It’s A Common Misconception to View A Tax-Exempt Municipal Lease as A “Vehicle Lease”
Municipalities often face diverse funding needs and institutional constraints, especially when new equipment or facilities are required but funds are limited. A Tax-Exempt Municipal Lease provides local government entities with a flexible solution, enabling them to acquire the necessary assets immediately while spreading payments over manageable installments. These payments are typically drawn from existing operating budgets, preserving capital budgets for other priorities. Additionally, since no new debt is created, tax-exempt municipal financing generally does not require voter approval, making it a streamlined and efficient option in nearly every state.
- A “lease” typically refers to an arrangement where one party owns equipment (lessor) transferring possession and use of that equipment for a period of time to another party (lessee) in exchange for payment
- A municipal lease is essentially an installment purchase contract otherwise known as a “lease-to-own” program with no residual and no end-of-lease buyout
- Municipal leases are renewed annually and as such, payments constitute a current expense to the municipality and thereby do not create new debt
- Tax-exempt municipal leasing offers the municipality significant savings compared to conventional leasing
Advantages of TEML
Municipal lease financing (TEML) has numerous distinctive advantages over commercial leasing and often confused with what people know as a “vehicle lease” from an automotive dealership.
- Tax-exempt municipal leasing includes non-appropriation language which enables the lessee to terminate the lease agreement at the end of the current appropriation period without further obligation or penalty
- During the term of the lease, the municipality hold the title to the leased equipment
- A “TEML” is a full payout contract to purchase the equipment rather than a series of rental payments structured so that there is no residual value, balloon payment or purchase options to consider
- A municipal lease is also referred to as “tax-exempt” because the interest income on a municipal lease is tax-exempt to the lessor. The municipality benefits when the lessor passes these savings on to the municipality in the form of a lower interest rate, a practice performed by NCL Government Capital on our TEMLs
- Comparable to municipal bond rates without the bond referendum requirements and teh ability to finance assets over their useful life
Our account executives frequently hear statements like, “We don’t finance” or “We can’t lease” from municipalities across the country. But if that were truly the case, we wouldn’t be helping hundreds of communities each year maximize their purchasing power and accomplish more with fewer resources. If you have any questions, we’re here to help. Feel free to email us and download this information as a convenient one-page flyer for future reference.