Page 195 - Alternative Energy Systems in Building Design

PRINCIPAL TYPES OF MUNICIPAL LEASES 171

■ Jail and court computer-aided design (CAD) software
■ All-terrain vehicles
■ Energy-management and solid-waste-disposal equipment
■ Turf-management and golf-course-maintenance equipment
■ School buses
■ Water-treatment systems
■ Modular classrooms, portable building systems, and school furniture such as
copiers, fax machines, and closed-circuit television surveillance equipment
■ Snow- and ice-removal equipment
■ Sewer-maintenance equipment

The transaction must be statutorily permissible under local, state, and federal laws and
must involve something essential to the operation of the project.

DIFFERENCE BETWEEN A TAX-EXEMPT MUNICIPAL
LEASE AND A COMMERCIAL LEASE
Municipal leases are special financial vehicles that provide the benefit of exempting
banks and investors from federal income tax, allowing for interest rates that are gener-
ally far below conventional bank financing or commercial lease rates. Most commercial
leases are structured as rental agreements with either nominal or fair-market-value
purchase options.
Borrowing money or using state bonds is strictly prohibited in all states because
county and municipal governments are not allowed to incur new debts that will
obligate payments that extend over multiyear budget periods. As a rule, state and
municipal government budgets are formally voted into law; as such, there is no
legal authority to bind the government entities to make future payments.
As a result, most governmental entities are not allowed to sign municipal lease
agreements without the inclusion of nonappropriation language. Most governments,
when using municipal lease instruments, consider obligations as current expenses and
do not characterize them as long-term debt obligations.
The only exceptions are bond issues or general obligations, which are the primary
vehicles used to bind government entities to a stream of future payments. General-
obligation bonds are contractual commitments to make repayments. The government
bond issuer guarantees to make funds available for repayment, including raising taxes,
if necessary. In the event that 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 that are expensive, time-consuming, and
in general have a direct impact on the taxpayers and require voter approval. Hence
bonds are used exclusively for very large building projects, such as creating infra-
structure (e.g., sewers and roads).
Municipal leases automatically include a nonappropriation clause; as such, they are
readily approved without counsel. Nonappropriation language effectively relieves the
government entity of its obligation in the event that funds are not appropriated in any
subsequent period for any legal reason.