Here are some Frequently Asked Questions by a municipality regarding municipal financing. 

Q: What is a municipal lease? 
A: A municipal lease-purchase agreement is a financial instrument that enables a municipality to use annual tax revenue streams to make payments for essential use equipment or facilities at lower tax-exempt interest rates. 
 
Q: What types of municipalities qualify for tax-exempt financing? 
A: Cities, Counties, School Districts, Townships, Villages, Police Departments, Fire Departments, Special Purpose Districts and any other governmental entity. 
  
Q: What is a Tax-Exempt Lease?  
A: Tax-exempt lease financing is one of the most successful methods used to purchase vehicles, aircraft, communications and other equipment. This type of installment purchase is also referred to as "government lease-purchase" and/or a "municipal lease". The interest earned under a properly structured and documented lease is exempt from federal income tax under the same tax laws that enable a municipal bond to carry a tax-exempt rate. Because the Lessor does not pay federal tax on the interest earned, a tax-exempt lease provides a much lower interest rate to the municipality than other types of borrowing instruments. 
 
Q: Why use a lease purchase to acquire equipment? 
A: Lease purchase financing represents a way for municipalities to conserve their cash while acquiring the equipment and facilities necessary for government to function. There are laws in all 50 states which restrict the ability of municipalities to borrow money. However, there are very few restrictions on the ability of municipalities to enter into a lease purchase agreement. A municipal lease purchase represents a year-to-year commitment on the part of a municipality to make lease payments, not a commitment to pay debt service. In other words, lease purchases are not considered debt and therefore, are not subject to the limitations placed on debt by state and local laws.
 
Q: What is the difference between a Municipal Lease-Purchase and a Commercial Lease?  
A: Commercial leases are rental agreements that allow the Lessee to use the Lessor's property for a fee. The lessee does not pay principal or interest, does not build equity and may not have an option to purchase the property at the end of the lease term. Municipal leases are a financial agreement whereby the Lessor provides money to the Lessee to purchase property and charges the Lessee interest for the use of that money. The Lessee takes title to the property and the Lessor takes a security interest in the property as collateral. The Lessee builds equity with each principle payment and has the option to purchase the property at the end of the lease, usually for one dollar. Municipal Leases are subject to the annual appropriations of the Lessee and provide financing at a low tax-exempt rate. 
 
Q: Is there any penalty for early pay-off? 
A: As part of the Lease With Option to Purchase Agreement, Purchase Option Price amounts are listed at each payment due date. The Purchase Option Price is provided so the Lease can be terminated early to save on future interest costs. Unlike issuing a bond or a home mortgage, Baystone Financial Group's lease purchase agreement has no up front costs or fees. All of the Lessor's expenses of issuing the Lease are recaptured through the Lease Payments over the term of the lease, not as an additional up front charge. Since these expenses have already been incurred once a lease has commenced, if the Lessee exercises the Purchase Option Price to terminate the Lease early, then the expenses that would have been recouped through the future Lease Payments must be accelerated and covered in the Purchase Option Price amount. The saving of future interest costs of paying off the Lease early is still realized by the Lessee, and the Lessor's costs of issuance are covered. 
 
Q: Who owns the equipment under a tax-exempt lease? 
A: In most states the Lessee takes title to the equipment or deed for the property at the beginning of the lease. The Lessor takes a security interest in the equipment or property as collateral. The Lessee is responsible for the use, maintenance and insuring of the equipment or property.
 
Q: What is the difference between bank qualified (BQ) & non-bank qualified (NBQ) lease-purchases in the leasing industry? 
A: A bank qualified (BQ) lease is used when the municipal entity issues less than $10,000,000 of tax exempt obligations in the current calendar year. A "non-bank qualified" (NBQ) lease-purchase is required when a municipal entity has issued or intends to issue more than $10,000,000 of tax-exempt obligations in the current calendar year. Baystone Financial Group can provide financing for both bank qualified & non-bank qualified entities alike.
 
Q: Can used equipment be financed? 
A: Yes! Used and refurbished equipment can be financed just like new equipment as long as the term of the financing does not exceed the useful life of the equipment. 
 
Q: What is a non-appropriation clause? 
A: Non-appropriation may be used only in cases where the Lessee is unable to obtain funding for future payment obligations on the lease. Typically, the clause will contain a 'best efforts' requirement whereby the Lessee must use its best efforts to obtain the necessary appropriation for the lease payments. 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.
 
Q: What can be financed on a tax-exempt basis? 
A: The list varies for each entity. Here is just the beginning....

	Real Property--Fire Stations, Truck Bays, Command Centers, Training Facilities
	Fire Apparatus--Pumpers, Aerials, Tankers, Ladder Trucks, Tower Trucks, Brush Trucks, Rescue Squad Trucks, Fire Trucks, Quick Attack Vehicles, Ambulances, Boats
	Utility Vehicles--Snow Plows, Graders, Tractors, Graders, Bulldozers, Bucket Trucks, Backhoes
	Office Equipment--Copiers, Computers, Duplicators, Phone Systems, Scanners, Printers, Video Surveillance, Intercom Systems, Servers
	Loose Equipment--SCBA, Thermal Imaging Cameras, Spreaders, Air Tools, Extrication Equipment, Fire Hose, Defibrillators, Generators, Radios, Pagers, 911 Systems
	School Equipment--Buses, Playground Equipment, Musical Instruments, Modular Buildings, Speakers, HVAC, Bleachers, Security Equipment, Cafeteria Furniture, Kitchen Equipment, Classroom Furniture, Mowers, Digital Marquees
	Hospital Equipment--Sonogram Machines, X-ray Machines, Defibrillators, Scanners, Cardiogram Machines, Blood Pressure Machine, Calibration Equipment
	Anything deemed essential to the daily operations of the municipality.

Q: How does bond financing differ from lease purchase financing? 
A: Bond issuance is one option for a governmental entity to use when incurring debt and will require voter approval. Bond financing requires the borrower to pledge a designated revenue source such as property taxes or user charges, and obligates itself to raise revenues to the extent necessary to pay the debt service. Lease purchase financing under most state laws is not considered to be debt. Voter approval is not required to enter into a lease purchase agreement and revenues are pledged on a year to year basis from available sources.