Page 196 - Alternative Energy Systems in Building Design

172 CALIFORNIA SOLAR INITIATIVE PROGRAM

Municipal leases can be prepaid at any time without a prepayment penalty. In general,
a lease amortization table included with the lease contract shows the interest, principal,
and payoff amount for each period of the lease. There is no contractual penalty, and a
payoff schedule can be prepared in advance. It also should be noted that equipment and
installation can be leased.
Lease payments are structured to provide a permanent reduction in utility costs
when used for the acquisition of renewable-energy or cogeneration systems. A flex-
ible leasing structure allows the municipal borrower to level out capital expendi-
tures from year to year. Competitive leasing rates of up to 100 percent financing are
available with structured payments to meet revenues that could allow the munici-
pality to acquire the equipment without having current-fund appropriations.
The advantages of a municipal lease program include

■ Enhanced cash-flow financing allows municipalities or districts to spread the cost
of an acquisition over several fiscal periods, leaving more cash on hand.
■ A lease program is a hedge against inflation because the cost of purchased
equipment is figured at the time of the lease, and the equipment can be acquired
at current prices.
■ Flexible lease terms structured over the useful life span of the equipment can allow
financing of as much as 100 percent of the acquisition.
■ Low-rate interest on a municipal lease contract is exempt from federal taxation, has
no fees, and has rates often comparable with bond rates.
■ Full ownership at the end of the lease most often includes an optional purchase
clause of $1 for complete ownership.

Because of budgetary shortfalls, leasing is becoming a standard way for cities,
counties, states, schools, and other municipal entities to get the equipment they need
today without spending their entire annual budget to acquire it. Municipal leases are
different from standard commercial leases because of the mandatory nonappropriation
clause, which states that the entity is only committing to funds through the end of the
current fiscal year, even if it is signing a multiyear contract.