Municipal Leases and Municipal Bonds are both are types of multi-year, low-interest financing for governments. There are some critical differences. Municipal bonds create debt and are structured around an unconditional “full faith and credit” pledge to pay by the municipal entity.
This pledge includes the obligation to levy taxes on every resident to pay bond obligations, should funds be otherwise insufficient. This is why most bonds require public consent in the form of complicated, time-consuming, and expensive voter referendums.
Municipal leases are generally treated as expenses because they are subject to the annual appropriation of funds in most jurisdictions.
Should funds be insufficient (or not appropriated for any legal reason) in any future budget year, the government body would have the legal prerogative to terminate the lease and in essence, “walk away.” Leases are much faster to set up and much less expensive to issue.
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1) The discussion above is a non-technical, non-legal overview only. 2) First Capital Equipment Leasing Corp. (“FCELC”) does not act as a municipal advisor, municipal financial consultant, fiduciary, or agent to any person or entity pursuant to Section 15B of the Securities Exchange Act of 1934 and the municipal advisor rules of the SEC. FCELC is not recommending that you take an action with respect to the information contained on this page or website. You should review and discuss anything presented herein with such independent financial, tax, legal, and other advisors as you deem appropriate.