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Leasing occurs throughout the federal government, and is particularly useful when the government cannot or will not fund needed projects or assets out of its capital budget. The inability to fund government acquisitions has been especially acute lately due to the multi-billion dollar commitments of the federal government to the Iraq War and the recovery from the damage caused last year by hurricanes Katrina, Rita and Wilma. Despite the huge budget deficit and constraints of the federal government, certain agencies interpret complex rules and guidelines to limit leasing or insist on terms, conditions and structures that undermine the viability of leasing transactions. Yet, in its proverbial sea of red ink, leasing could provide as a lifeline to the federal government to fund many aspects of its vast bureaucracy.
The Federal Leasing Challenge
The federal government has long relied on leasing as a way to obtain the use of buildings, equipment and other forms of capital. The organizations most concerned with federal budgeting-the Congressional Budget Committees, the Office of Management and Budget (OMB), and the Congressional Budget Office (CBO)-have adopted guidelines for the budgetary treatment of leases. The guidelines, in part, distinguish between operating leases and capital leases, which is crucial in federal leasing.
Like purchases, capital leases of assets frequently require federal agencies to justify a long payback period on the investment and draw funding out of the nation's capital budget. In contrast, operating leases enable agencies to use operations and maintenance funds immediately to gain long-term benefits from assets they otherwise could not acquire.
Operating leasing can provide other significant benefits to the federal government. For example, an agency may need an enterprise computer system that could purchase over a three-year period of successive annual federal budgets. Rather than stage the acquisition under the capital budget, the agency could, instead, order and install the full project immediately by entering into an operating lease. In the operating lease transaction, the lessor could acquire the assets and the agency need only secure authority to pay rents on an annual basis. That authority could easily amount to a fraction of the purchase price for the same assets. The agency could thereby enhance its operational efficiency by obtaining the full system immediately, avoid a difficult and uncertain...