Page 268 - Solar Power in Building Design The Engineer's Complete Design Resource

238 CALIFORNIA SOLAR INITIATIVE PROGRAM

■ Water treatment systems
■ Modular classrooms, portable building systems, and school furniture such as copiers,
fax machines, closed-circuit television surveillance equipment
■ Snow and ice removal equipment
■ Sewer maintenance

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
generally 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, since
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, when 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 and time consuming
and in general have a direct impact on the taxpayers and require voter approval.
Hence, bonds are exclusively used for very large building projects such as creating
infrastructure like 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 funds are not appropriated in any sub-
sequent period, for any legal reason.
Municipal leases can be prepaid at any time without a prepayment penalty. In gen-
eral, a lease amortization table included with a 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 should also be noted that
equipment and installations can be leased.