A municipal lease for a fire truck is not what you think it is.
A common understanding is that leasing is borrowing an asset, often with high costs, and then forfeiting the asset back to the owner after a predetermined period of time.
Municipal fire truck leasing with Pierce Manufacturing looks quite a bit different. The Pierce Financial Solutions program offered by PNC Equipment Finance provides the industry’s most extensive line of lease plans for fleet replacement.
With industry-leading tax-exempt rates, zero documentation fees, and flexible payment plans that can bypass voter referendums, Pierce Financial Solutions offers an easy and affordable way to purchase apparatus in today’s challenging economic times.
Not convinced? Keep reading to learn more.
Understanding the Elements of Leasing
It’s essential to understand municipal leases, tax-exempt interest and non-appropriation clauses to realize the full benefits of leasing fire apparatus.
What Is a Municipal Lease?
A municipal lease is similar to an installment sales contract or loan. The distinguishing features of a municipal lease are “tax-exempt interest” and a “non-appropriation clause.” In a municipal lease, the Lessee owns the asset subject to the Lessor’s security interest and has lien-free ownership at the end of the term after completing all payments.
The interest income on a municipal lease is exempt from federal tax. The Lessor passes these tax savings to the Lessee in the form of a lower interest rate. The current federal corporate tax rate is 21%, which means a municipality can borrow at an interest rate that is 79% of a rate issued to a commercial enterprise.
A non-appropriation clause enables the Lessee to terminate the lease agreement at the end of the current appropriation period without further obligation or penalty. This may be done only in cases where the Lessee was unable to obtain funding for future payment obligations under the lease. The non-appropriation clause enables the Lessee to account for the lease obligation as a current expense instead of debt. In the vast majority of states, a municipal lease can be approved without a time-consuming and expensive voter referendum since it is not accounted for as debt. Please note that a non-appropriation clause is not available for volunteer fire departments.
Once you understand the terminology, realizing the benefits of leasing is quite straightforward.
The Benefits of Leasing Fire Apparatus
The benefits of leasing fire apparatus are clear. When a department chooses to lease, it can:
With leasing, a department only has to come up with a fraction of the cost of the apparatus versus the entire amount and can spread the entire capital cost gradually over time. Leases do not require down payments, and generally feature lower legal and administrative costs than bonds.
Lower Cost With Prepay Discounts
In a lease, PNC Equipment Finance prepays the order and accesses Pierce’s prepay discounts which reduce the cost of the apparatus, lowers annual payments thus conserving even more cash. A lease with prepay discounts is generally more cost effective than a bond financing that does not feature prepay discounts.
Defer Payments to Future Budget Years
Payments in a lease begin one year from the time of apparatus order allowing a department to purchase at today’s cost and interest rates. The interest rate and payments are fixed at the time of order which simplifies the budgeting process. A department needs the money in next year’s budget to purchase the apparatus today. In certain situations, payments can be deferred even longer.
Maintain Fleet Replacement Plans
Fire trucks are often the most valuable assets in public safety and a lease plan enables a department to adhere to its fleet replacement plans in any economic environment through line item budgeting of the apparatus investment. Older trucks with escalating maintenance costs and depreciating resale values can be replaced with newer apparatus with lower maintenance and warranties. Maintaining fleet replacement plans is critical to matching the new technology and infrastructure demands of communities today. New apparatus offers the latest advancements in both safety and operational efficiencies benefiting communities and their first responders.
Types of Fire Truck Leases
Lease purchase is an option in which municipalities pay to own the apparatus. The terms for this product range from 2 to 12 years with a one-dollar purchase option. This plan is desirable for municipalities that prefer to have ownership of the apparatus but want to spread the capital costs over a period of time.
A turn-in lease is an option in which departments pay to use the apparatus over a predetermined lease term. This plan contains a “balloon payment” for the estimated resale value of the apparatus at the end of the lease. Terms range from 2 to 10 years with multiple annual mileage options. At the end of the term, two options are available to the department:
- The department can purchase the apparatus by paying or financing the balloon payment.
- The department can turn in the apparatus to Pierce and purchase a new Pierce apparatus. In this case, Pierce pays the balloon payment on behalf of the department. This plan is preferable for municipalities that want to pay for the use of the apparatus over the term of the lease and desire a flexible, cost-effective fleet management program.
Do you think leasing might be the right fit for your department? We can help. Post your questions below or take a closer look at our leasing program, plans and benefits to see how the Pierce Financial Solutions program can help you get behind the wheel of your new apparatus.