The Municipal Leasing Experts - Our 28th Year!

Municipal Leasing
FAQ's

What is a tax exempt municipal lease?

A tax-exempt municipal lease is a special kind of I.R.S. sanctioned financial instrument that allows us to lend to qualifying government entities (see below), to acquire essential hardware, software, vehicles & equipment at very low interest, under extremely attractive terms with very streamlined documentation.  Some of the most notable benefits are:

► Lower rates than conventional loans or commercial leases.

► Lease-to-own. There is no residual, there is no buyout.

► Easier.  Application (to $100K) are just one page

► FASTER!  Same day/next day approvals

► Non-appropriation language included, automatically. (almost all jurisdictions)

► No "opinion of counsel" required under $100,000

► No underwriting costs

Which entities qualifies for a "municipal" lease?

Virtually any State, County, City & Municipal governments and their agencies qualify under IRS Section 103 (as amended), including Law Enforcement, Public Safety, Fire, Rescue, EMS, Water  & Port Authorities, School Districts, Community Colleges, State Universities, Hospitals and a variety of "special districts" qualify.  The IRS "quick test," if you will, is that a "qualifying entity" must have one or more of the following legal authorities:  1) the power to police, and/or 2) the power to levy and collect taxes, and/or the power of eminent domain.

What kind of equipment can be leased under a municipal lease?

Just about any type of essential use equipment, vehicles, land or buildings:

What is the difference between a tax-exempt municipal lease and a commercial lease?

Our municipal leases are special financial vehicles that provide the benefit of exempting our banks and investors from federal income tax, allowing us to pass along rates that are generally far below conventional bank financing or commercial lease rates.  Also unlike commercial leases, the equipment is being sold directly to the tax-exempt entity (not to the leasing company).  This means the government "owns" the equipment the day it is delivered and accepted.

► Most commercial leases are structured as rental agreements with either nominal or fair market value purchase options.

 (Note: First Capital will only take a security interest to protect its interest in the event of a future non-appropriation)

Why not just borrow the money, or use a bond?

There are laws in all 50 states that generally make it impossible for state, county & municipal governments to incur new debt requiring payments that extend over multi-year (budget) periods.  The primary concern being that until those future budgets are formally approved and voted into law, there is no legal authority to bind the government entity to make future payments.  The only exceptions are bond issues (general obligations) which are the primary vehicles used to bind a government entities to a stream of future payments.  "General Obligation" bonds are contractual commitments to make repayments.  The government bond issuer is guaranteeing to make funds available for repayment including raising taxes as necessary, if adequate sums are not available in the general fund.  "Revenue" bond repayments are tied directly to specific streams of tax revenue.  Bond issues are very complicated legal documents (read: expensive, time consuming) and because they can have a direct impact on every taxpayer, generally require voter approval.  Hence bonds are generally only used for the very largest projects: infrastructure like sewers, roads, the largest building projects, etc.  Because our municipal leases automatically include non-appropriation (or "funding out") language, they will be readily approved by legal counsel.  Non-appropriation language effectively relieves the government entity of the obligation to pay in the event funds are not appropriated in any subsequent budget period, for any legal reason.  Every governing body must re-affirm their willingness and ability to pay a municipal lease, every year.  Most government entities would not be allowed to sign any municipal lease without non-appropriation language included.  Most governments treat their municipal lease obligations as current expenses and DO NOT characterize them as long term debt obligations on their balance sheets.

Who owns the equipment during a First Capital lease?

In almost all jurisdictions, you do.  Title or the deed passes at the inception of the lease (not the end).

What if we want to pay off the lease?  Is there a pre-payment penalty?

First Capital's municipal leases can be prepaid at any time.  A complete lease amortization table is automatically included with every lease showing the interest principal and payoff amount for each period of the lease. After the first 12-18 months the early payoff amount is fairly close to the outstanding principal amount.  There is no contractual penalty.  (A payoff schedule can be prepared in advance for your review)

Can used equipment be leased?

Absolutely! (with the exception of computers and copiers)

Are Volunteer Fire Departments eligible for tax-exempt municipal leasing?

Yes, but there are some important differences.  95% of the proceeds of a tax-exempt lease for a volunteer departments i.e. a 501c3, must be used for the "acquisition, construction, reconstruction, or improvement of a firehouse (including the land) OR for a fire truck used by or to be used by, the fire department." (A vehicle that "puts out fires) The rules are fairly specific.  A computer, rescue or an ambulance for example, would not qualify.  A volunteer fire department would be eligible, subject to credit approval, for our non-tax exempt, non-profit rates, however, which are slightly higher than municipal, but notably lower than commercial rates.  A volunteer department (501c3) would not be eligible for non-appropriation privileges.

Who is responsible for maintenance and insurance?

Because the government entity owns the equipment from the date of delivery/installation, the responsibility for maintenance and insurance is the government entity's.

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