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. 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 overtime
- 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 vs. purchasing.
- Competitive Pricing
- Bulk purchasing by leasing companies reduces the cost per vehicle; these savings can be passed onto the lessee
- Helps reduce capital acquisition costs by moving forward the acquisition of expensive capital assets when capital costs are rising faster than the general level of inflation
- 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 for availability of federal funds for future lease payments.
Innovative Leasing Arrangements Program
The Fixing America’s Surface Transportation (FAST) 3019(c) Act section 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, 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, fuel cells separately through a capital lease (49 CFR 639, subpart C). 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 normally 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 grantees may refer to 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 of leasing versus buying rolling stock
Grantees must maintain but not include in the report:
- An inventory of the rolling stock or related equipment acquired under the lease
- Accounting records of the grantee the liability of the grantee under the lease
More information capital lease requirements pertaining to FTA programs can be found in FTA Circular 5010.1E: Grant Management Requirements, Chapter 4.