HEADLINES
Leasing Options Help School Districts Now More Than Ever
By Sylvia Arroyo Scott Pfender, director of transportation for Suwannee School
District in Live Oak, Fla., had a dilemma. Maintenance and fuel costs for his 70-bus fleet, which claimed an average age of about 12 years, were stretching his already limited budget. And just as Pfender started talking to his local Tomas Built
bus dealer, his district’s finance director gave him the OK to pur- chase four buses. Working with Daimler Truck Financial, Tomas Built’s captive finance arm, Pfender was able to purchase 20 new buses through a five-year municipal lease-purchase plan. “Te interest component of municipal lease-purchase pay-
ments is exempt from federal income taxes, and municipal lease-purchases do not have to be carried on the books as debt,” said Bill Farrar, northeast district finance manager for Daimler Truck Financial. “Just because a district has limited funds today doesn’t mean they can’t replace their oldest buses.” Officials from captive finance companies said they are seeing
more school districts financing bus purchases than ever before. Te fixed-rate, five-year municipal lease purchase plan is the most popular option, especially since the economic downturn. It has allowed cash-strapped districts to finance newer and safer buses while keeping payments manageable. School districts can consider leasing at any time of the year,
but captive reps said springtime is when most districts inquire about their options. “Interest rates right now in general for bus financing are in the
low- to mid-two percent range,” said Keith Courtney, national sales manager of Daimler Truck Financial. One advantage for school districts considering lease-purchase
programs is grant money can be used as a down payment if the amount isn’t enough to cover the entire purchase price. Many districts may not realize that they also can add other equipment to their lease-purchase plan through a captive. If the plan is with Daimler Financial Services, Courtney said
at least one Tomas Built school bus must be included in the transaction. Kenneth Kaminsky Jr., global business manager at De Lage Landen Financial Services and program manager for Blue Bird Capital Services, said his group will purchase other assets in a leasing plan in addition to Blue Bird school buses. “We leverage the asset as collateral…anything that has a value
in the marketplace where we can collateralize,” he added. Navistar Capital, a GE Capital captive program for IC Bus vehicle
and equipment financing, could not be reached for comment at the time of this writing. But they also offer muncipal financing packages.
20 School Transportation News Magazine April 2012 Another popular option today is a rental lease, also known as
a walkaway lease. School districts can lease a bus or buses for five years, paying the difference between the purchase price and the re- sidual value the captive sets for the bus for the duration of the lease. “A walkaway allows the school to not be on the hook for the
residual value at the end of the term,” explained Kaminsky. Tis type of plan has raised some questions about its valid-
ity. Kaminsky said a lease-rental plan could be considered illegal if it is financing a tax-exempt entity, such as a school district, with tax-exempt interest rates. Nonetheless, districts should first check with their attorneys about this type of lease plan. A lease-rental plan may be an option for districts with limited
budgets, need to replace a portion of their fleet or are transition- ing to alternative-fuel buses. In the end, Kaminsky said, the type of lease to use depends on
an individual school district’s needs and budget. He added that it’s a different deal for bus contractors. “It depends…do they want to take the depreciation value of
the buses or do they want to keep a fleet with a lower average age? Teir options also depend on what their contract situation is at the time.” Contrary to what some might think, captives are currently of-
fering similar interest rates as banks. In fact, the captives say that in many cases, they are more competitive because they don’t have any upfront fees associated with bond issuances and other forms of capital acquisition. Courtney said rates in general right now are lower than the
average price increase of a bus. Traditionally, with rising steel and rubber costs, the price increase for school buses increases about three percent per year. “If you are paying around two percent to borrow money and
the cost of the bus goes up by three percent, then you are one percent ahead by buying the cheaper bus this year,” he said. “So if you can buy an extra bus this year, you’ll save money on the price increase alone.” ■
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