Capital leasing is a contractual agreement in which a grantee acquires the right to use a capital asset for a specified period of time without obtaining full ownership, in exchange for a periodic payment regardless of the tax status of the transaction. A capital lease is an eligible activity under FTA’s 49 USC, Chapter 53 grant programs and can be used to leverage limited funds more efficiently than if the capital assets were purchased or constructed.
- Improves Agency Cash Flow
- Helps meet project funding requirements for agencies with insufficient revenues
- Increases cash flow through periodic payments over time
- Reduces Agency Maintenance and Replacement Costs
- Facilitates fleet replacement or capital rehabilitation and replacement, which can lead to reductions in operating and maintenance costs
- Provides opportunities for grantees to stay current on technological advances by having the option to lease emerging technologies versus purchasing
- Competitive Pricing
- Bulk purchasing by leasing companies reduces the cost per vehicle; these savings can be passed onto the lessee
- Cost Savings for Removable Power Sources
- Batteries, fuel cells and ultra-capacitors that have a shorter lifespan can be leased instead of purchased
There are some risks associated with capital leasing. As FTA program funds are subject to annual Congressional appropriations, this can create some level of uncertainty about availability of federal funds for future lease payments. To mitigate these risks, agencies should plan accordingly.
Innovative Leasing Arrangements Program
The Fixing America’s Surface Transportation (FAST) Act Section 3019(c) includes a new program on leasing arrangements that highlights capital leasing procedures and requirements for rolling stock, related equipment, and the leasing of zero emission vehicle components. The FAST Act also removed the cost effectiveness requirement, as previously outlined in 49 CFR part 639, subpart C, meaning that grantees entering a capital lease would no longer be required to demonstrate the cost effectiveness of the rolling stock or related equipment.
Capital Leasing Certain Zero Emission Vehicle Components and Removable Power Sources
- Under the new program, grantees are eligible to purchase a removable power source such as batteries and fuel cells separately through a capital lease.
- The leasing of the removable power source should not be included as part of the overall cost of the vehicle if the removable power source was acquired using a capital lease.
- Grantees leasing zero-emission vehicle components and removable power sources may use the small purchase procedures typically used to expedite the purchase of small items that are under the simplified acquisition threshold of $150,000 dollars. For more information regarding the simplified acquisition threshold, see 2CFR §200.88
New Grantee Reporting Requirements
The FAST Act includes reporting requirements for grantees leasing rolling stock under the program. Grantees are now required to submit a report to FTA within three years of executing a lease that includes:
- An evaluation of the overall costs and benefits of leasing rolling stock
- A comparison of the expected short-term and long-term maintenance costs under a lease versus maintenance costs when buying rolling stock
Additional grantee requirements that do not need to be included in the report:
- An inventory of the rolling stock or related equipment acquired under the lease
- Accounting records of the grantee, including the liability of the grantee under the lease
Find more information on capital lease requirements for FTA programs in FTA Circular 5010.1E: Grant Management Requirements, Chapter 4.