To meet these needs, financial managers in schools and districts have had to maneuver budget dollars to compensate for this demand. The expiration of ESSER funds made this task much more challenging.
One option to consider is leasing. When considering leasing as a funding method for technology and other rapidly depreciating assets, the first thought that often comes to mind is the complexity of contracts, including hidden legal clauses and tricky use and return provisions at the end of the lease. These are all topics that can be easily navigated.
A solid contract can eliminate all unforeseen costs and hassles from the lease process.
Benefits and Pitfalls of Leasing
What are the benefits of leasing? Most typically:
- Managing Technology Obsolescence. Lease terms can match the useful life of an asset, most typically two to five years.
- Budgeting Made Easy. Leasing makes costs predictable and manageable since the payment stream is fixed for the life of the lease. Monthly, quarterly, and annual payments are typical. However, special financing structures, such as placing an asset in use in one fiscal year and paying for it in another fiscal year, are not uncommon.
- Inclusive Funding. Leases can include software, warranty, delivery costs, preparation services (like imaging), installation, and end-of-lease return provisions, all wrapped into a single monthly, quarterly, or annual payment.
- Conserve Cash Flow. Leasing depreciable assets allows schools and school districts to acquire long-term capital assets like land and buildings, as well as other equipment that has an extensive useful life.
What are the pitfalls of leasing?
The biggest downside to leasing is an onerous contract. The language of a leasing contract must clearly define the obligations and costs of the lease.
Following a standardized process from the request for bid to contract signing can ensure a fair outcome for schools and school districts that choose to work with a vetted, reputable leasing organization. A solid contract can eliminate all unforeseen costs and hassles from the lease process.
An obstacle to choosing leasing as a path to funding technology and other rapidly depreciating assets is often the school board or the finance committee of the school board. The choice of leasing causes a shift in financial reporting from a capital acquisition to an operating expense since the lease payments are monthly, quarterly, or annual.
Since this is the favorable treatment for these assets, which are so rapidly consumed like a utility, boards tend to want to capitalize these assets, which can mean they are on the financial statements well past the useful life.
Coming Up
In subsequent articles, I will delve into a few other aspects of leasing to take the mystery — and the risk — out of the process, should a school or school district be interested in walking this path.
Up Next: "I Want to Lease. What Are the Next Steps?"