list is almost endless! Almost any type of capital equipment essential to the functions of a governmental entity may be acquired through this program. The list of qualified equipment includes:
  • Telephone systems
  • Vehicles
  • Office Equipment
  • Fire & Safety Equipment
  • Medical Equipment
  • Printing Equipment
Call your Susquehanna Commercial Finance representative today to learn more about Municipal Leasing. You can reach us at 1-877-969-7252.