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May 04, 2010
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Affording in-car video in tough economic times

Here are some solutions for financing equipment

By Laura E. Owen and Anthony L. Havens

The demand for providing security to our nation’s communities has never been greater. Yet these challenging economic times are making it more difficult than ever to find the needed funding to acquire the necessary equipment. It is more important now than ever for agencies to be resourceful in considering funding sources and methods available to them to finance their vitally needed equipment today. Municipal leasing responds to that need directly.

Digital in-car video has proven to be one of the most important technologies for law enforcement today. In-car video greatly enhances officer safety, protects the community from false accusations, and reduces the burden on the courts from contested arrests. And yet, while digital in-car video solutions are now readily available, many agencies across the country are still using antiquated analog VHS systems that should be upgraded to digital.

Digital in-car video can provide a greater value for police departments and the community as it provides far superior quality images and audio, is easily stored and retrieved, and copies directly to a disk. Most importantly, some systems on the market are now able to record in a tamperproof format to secure the integrity of the evidence for court.

In an effort to save dollars, some agencies have decided to install in-car video systems in only a limited number of vehicles, which limits the benefit to the department. Furthermore, tight budgets have dictated the speed at which departments can upgrade and expand the use of in-car video systems. However, this is not necessary.

Municipal lease programs can help to maximize an agency’s buying power, as they enable the purchase of digital in-car video systems needed today with lower upfront cash requirements and payments structured to meet budget demands without creating long-term debt. State and local governments have used municipal leasing for decades as a way to acquire the equipment essential to providing many public services for their constituencies and using municipal leasing to finance the acquisition of this new technology is no different. Police departments can use municipal leases as an effective tool for equipping their cars with digital in-car video systems immediately, allowing them to better serve their communities now. Municipal leases provide tax-exempt interest rates to qualified governmental entities in order to finance the acquisition and installation of digital in-car video systems.

There are many different ways to create a municipal lease. Think of a municipal lease as an installment purchase contract with periodic monthly, quarterly, or annual payments. Equity grows with each payment and at the end of the lease period; the agency owns the digital in-car video equipment free and clear at no additional cost. Municipal leases are a lease-to-own financing solution. It is important to note that municipal leases are usually subject to annual appropriation and that they do not require voter approval.

Here are a few things to consider before committing to a municipal lease:

Leverage Equipment Dollars

Your local annual appropriations can either be disbursed today, dollar-for-dollar, or you can leverage these dollars by three, four, or five times when the same amount is allocated to lease payments.

To illustrate: You can either acquire $28,000 of equipment today using an annual appropriation, or, using that same $28,000, you can acquire up to $150,000 of new digital in-car video systems through a municipal lease today. That's the leverage and power of a municipal lease. Flexible financing helps you overcome capital budgetary restrictions and enables you to acquire the in-car video systems you need now but otherwise would not have be able to afford. This is achieved by financing the cost of your in-car video equipment over multi-year periods.
Low Interest Rates

A municipal lease qualifies for lower tax-exempt interest rates. This keeps your borrowing costs much lower than traditional financing. Interest rates are currently at historic lows — a great reason to look into municipal leasing as soon as possible. Once your lease documents are complete, the rate is locked in for the term of the lease and the payments are constant.


Preservation of Working Capital

Municipal leases allow police departments to take delivery now, with lease payments commencing at your next fiscal or budget period - a deferred payment option. By financing your digital in-car video systems with a municipal lease, you can preserve your working capital for other contingencies and significantly reduce your annual capital outlay.

Keep it Simple

For transactions under $100,000, a one-page application is sufficient, and a legal opinion should not be required (the municipality bears the cost of a legal opinion, when required). For leases exceeding $100,000, slightly more documentation may be required, but it is not a burdensome process. A legal opinion is required for leases exceeding $250,000 (not difficult to obtain, and legal counsel on staff is able to provide this).

Most leases are approved within 48 hours of receiving a completed application and can be finalized within a week. In most cases, your digital in-car video systems can be shipped to you within 24 hours of completed and approved documents.

Leasing is one method of financing assets that are too expensive to fund during one fiscal period, especially in these difficult economic times. Municipal leases for in-car video systems can be completed for transactions from as little as $5,000 up to several million dollars, with payment terms up to 60 months.

Pick Your Payment Schedule

You can select monthly, quarterly, semi-annually or annually scheduled payments—to be paid in advance or in arrears.

A Lease is Not Debt

A municipal lease is not debt. Furthermore, a municipal lease does not contribute to your debt ceiling, because the obligation is subject to the annual appropriation of funds. Because ''non-appropriation" language is included in the Lease Agreement, payments are treated as operating expenses. In most states, a municipal lease is not "public debt." And unlike public debt, municipal lease financing does not require voter approval.


Practical Examples

Here are a few illustrations of municipal leases for law enforcement. In all cases, the police department would receive all of the video equipment immediately and they would own the equipment free and clear at the end of the lease term. There would be no additional fees associated with the municipal lease beyond the interest payment.

Four annual payments of $6,875 or 48 monthly payments of $585 provide $25,000 worth of equipment. Four annual payments of $27,375 or 48 monthly payments of $2,335, provide $100,000 worth of equipment. And four annual payments of $136,875 or 48 monthly payments of $11,685 provide $500,000 worth of equipment.

What is the risk, or downside, to municipal leasing? The department must be committed to making these payments and keeping this equipment for the full term. In other words, the department acknowledges that a "Lease Purchase Agreement" is a commitment to make all the payments, subject only to non-appropriation. It must be the intent of the department that they plan on appropriating the funds and making all of the payments for the term of the lease. It is this commitment that makes it possible to finance in-car video equipment at the lower tax exempt rates.

Municipal leasing offers agencies more options and advantages in acquiring much needed in-car video systems. Complete implementation of the needed in-car video camera systems will provide communities with an improved coverage of police protection. Instead of spending time countering allegations and complaints, officers will be able to spend more time providing security to their communities.

Laura E. Owen is President and COO of ICOP Digital, Inc. Ms. Owen served most of her career in finance, and was the first woman to be appointed Secretary of Commerce for the State of Kansas (KDOC), the state's leading economic development agency. She was named one of the 25 Most Influential Women of 2008 by the “Kansas City Business Journal”. She may be reached at Lowen@ICOP.com.

Anthony L. Havens is Chairman and CEO of Sparta Commercial Services. Mr. Havens is the Co-Founder of Sparta Commercial Services, as well as, American Motorcycle Leasing Corp., and has over 20 years of experience in finance and investment banking. Sparta specializes in municipal leasing for essential governmental equipment and services. He may be reached at alhavens@spartacommercial.com.

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