NCJ Number
129554
Journal
Corrections Today Dated: (April 1989) Pages: 78,80,82
Date Published
1989
Length
3 pages
Annotation
Lease/purchase has emerged as an attractive alternative for corrections agencies as well as municipal issuers with important financing needs.
Abstract
Lease/purchase is a viable alternative for prison or jail authorities that cannot or do not want to use traditional financing techniques. Lease/purchase techniques do not add to the issuer's bonded debt capacity. Payments are appropriated annually and are thus a current expense of the issuer, not bonded indebtedness. Lease/purchase does not require a voter referendum, so corrections officials have an effective alternative to bonding when a recalcitrant electorate repeatedly votes down a referendum for prison construction or improvements. Instead of using funds that may have diminished in value because of inflation, lease/purchase finance allows payments to be made with tomorrow's inflated dollars. With each lease/purchase payment, a prison or jail authority accrues equity in the asset being financed. Lease/purchase transactions do not require the lead time associated with a bond referendum, so transactions can be completed more quickly. Some disadvantages of lease/purchase are that it costs more than outright purchase because of the initial costs of raising the funds and the required interest payments over time; also, investors demand a slightly higher interest rate for transactions that are not rated or credit-enhanced.