How governmental entities can lease energy efficient equipment to make upgrades

Municipal Leasing: EE Project Financing

In our energy project financing series, we last covered Commercial Leasing as a way for private companies and nonprofits to fund energy efficiency projects. This article will cover Municipal Leasing, or energy efficient equipment leasing for local governments.

Municipal leasing is a common mechanism used by local governments to finance energy efficiency projects. Leasing can substantially decrease the political burden of getting projects approved, and get projects implemented in a shorter timeline. In most states, municipal leasing requires non-appropriation language which removes the legal obligation to make payments in future fiscal periods.

It is important to understand the differences between the most common types of municipal leases: True and Lease-Purchase:

True Leases
In a true lease, the lessor holds title of or continues to own the equipment throughout the lease term. The term of true leases are typically much shorter than the useful life of the equipment and the equipment is often is returned to the lessor at the term of the lease.

Lease-Purchase Leases (aka financing leases)
A lease-to-purchase lease grants ownership of the equipment to the local government when the lease is signed. Lease-purchase leases have terms which reflect the useful life of the equipment. Most energy efficiency municipal leases are lease-purchase because of the nature of the equipment being leased.

To summarize, Municipal Leases are less expensive than commercial leases because of the tax benefits received by the lessor, but the rates are still higher than loan agreements. Leases can, however, allow the local government to implement energy efficiency projects quickly and start saving on its energy bills. Unfortunately, Tennessee is not a state that allows local governments to enter into a lease-purchase lease without the approval of an elected body and the Office of the Comptroller at the time this article was published. Local governments in Tennessee currently still have to get energy efficiency municipal leases approved by the Office of the Comptroller.

The good news is that Pathway Lending can help governmental entities with an alternative to municipal leasing through issuing Capital Outlay Notes (we can help vendors secure those, too).

We can issue Capital Outlay Notes to help local governments in Tennessee finance energy efficiency projects. Capital Outlay Notes are approved by an elected body and by Tennessee’s Office of the Comptroller.

If you want to work on an energy improvement project with a local government, please contact me to learn more. You can also click here for more information from the Department of Energy on Lease Funding.

Energy Blog post by Brandon EnglandBrandon England
Director – Energy Efficiency
(615) 425-7192


Next in our series will be an overview of Energy Performance Contracts. In the meantime, visit our Energy Efficiency Resources page for our four-step process to start an energy project.

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