General Lease-Purchase Process

General Provisions
Most states allow lease-purchase financing to be used by governmental entities without a vote of the residents as long as the lease is subject to annual appropriation and therefore cancellable each year. MCM is very active in this lease-purchase marketplace and is ready to be of service to your community.

• MCM will fund the acquisition of the project / asset being acquired

• MCM will then enter into a lease-purchase agreement with the end-user governmental entity (the “Lessee”)

• The Lease can be a long-term agreement to keep payments low, but will include an “out” to the municipality if they fail to appropriate money to pay the lease in future years

• At the end of the lease, when the final payment has been made, the governmental entity will own the project without further payments

Length of Lease

• Lease terms from 1 year to 30 years

• Maximum period is limited to the useful life of the leased assets

Payments

• Each lease payment is comprised of principal and interest components. These can be level annual payments or escalated payments adjusted to fit a unique cash flow

• Interest components paid on the lease are tax-exempt, resulting in low lease rates

Voter Approval

• As mentioned above, in most states since lease-purchase financing does not qualify as statutory debt, no voter referendum is needed

• In most states, because the lease is cancelable annually and no new taxes are required, the financing does not count against the municipality’s debt limitation

• If the lease is canceled due to non-appropriations, the Lessee forfeits further use of the property