Government

Throughout our history, municipalities and government agencies have relied on bond financing to construct government buildings and fund infrastructure projects. Recent deteriorating economic conditions, declining tax revenues, voter discontent and bureaucratic red tape have delayed or eliminated critical projects due to lack of funding. National Standard Finance can provide flexible and efficient Public Private Partnership financial alternatives that enable projects to proceed on a timely and cost-effective basis using credit-backed lease instruments.

• Capital expenditure decisions by municipalities are financial decisions. Once a municipality concludes it needs a particular real estate facility or infrastructure asset in order to operate effectively and meet community demands, the project decision has been made. The next critical decision is a financial one.

• In the National Standard solution, the private sector investor assumes financial liability for project costs, while the government agency retains freedom and full control over the asset just as if it owned the facility outright. The municipality’s only obligation is to enter either a lease for real estate assets or an annual contract payment for non-real estate assets. If properly structured, these payments can generally be considered part of the operating budget, instead of a long-term liability or debt by the municipality.

For decades, many government agencies have misjudged the future value of public assets. Most believe that these assets will appreciate over time, just as commercial properties do. This has often proven to be incorrect, to the disservice of the community and the government. We have encountered many examples of municipalities that need to replace aging structures for which there is no other viable use.

In fact, most public assets depreciate and lose value over time. Older hospitals, courthouses, municipal buildings, sports arenas and public schools, for example, have little or no salvage value because they are designed only for their original function. At the end of the assets’ economic life most become liabilities to the municipality, and need to be destroyed, or to have extensive renovation and structural additions to meet a community’s new requirements. In growing recognition of this fact, the U.S. Federal Government has chosen to lease, not own, over 7,000 properties.

Using the Public Private Investment model, an increasing number of municipalities and government agencies are monetizing assets in sale-leaseback transactions to raise critically needed capital while retaining control over core assets.

In a sale-leaseback, the government sells the asset to a private investor for a lump sum, which in most cases is equal to an equitably determined Fair Market Value. Then the agency leases the asset back from the investor for 15 to 30 years.

In some cases, ownership by the municipality is still desirable, for a variety of reasons. In that event, the transaction can be structured to allow the asset’s ownership to transfer to the municipality upon lease maturity.

Numerous studies have validated that Public Sector projects undertaken by the Private Sector in the form of a Public Private Partnership were more likely to be completed on time and on/or below budget than the same project conducted by the municipality directly. One such study by the State of Maryland showed that State’s educational developments were completed on time and on budget 24% of the time when undertaken by the State alone, compared to over 70% when using a Public Private Partnership model.

This is an effective way of raising substantial amounts of inexpensive capital without incurring additional debt or reducing services to the community.

We invite you to consider this proven and effective arrangement to finance existing and future projects. We will be happy to draw up alternative scenarios that can demonstrate options available to you.