Bucks, Bonds or Borrowing


Bucks, Bonds or Borrowing

By David Clamage

Welcome to 2017 – a year that’s certain to be filled with change for you and your business of delivering, treating and addressing the water needs of your community. Politics, as always, will play a role in your decision making as well as the demands of your budget and your consumers. There are many tools available to you and each of them has pluses and minuses and our goal is to share an overview of the Tax-Exempt Lease Purchase, (TELP), or “muni-lease” as it compares to Bucks and Bonds – cash and the will of the voter/ratepayer.

Bucks are your own capital – money you’ve saved for the plans ahead and the growth of your system as well as repairs and replacement of aging equipment, not to mention new technology that can make your work more efficient and sustainable. CapEx is always in short supply and the unexpected is just that – a surprise that you may not have planned for as it adversely impacts your cash reserves. It’s a challenge to maintain prudent reserves when the crystal ball doesn’t always present a clear picture of the future of your system.

Bonds are generally the lowest cost of borrowing and require careful planning to be sure your hard work in the bonding process is rewarded by “right sizing” your bonds while you simultaneously educate your voters. Sampling data sources from the 2016 election, we have seen an increasing trend in bond initiatives fail as voters both tighten their belts and expect you to do the same while at the same time improving their infrastructure – your system. Doing more with less is an increasing in demand and rate payers aren’t always keen to pay more for a commodity they often take for granted.

Borrowing for public water systems – the roughly 155,000 public water systems in the United States identified by the EPA as delivering some 90 percent of our country’s water needs – most often takes the form of the TELP or muni-lease. This tool generally has the following key characteristics:


The lender may not have to pay income tax on the interest they charge you and that translates to low interest rates.

Fully Amortizing

While most states call this a “lease,” this is not your father’s car lease: It is fully amortizing with an end of term purchase option of $1; pre-payable at any time; and, payments can be sculpted to your budget, i.e. adjusted seasonally, incorporating inflation or system revenue growth, and shaped to your access to funds for repayment.


In many cases, water systems are entitled to cancellation for non-appropriation. According to the Association for Governmental Leasing and Finance, a non-appropriation clause enables the lessee to terminate the lease agreement at the end of the current appropriation period without further obligation or penalty. This may be done only in cases where the lessee was unable to obtain funding for future payment obligations on the lease. Typically, the clause will contain a ‘best efforts’ requirement whereby the lessee must use its best efforts to obtain the necessary appropriation for the lease payments. The non-appropriation clause enables the lessee to account for the lease obligation as a current expense instead of debt.

If your budget contracts in a subsequent fiscal year, you may be allowed to cancel the contract with the lender/lessor only having recourse to the equipment financed. This provision does occur – though our trade association, (The Association for Governmental Leasing and Finance reports only 0.0020 percent of Non-Appropriations as a Percentage of Portfolio Reported in 2015 actually occurred).

Sure, budgets contracted and lessees/borrowers found it difficult to make their payments with lessors/lenders preferring to re-write these contracts vs. repossess equipment and allow your borrowing be restructured to your current situation.

And non-appropriation is the key to this form of financing generally not being subject to voter approval. This form of financing has some key benefits for your system:

Legislative Approval

  • In most all states, the TELP model is well established with standard protocols that allow you and your finance team to deploy it quickly and efficiently;
  • And most TELPs can be pre-paid from cash on hand or future bonds and at any time when your budget allows.

Administratively Efficient

  • A TELP can often be as simply as a few pages that spell out your terms in straight-forward language and put in place in a matter of days vs. the weeks – if not months – of a bond;
  • This also lets you use the tool to manage those surprises of equipment failure and repair costs.

Low Cost

  • Since the lessor/lender generally doesn’t have to pay taxes on the interest you’re charged, the costs can be very low and often close to your bond rates.

Accessing this form of financing can be very easy and should begin with reviewing the credentials and references of the expert leasing companies specializing in this market and the AGLF can assist you in finding national companies and members in your state with many firms offering solutions as small as $25,000. Contacting your local bank can also be very useful as many institutions have skills in this form of financing.

Financing your equipment and improvements can be a simple process and allow you to focus on your goals and tasks ahead in the hard work of delivering water to your community.

David Clamage is the founder of Saulsbury Hill Financial, LLC, based in Denver. One of the oldest municipal leasing companies in the United States, Saulsbury Hill Financial specializes in multi-sector state and local government leasing, including large project and lease financing for virtually all terms and asset types.

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