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Municipal Leasing: Favorite Son or Leasing's 'Red-Headed Stepchild'?

By Barry Marks and William L. Phillips III

There is some dispute as to the origin of the term “red-headed step child,” but its usage since the early 20th century has been to denote a child who is unwanted, neglected and misunderstood by his or her parents. For many banks and other lessors, the limited competition, strong credits and tax benefits of “muni leasing” make it a favorite. In many respects, however, municipal leasing (which term we will use for equipment financing and leasing for state, county and city governments and agencies generally) is equipment finance's red-headed stepchild.

Municipal leasing is different. Credit risk is replaced by risk of “non-appropriation.” The documentation is a little (in some cases a lot) different. Operating in 50 states is more challenging. However, for the leasing company willing to put in the effort, there are significant opportunities for growth.

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