INDUSTRY CONNECTIONS RIGHT TIME WRITTEN BY SYLVIA ARROYO
FINANCE EXPERTS URGE SCHOOL DISTRICTS SEEKING TAX EXEMPT LEASING TO DO IT NOW AS HISTORICALLY LOW INTEREST RATES MAY INCREASE LATER THIS YEAR
Kaminsky recommended that they begin the discussion earlier in the bus acquisition pro- cess so they can plan appropriately to have the financing in place in time for the delivery of their buses. But even before that, Keith Courtney, sales manager at Daimler Truck Financial, said districts should evaluate their current fleet and their total costs (maintenance, future engine changes for emissions and overall safety improvements), as well as other unexpected budget increases outside transportation. “In evaluating their fleet, they should
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n February the Scituate School Dis- trict in Massachusetts discussed the option of leasing school buses instead of purchasing them — a change that,
if approved, falls in line with the dis- trict’s goal of moving from a four-tier to a three-tier bus system. District officials said in an article that while bus ownership at one time had ben- efits, leasing would now be the better way to go. Te district would have a new fleet, therefore reducing their maintenance costs, and if a bus breaks down, the leasing com- pany would replace it. Finally, officials said leasing would make sense when considering other capital priorities, such as security. Many other districts are thinking the same as Scituate SD, looking for ways to maximize their needs and money. More are reaching out for financing for tax-exempt leasing, including districts that want to finance a smaller amount of money. Matthew Jennings, program manager at
Allied Specialty Capital, said he’s seen fi- nancing increase with school districts mainly due to budget constraints. “Financing offers lower interest cost, lower debt service, which ultimately means lower payments,” he said.
22 School Transportation News August 2013 Interest rates are still considered at all-
time lows, but market observers seem to believe they may soon be headed upward. Tey recommend districts strongly consider financing now, whether they seek to finance a few yellow buses or an entire fleet. “In the three to five-year financing term,
tax-exempt financing rates are virtually unchanged from a year ago, while rates in the seven to 10-year range are approximate- ly one-quarter of 1 percent higher,” said Jeff Ray, senior vice president of public finance at De Lage Landen. He noted the increase in the seven to 10-year range was due to investors interpreting comments about a month before the time of this writing by Federal Reserve officials, indicating the like- lihood of higher rates in coming months. Ken Kaminsky, global business manager
for Blue Bird Capital Services, said many school districts finance today, but more for their office equipment. However, he added, “we have seen school bus financing becoming much more commonplace with school dis- tricts as they are becoming comfortable with the requirements needed, and are putting the process into place.” For districts considering financing,
consider their current costs and what new buses will do to lower their maintenance, and consider the cost if engine prices increase,” he said. “Te typical price increase in the industry is 2 to 3 percent. Interest rates today are below the typical price in- crease, so if you can purchase an additional bus and finance it, you could save money and lower your total cost of ownership.” Smaller school districts interested in financing shouldn’t shy away from the pos- sibility if the amount they want to finance is small. Earlier this year, the Christoval Independent School District in Texas leased mid-sized, 21-passenger buses to supple- ment its fleet of larger-capacity school buses to transport smaller number of students and, effectually realizing a savings on fuel and maintenance costs. Te lease is through Sparta Commer-
cial Services, and most of the company's municipal lease program business is in law enforcement. Te program specializes in transactions from $15,000 on up. Louis Musher, commercial products manager for Sparta, said Christoval is the first school district customer. “After doing this, we found that all mu- nicipal qualifying entities and smaller schools just can’t get the attention from the larger lenders, so they may think there is no point in looking around,” he said. “We’re willing to put the work, whether it’s $4 million or, in this case, $124,000 worth of buses.”
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