State Agency Lease/Purchase Program
The Lease/Purchase Program was authorized by the Legislature in 1989. It provides for financing of both real property and personal property (real-estate and equipment) by state agencies through the use of financing contracts. Financing contracts include installment payment agreements, lease/purchase agreements or any other interest-bearing contract used to finance property. Real-estate projects must be specifically approved by the Legislature. These projects are listed in the "Miscellaneous" section of the Capital Budget. For a few agencies, the project authorizations are included in the Transportation Budget.
The State Finance Committee has delegated administrative responsibility for the Lease/Purchase Program to the Debt Management Team in the Office of the State Treasurer. By pooling financing requests in the name of the state of Washington, the State Treasurer provides state agencies access to the municipal securities markets and lower, tax-exempt interest rates. Prior to the inception of RCW 39.94, state agencies negotiated vendor leases to finance equipment acquisitions. These vendor leases often carried above market interest rates and many did not reflect the agencies' eligibility for tax-exempt borrowing or the high credit quality of the state.
The State Treasurer obtains a credit rating from at least one of the major credit rating agencies for most lease/purchase transactions. Administrative controls imposed by the State Treasurer have been cited by these firms as a major factor in their assignment of an investment grade rating of Aa2. The Lease/Purchase Program allows state agencies to benefit from the state's high credit quality and assures access to the lowest possible interest rates.
How the Lease/Purchase Program Works
Real estate transactions, including land and building acquisition, construction, and renovation, must first be authorized by the state Legislature. The State Treasurer requires that all authorizations be current in order to be eligible for financing. Authorizations lapse at the end of the biennium. If a financing contract has not been completed by the last day of a biennium, a project must be re-authorized in the ensuing biennium capital budget in order to be financed.
Equipment acquisitions are requested by agency managers and are part of their individual agency budget. The Debt Management section reviews each agency request for financing to ensure that the equipment is essential to the function of the particular agency and that the finance term does not exceed the useful life of the equipment. (The useful life table, Chapter 30.50 of the State Administrative & Accounting Manual, is available at the Office of Financial Management web site: http://www.ofm.wa.gov/policy/30.50.htm.) The Debt Management section pools state agency requests for equipment several times during the year.
Once the real estate or equipment transactions have completed the approval process, funds are borrowed through the issuance of State of Washington certificates of participation. In contrast to the state's general obligation bonds, these securities are not backed by the full faith and credit of the State of Washington. Instead, the payments on the underlying state agency lease agreements are subject to legislative appropriation.
Debt service for all State of Washington certificates of participation is paid on July 1 and January 1. In order to assure the accurate and timely payment of debt service, the State Treasurer's Office requires state agency borrowers to remit debt service payments one month in advance, on June 1 and December 1. State of Washington certificates of participation have been rated "Aa2" for equipment and "Aa2" for real estate by Moody's Investors Service.
Limits on the Lease/Purchase Program
All state agency leases which are considered to be financing contracts must be negotiated by the State Treasurer's Office. The program is restricted to contracts with de minimus thresholds of $10,000 and finance terms greater than one year. Transactions which are operating leases or rental agreements are excluded. Transactions of $20 million or more are subject to approval by the State Finance Committee, consisting of the State Treasurer, Governor, and Lieutenant Governor.
- State Agency Lease/Purchase Program Guide and Forms
- State Agency Lease/Purchase Program Forms (WORD)
- Recent State Agency Lease/Purchase Interest Rates — Real Estate Only
- Recent State Agency Lease/Purchase Interest Rates — Equipment Only