Leasing rates increase in the recession
State and local governments’ share of the national equipment leasing market has increased recently, according to the Washington-based Equipment Leasing and Finance Association (ELFA). The uptick may be because of budgetary strains from the recession, ELFA says.
Overall new business volume for the equipment leasing industry in May increased 5 percent when compared to the same period in 2009, according to ELFA’s Monthly Leasing and Finance Index (MLFI), which reports economic activity for the $518 billion equipment finance sector. Also, between 2008 and 2009, state and local governments’ share of that $518 billion market rose from 3.7 percent to 3.8 percent, says ELFA Vice President of Research Bill Choi. “Let’s put it this way, it didn’t decline as quickly as some of the other entries did,” Choi says. “But, [an uptick in] 2010 makes sense to me, because the state and local governments are under so much budgetary pressure, it makes sense to lease.”
As part of the MLFI Quarterly Base Book Analysis, ELFA asks the leasing business steering councils which of the industries they serve are performing well. “Lately, the last two or three quarters, the state and local governments have really popped up, and they’re always in the top one, two or three slots now,” Choi says.
Leasing can offer some tax benefits, Choi says, and it can allow department heads to acquire equipment using operating costs, so they do not have to wait for approval of new capital costs. It also allows lessees to avoid paying for obsolete technology. “You don’t have to waste your money on buying the latest piece of equipment when three years from now you’re going to get a new piece of equipment,” Choi says.
Nevertheless, Phoenix officials are not drawn toward leasing over purchasing in most cases, says Deputy Public Works Director Joe Giudice. “There are occasions where we do make some business decisions to lease, but it’s rare for us,” Giudice says. “Typically we do not do that, and we certainly have not increased that.”
Leasing may save money in the short term, but you pay more for the vehicle in the long run than you would have with an outright purchase, Giudice says. “It’s no different from you going to a dealership to buy yourself a new car,” he says. “You can choose to lease it, and in the short term your lease payments are lower, but you don’t have ownership in the end.”
