ADVANTAGES TO MUNICIPAL LESSEES

• Financing term matches economic life of equipment.
  
• Permits 100% financing of equipment cost.
  
• Conserves budget funds for critical needs.
  
• Can permit continued investment of available cash.
  
• Leases spread cost of equipment over useful or economic life of equipment.
  
• Lease financing results in a pay as you use allocation of municipal cash.
  
• Payments can be tailored to match cash or revenue receipts for property or sales taxes and ordinarily commence upon equipment delivery & acceptance.
  
• Municipal leases are not bonded debt and normally do not require voter approval.
  
• FMLC leases can provide source of funds for purchase commitments for equipment far in advance of actual delivery, and allows equipment pricing to include purchase discounts for progress or chassis payments to vendor.
  
• Fixed lease payments and interest rates for term of lease agreement.
  
• Very competitive rates and low FMLC documentation/issuance costs, plus ability to prepay lease when funds are available.

WHAT IS A MUNICIPAL LEASE PURCHASE

A financing agreement with a state or local governmental entity (City, County, State, School or other District) in which the Lessor finances the Lessee's intent to purchase equipment or real estate.

Documentation is very similar to that of a conditional sales contract, with the following unique characteristics:

• since MOST municipalities cannot obligate funds from one fiscal year to the next, without creating debt for constitutional purposes, [which ordinarily requires a vote of the affected population], leases are NORMALLY legally year to year obligations and incorporate fiscal NON-APPROPRIATION language [however as in everything else, there are exceptions depending on municipal charters, state constitutions or statutes, in which case non-appropriation clauses are not required or appropriate].

FISCAL NON-APPROPRIATION CLAUSE (when used)

• Required to insure contract is not a debt under the constitution of the state.

• Recognizes that the Lessee's governing board will appropriate funding for the lease on an annual basis.

• Non-Appropriation is NOT an event of default, and Lessor's remedy in such an event is to repossess the equipment and either sell or lease it to realize unpaid principal.

USUAL MUNICIPAL LEASE STRUCTURE

• Lease term that does not exceed the economic life of the equipment:
  3, 5, 7 & 10 years on equipment, longer terms on real estate.

• Payments due annually, semi-annually, quarterly, or monthly:
  usually in advance commencing upon equipment acceptance.

• No 'down payment' other than initial rental.

• Use of escrow funding in long lead time equipment delivery schedules puts money in place, locks in the interest rate to the Lessee, and offers Lessor an opportunity to provide very advantageous 'net' financing rates to the Lessee.

MUNICIPAL LEASES & FUNDING SOURCES/BANKS

Banks are allowed to hold municipal leases and deduct 80% of the carrying cost of the lease when such leases are issued by a Lessee meeting the BANK QUALIFIED test, as set forth in the Internal Revenue Code.

Bank Qualified Issuers

Governmental entities which will not issue, or reasonably expect not to issue, more than $10.0 million in new tax exempt interest rate debt of all kinds (notes, anticipation notes, bonds, and leases) in any CALENDAR year.

The designation is made by the issuer/Lessee on a calendar year basis and relates to new issues or debt incurred in that year, not prior year issue outstanding obligations.

Non Bank Qualified Issuers

Governmental entities which will issue more than $10.0 million of new tax exempt debt in any CALENDAR year.

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