BY ALAN M. PETRILLO
Is leasing a fire truck in your fire department’s future? Departments around the country are taking advantage of programs that manufacturers offer to lease fire trucks instead of purchasing them outright or participating in lease/buy arrangements.
Todd Whitmer, director of business development for Pierce Financial Solutions, says that the leasing program Pierce Manufacturing Inc. offers its customers is a joint program with PNC Bank that is done under tax-exempt municipal lease agreements. Whitmer points out that a tax-exempt municipal lease was developed to allow public agencies to acquire essential equipment without a voter referendum. “The IRS allows the income from municipal leases to be exempt from taxes to the lessor, and those tax savings are passed on to the public agencies in the form of lower interest rates and payments,” he says.
Whitmer notes that a feature of a tax-exempt municipal lease is a nonappropriation clause. “Nonappropriation allows a public agency to cancel the lease annually if sufficient funds are not available for payments in the next fiscal year,” he says. Advantages of leasing for a fire department or municipality, he says, include conserving cash, avoidance of a voter referendum, an easier approval process, lower transaction costs, no ratings or credit insurance, more flexible structures, and tax-exempt interest.
Pierce offers two lease products for fire departments, Whitmer notes: a lease purchase, which is a pay-to-own the apparatus product, and a turn-in lease, which is a pay-to-use the apparatus. “Typically the lease purchase terms range from two to 15 years, with 10 years for apparatus with commercial chassis,” he says. The lease purchase doesn’t have any mileage or apparatus condition provisions. “Terms for the turn-in lease product range from two to 10 years,” Whitmer says, “and the lease has apparatus condition and mileage provisions, with 10,000 and 15,000 annual mileage options available.”
Todd Stevenson, national sales manager for fire and emergency at REV Financial Services LLC, says he handles fire truck leases for Ferrara Fire Apparatus, E-ONE, and KME while the ambulances in REV Group are financed in similar fashion to fire apparatus but differently because of their estimated useful life being far different from the typical fire truck. “The most common structure for fire truck leasing because of its long life is 10-year financing,” Stevenson says. “Some are shorter, and others might go up to a 15-year term. The most common product we sell in the municipal marketplace is the lease-purchase where at the end of the lease the customer owns the vehicle and its name is on the title. We do a lot of lease-purchase contracts with fire departments.”
Stevenson says that REV also does buyback leases, where the lease is structured so the customer has the option to turn the apparatus back to the manufacturer. “It’s similar to a walk-away lease where the department leases the vehicle for a specified period of time, which we have done for 36-, 48-, 60-, and 72-month periods.”
He notes that the advantage to a lease-purchase is that the department pays for the vehicle over the life of the truck as it uses it, which allows the department to manage its budget easier, especially considering the increases in pricing on fire apparatus over the past several years. A disadvantage might be the interest accrued over the term of the financing. “There are costs associated with leasing, but municipal financing rates are very competitive right now,” Stevenson observes, “because interest rates have remained low.”
James Wessel, president of Brindlee Mountain Fire Apparatus, says his company deals with two types of fire apparatus leases: a short-term lease and a lease buyback. “If a department rolls a tanker and needs a replacement for a while, basically it will be a rental for a week, month, or year,” Wessel says. “We’ll do that for pumpers, tankers, rescues, aerials, and down to brush trucks.”
The other kind of lease is the tax-exempt municipal lease, he says. “That’s where we do a tax-exempt lease with a nonappropriation clause that has an annual lease payment,” he says. “We recently had a customer order a new Sutphen aerial ladder that was tax-exempt financed for seven years, which we would guarantee repurchase of 84 months after they take delivery. But instead of having us buy back the apparatus, they might take the lease purchase to zero and use the buyback funds to purchase their next apparatus.”
Wessel notes that the buyback price is stipulated in the original contract and typically asserts that in order for the apparatus to be bought back, it must pass a National Fire Protection Association aerial test (for aerial apparatus) at the time of release; meet the mileage requirement agreed to; be free of rust and corrosion; and not suffer from fire, wind, or flood damage. “A buyback agreement may or may not benefit us because basically we are gambling on commodities futures, betting on what the value of the truck will be in seven years,” he says. “These leases have an out clause where the department, if it decides not to turn the truck in to us, must buy out the buyback price.”
Jim Keltner, president of Jon’s MidAmerica Fire Apparatus Inc., believes it would be impossible for many fire departments and municipal entities to come up with the capital to pay for new fire apparatus up front. “A new aerial apparatus will run $1 million,” Keltner says, “and a used aerial will cost $300,000. So, leasing is a way that a taxing district, whether a volunteer department or a city, can grow and update its fleet without layout of capital up front. I think that about 90 percent of new and used fire trucks being purchased in this country today are financed in some manner, whether through leases, lease-purchases, tax-exempt municipal leasing, or through federal grants. Few departments are paying for the entire truck up front.”
Jon’s MidAmerica also offers buyback agreements on its leases where it will guarantee a buyback price at the end of the lease if the vehicle meets certain condition and mileage requirements built into the original contract. “The risk for us is that if we guarantee a certain amount on the buyback and the vehicle meets the contract conditions and the fair market value 10 years after the lease was taken out has gone down $50,000, well, that’s our risk,” Keltner says.
Keltner notes that he’s been seeing more walk-away leases being done recently as well as tax-exempt municipal leasing where the municipality or fire department pays the lease cost year by year and deducts that cost as an annual operating expense. “We’ve seen some large fire departments financing their fleets with walk-away options on the lease where they come back and then buy the vehicle at the end of the lease,” he points out.
Angie Deming, president of Republic First National, says her bank’s core lending is in public safety and municipalities. “If it is a capital item, it can be financed,” Deming says. “Fire trucks and ambulances are what we specialize in, as well as any equipment a fire department buys, from personal protective equipment, hoses, rescue equipment, and self-contained breathing apparatus. We work with fire departments, especially the smaller and more rural ones, to help them maximize their money for purchasing because some departments can’t save fast enough to pay cash for a fire truck.”
Deming says the most common contract Republic First National uses is the lease-purchase agreement with a nonappropriation clause for municipalities. “Lease-purchase is the most common type of lease agreement, followed by the true lease, where the bank is the titleholder and there are condition and mileage restrictions,” she says. “Literally, the department is renting the vehicle and then turning it back in. There’s also what we call a hybrid lease, where we team with another source like Brindlee Mountain where Brindlee Mountain gives the customer a buyback guarantee on the truck at the end of the lease.”
Brad Meyers, owner of Leasing 2, Inc., says that ownership leasing, as opposed to true rental leasing, is “far and away more popular in the fire and EMS markets. “People have a tendency to want to own things that have value, and a lease works so that the greater value at the end of the lease makes it more valuable,” Meyers notes. “On a true lease, the greater the value of the asset at the end reduces the cost of the lease over its term. With an ownership lease, they are amortizing the whole cost of the fire truck or ambulance over the lease term.”
Meyers believes that the use of municipal leasing products has grown greatly over the past 20 years. “The cost of apparatus and equipment has been inflating year by year, making it harder for fire departments to pay cash because budgets are constrained,” he says.
Whitmer notes there’s a solid logic to leasing fire apparatus. “Leasing leverages the budget and enables the department to accelerate fleet replacement plans,” he says, “and leasing ‘line-items’ the department’s apparatus and avoids ‘lump-sum’ cash purchases.”
ALAN M. PETRILLO is a Tucson, Arizona-based journalist, the author of three novels and five nonfiction books, and a member of the Fire Apparatus & Emergency Equipment Editorial Advisory Board. He served 22 years with the Verdoy (NY) Fire Department, including in the position of chief.