Leasing can provide such an approach.
Over the years, many municipalities and counties have issued general obligation bonds to finance apparatus purchases, especially when a large number of vehicles are involved. While it’s a very acceptable means of financing, a single-purpose bond issue, such as for fire apparatus can be expensive with all of the fees and bond counsel requirements. In addition, bonds are typically less flexible with respect to payoff options. If the lease is tax-exempt, the difference in interest rates between a bond and a lease is usually competitive.
Importance of tax-exempt status is a critical aspect of making apparatus leases competitive. Just as the interest from municipal bonds is exempt from federal income tax, the income from leases to governmental entities is tax exempt for the organization financing the lease.
This applies to governmental agencies of all forms, including state, city, town, village and fire commissions. In addition, many volunteer departments are eligible if they meet certain federal tax law requirements.
Tax-exempt financing, either through leasing or a straight loan, can reduce the interest rate considerably. This decrease, when financing several hundred thousand dollars over five or seven years, can result in major savings to the city, county or department.
Three types of organizations that typically fund capital equipment purchases are: local banking organizations, independent public agency leasing organizations and the apparatus manufacturers themselves.
The obvious advantage of using local banking organizations, especially in smaller communities, is that the department is dealing with someone they know. Many local banks want to provide community assistance, and a loan under favorable terms to the local town government or fire department can be viewed as such. A tax-exempt loan can also be extremely attractive to the bank from a business standpoint. It’s not unusual for a local bank to finance apparatus at a rate equal to or below the prime rate — the rate that banks charge their very best customers.
In addition to community banks, several of the larger regional or national banks have extensive tax-exempt financing programs. Some exhibit at regional and national conferences, and the options, costs and arrangements are usually very competitive.
Lease-purchase programs by independent public agency leasing organizations can present a very attractive method for financing new apparatus purchases. These organizations match public agencies with investors to develop a finance program that meets the needs of both purchaser and lender.
Most of the major manufacturers have a variety of leasing options available. The major apparatus manufacturers offer a variety of leases, either from sources within their own organizations or from an association with an outside financial institution.
If your department is having trouble convincing the “Powers That Be” with purchasing a new apparatus, suggest talking to the manufacturer of choice or a local financing institution about leasing.
Daniel Cimini is assistant chief (retired) of the Myrtle Beach Fire Department and member of the NFPA 1901 Technical Committee.