Resources
Free resources for California public agencies, vendors, and funding partners. Learn how tax-exempt lease-purchase financing works.
Tax-exempt lease-purchase financing is a municipal financing structure that allows public agencies to acquire equipment and assets through lease payments rather than an upfront cash purchase. The lease payments are structured to fit the agency's budget cycle and are typically treated as current operating expenses rather than long-term debt. The interest portion of the payments is exempt from federal income tax, which lowers the cost of borrowing.
No. Lease-purchase agreements are structured as annual appropriations, not general obligation debt. Under California law, annual appropriation leases do not require voter approval. The district simply appropriates the lease payment each year as part of its normal budget process. This is one of the key advantages over general obligation bonds.
Virtually any capital asset that serves a public purpose can be financed: electric school buses, fire trucks, ambulances, HVAC systems, solar panels, modular classrooms, IT equipment, playground equipment, and more. The key requirement is that the asset serves an essential governmental function.
Most structures can be quoted within 48 hours of receiving basic information about the agency and the project. From there, documentation and closing typically take 2 to 4 weeks, depending on the complexity of the transaction and the responsiveness of the agency.
Municipal bonds are long-term debt instruments backed by the full faith and credit of the issuer, typically requiring voter approval and complex underwriting. Lease-purchase agreements are structured as annual operating expenses, do not require voter approval, and can be structured much more quickly. Bonds are better for very large capital projects; lease-purchase is ideal for equipment and assets in the $100,000 to $10 million range.
The legal mechanism by which a public agency budgets and approves lease payments each fiscal year. California law requires annual appropriation for lease-purchase agreements to maintain their tax-exempt status.
A financing structure where investors purchase certificates that represent an interest in lease payments made by a public agency. COPs allow financing without issuing traditional bonds.
A lease structure where a public agency leases an asset with an option to purchase at the end of the lease term for a nominal amount ($1). The interest portion of payments is exempt from federal income tax.
The legal standard that determines whether an asset qualifies for tax-exempt financing. Assets must be used for a governmental purpose (education, public safety, infrastructure) rather than private business use.
A California program that provides vouchers for the purchase of electric school buses and other clean vehicles. Funded by the California Air Resources Board (CARB).
A federal program administered by the U.S. Environmental Protection Agency that provides grants and rebates for replacing diesel school buses with electric, propane, or CNG alternatives.
A California ballot measure that provides funding to schools and colleges for energy efficiency and clean energy projects. Districts must apply for funds and complete projects within defined timelines.
We are happy to walk through how lease-purchase financing would work for your specific project. No obligation, no pressure.
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