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1982 High Country Warehouse Proposal leaseLEASE PROPOSAL FOR THE TOWN OF AVON Olt afto HIGH COUNTRY WAREHOUSE 0810 A. Nottingham Road Avon, Colorado Submitted i VAIL ASSOCIATES REAL ESTATE, INC. Agent By: Richard A.. Kesler Associate Broker Received by Town of Avon this 16 day of September, 1982 at �� P.M. By PROPOSAL FOR THE TOWN OF AVON FOR WAREHOUSE /GARAGE SPACE Dear Sirs: September 16, 1982 Please be advised that the following described property is hereby submitted for your consideration in regard to the Request for Proposal dated September 10, 1982. PROPERTY DESCRIPTION Unit A, HIGH COUNTRY WAMIOUSE 0810 A. NCYITINGHAM ROAD , AVCN, CO. 81658 "RECORD OWNER: Henry U. Wolff and Ester Wolff, hereinafter called "lessor ". "PROPOSAL QUALIFICATIMS" : "ITEM NO. 1" - Said garage /warehouse has two.-garage doors. Entry door is 12' wide x 15' tall with electric door opener. Loading dock door is-12' wide x 8' tall. "ITEM 140. 2" - Total lease space available is 5,100 square feet. Space is divided into three areas. Two glass store front offices each with separate entry, totalling 1,209 + square feet and open floor space of 3,891 + square feet. "ITEM NO. 3" - Ceiling height is 18' in open space and 8' in offices. "ITEM NO. 4" - Restroom facilities are in each office space (2 individual restrooms) each with commode and sink with hot and cold running water. "ITEM N0. 5" - Concrete flooring in open floor space. Carpet and tile over concrete in offices spaces. "ITEM NO. 6" - 400 -500 VAC power source. "ITEM NO. 7" - Adequate heating in accordance with original design for warehouse space (electrical heat). "ITE11 NO. 8" - Flammable item storage would be dictated by the Tmm of F.von and Fire Departmnt. "ITEI i 140. 9" - Fluorescent lighting in accordance with original design for warehouse space. "IM1 N0.10" - In accordance with the building codes established by the Town of Avon and the direction of the lessor, said lessee, at their expense, would be allowed to install a venting system. "ITE1,1 NO.1V- Said space is located within the Town of Avon boundaries. Vail Associates Real Estate, Inc., a Colorado Corporation, as agent for Henry U. Wolff and Ester Wolff, hereby submit the following lease proposal to the Town of Avon. Item 1 - Annual Costs A. 5,100 square feet of lease space at $8.50 per foot ($43,350.00 per year) plus an annual cost of living increase as evidenced by the CSI (Consumer Price Index). Said increase, if any, to be determined at the lst anniversary of said lease and each anniversary thereafter until expiration of said lease, together with lessee's percentage of taxes and insurance. 1. Insurance Costs - $983.00 (1982) Total Cost for Building - Lessee's Cost - $491.50 (1982) To be prorated in accordance with lease term. Note: Hazard insurance costs are adjusted yearly and are subject to yearly adjustment. 2. Taxes - 1981 - $4,453.81 (Paid) Total Cost for building - Lessee's Cost - $2,226.90 (1982) To be prorated in accordance with lease term. A. $43,500.90 assessed value, 102.175 mills. Tax figures were furnished by the Eagle County Assessor's and Treasurer's offices as of September 14, 1982. t Page 2 PROPOSAL FOR ME TOWN OF AVON FOP, . WAREHOUSE /GARAGE SPACE September 16, 1982 Item 2 - Annual Estimated Oast of Utilities Please be advised that -Uie following costs are estimates only and supplied by the adjoining warehouse space user (Unit B, High Country Warehouse) A -1 Auto Parts Business (5,100 square feet). A. Electricity - Supplier - Holy Cross Electric Company - Summer Costs - $100 per month - Winter Costs - $400 to $500 per month (winter - 4 months - 1981/82 winter season - November 15 to Mlardi 15, 1982 and 1982 summer season) B. Water and sewer are paid by the Lessor (normal usage only) - adjustments would be charged to the user of said space if said water and sewer costs became excessive and above the base rates as charged by Upper Eagle Valley Sanitation Dis- trict and Avon Metropolitan District. C. Snow plowing and removal costs would be the responsibility of lessee (no estimate of cost given). Item No. 3 - Lease Increases (See Item 1 - Annual. A. Consumer Price Index is determined by the Department of Labor and published accordingly (no estimate given - CPI increase, if any, would affect 1st anniversary of lease). Item No. 4 - See Item 1 (Annual Cost) 1982 - Insurance 1/2 Cost $491.50 1982 - Taxes - 1/2 Cost $2,226.90 ADDITIONAL I NFMATI ON Lessor will allow a 2 -year lease with 3 one -year options. Lessor will allow the `"own of Avon a reasonable amount of time to respond to said proposal and grant a first right of refusal in conjunction with the aforementioned proposal and subsequent offers because said lessor will continue to actively market said property to any other prospective user through Lessor's agent, Vail Associates Real Estate, Inc. Said lst right will be allowed from the dated date herein for a period of two weeks, then such 1st right of refusal shall be null and void and no longer in force or effect. Information gathered herein is deemed to be reliable but subject to change and modification due to user changes and final inspection. tted this 16th day of September, 1982. BY: VAIL ASSOCIATE FFKAL ES"' TE, INC. AGENT FOR HENF -U & Ester Wolff BY: Ridzard A.J Kesler, P.O. Box Vail, orado QAQ—A nn Richard A. Kesler Associate Broker Vail Associates Real Estate, Inc. Box 7 Vail, Colorado 81657 Avon Office: 303/949 -4404 Denver Line: 623 -8609 KUTAK ROCK & CAMPBELL A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS 2400 ARCO TOWER -707 17T-H STREET DENVER, COLORADO 80202 (303) 297 -2400 July 27, 1984 MEMORANDUM REGARDING THE EFFECTS OF THE DEFICIT REDUCTION ACT OF 1984 ON TAX- EXEMPT LEASING Just as cities, counties and charitable organizations were beginning to look to the private sector for much needed capital, the Congress determined that tax benefits should not be available to owners of property used by a tax - exempt entity. Although an investment tax credit was never avail- able if property was owned by or leased to a governmental or other tax - exempt entity, there were no restrictions on accel- erated depreciation or the rehabilitation credit. Thus, pri- vate entities could own property, lease it to a tax - exempt entity and take advantage of most of the tax benefits associ- ated with such ownership. The Deficit Reduction Act of 1984 (the "1984 Act ") will make significant changes with regard to property used by a tax - exempt entity. The purpose of this memorandum is to explain those changes, including discussions of the length- ened depreciation schedule, loss of the rehabilitation credit, what constitutes tax - exempt use property, and various exceptions to the general rules for short -term leases, high technology equipment and service contracts. Depreciation The 1984 Act adds a new Section 168(j) to the Code which provides that the allowable depreciation deduction for any taxable year with respect to tax - exempt use property will be determined by using the straight -line method (without ATLANTA OMAHA WASHINGTON KUTAK ROCK 6 CAMPBELL regard to salvage value) and the recovery period determined under the following table: -- Personal property with no 12 years present class life --18 -year real property 40 years - -All other property The present class life However, the recovery period under Section 168 of the Code cannot be less than 125% of the lease term. For purposes of the depreciation deduction, the half - year convention will apply in the case of property other than 18 -year real property. In the case of 18 -year real property, the amount of the depreciation deduction will be determined on the basis of the number of months in the year in which the property is in service. An exception to the new Section 168(j) is made for any recovery property if the recovery period which applies to such property (without regard to Section 168(j)) exceeds the recovery period for such property under the new provision. For purposes of depreciation, in the case of any real prop- erty which is not recovery property, the determination of whether such property is 18 -year real property will be made as if such property were recovery property. Rehabilitation Credit Tax - exempt use property also includes that portion of a rehabilitated building which is or may be expected to be used by a tax - exempt entity. Therefore, to the extent a rehabili- tated building is used by a tax - exempt entity, the rehabili- tation credit will be denied. Tax - Exempt Use Property The 1984 Act defines "tax- exempt use property" as that portion of any tangible property (other than 18 -year real property) leased to a tax - exempt entity. In the case of 18 -year real property, the term means that portion of the property leased to a tax - exempt entity in a disqualified lease. A "disqualified lease" is defined as any lease of the property to a tax - exempt entity, but only if (i) any part was directly or indirectly financed by an obligation the interest on which is exempt from tax under Section 103 and the entity (or a related entity) participated in the financing, (ii) under the lease there is a fixed or determinable purchase price or sale option which involves the tax - exempt entity, or i KUTAK ROCK 3c CAMPBELL there is the equivalent of such an option, (iii) the lease term is in excess of 20 years, or (iv) the lease occurs after a sale or other transfer of the property by, or lease of the property from, the tax - exempt entity (or a related entity) and the property has been used by the entity (or a related entity) before the sale (or other transfer) or lease. This does not include any property which is leased within three months after the date such property is first used by the tax - exempt entity (or a related entity). In the case of 18 -year real property, such property will not be tax - exempt use property unless the portion of the property leased to the tax - exempt entity in disqualified leases is more than 35% of the property. For purposes of this limitation, improvements to property (other than to land) are not treated as separate property. Tax - Exempt Entity The 1984 Act defines a "tax- exempt entity" as (i) the United States, any state or political subdivision thereof, any possession of the United States, or any agency or instru- mentality of the foregoing, (ii) an organization (other than a Section 521 cooperative) which is exempt from United States income tax or (iii) any foreign person or entity. The term includes any organization, other than a farmers cooperative described in Section 521 of the Code, that is exempt from United States' income tax at any time during the five -year period ending on the date the property involved was first leased to such organization. This provision does not apply to the Federal Home Loan Mortgage Association. Fur- thermore, in the case of an organization formerly exempt from tax under Section 501(a) of the Code, such organization will not be considered a tax - exempt entity with respect to prop- erty it leases if the organization files an irrevocable elec- tion not to be exempt from tax under Section 501(a) during the tax - exempt use period with respect to such property. For these purposes, the term "tax- exempt use period" means the period beginning with the taxable year in which the property is placed in service and ending with the close of the fif- teenth taxable year following the last taxable year of the recovery period of such property. Finally, any organization which is engaged in activities substantially similar to those engaged in by a predecessor organization will be treated the same as the predecessor for purposes of determining its status as a tax - exempt entity. KUTAK ROCK & CAMPBELL Related Entities Governmental units, agencies or instrumentalities are related to each other if they directly or indirectly derive their powers, rights and duties from the same sovereign authority. However, the United States, each state and each United States possession is to be treated as a separate sovereign authority. Tax - exempt entities other than govern- mental units are related if they have (i) significant common purposes and substantial common membership or (ii) substan- tial common control (direct or indirect). In addition, entities are related to each other if one entity owns a 50% or greater interest in the capital or profits of the other. To determine whether an entity has a 50% capital or profits interest, related governmental units (by virtue of derived power) and related tax - exempt organizations (by virtue of common control) are treated as one entity. Finally, the 1984 Act provides a catchall definition which deems all tax - exempt entities to be related if, with respect to a transaction, such entities are attempting to avoid the provisions of the 1984 Act. Lease Term The 1984 Act's broad definition of "lease" includes any grant of a right to use property. Furthermore, a lease term includes all options to renew, and two or more successive leases, which are a part of the same or successive transac- tions with respect to the same or similar property, are to be treated as one lease. For 18 -year real property options to renew at fair - market value,.as determined at the time of renewal, generally are not taken into account in determining the length of the lease term. .However, under certain factt and circumstances, even options at fair rental value will be treated as part of the original lease term. For example, if rents during an extended term differ materially from market rent at that time, an informal agreement that the lease would be extended at the time of the original lease will be inferred. Short -Term Lease Exception Property will not be treated as tax - exempt use property merely by reason of a short -term lease. A "short -term lease" is defined in the 1984 Act as any lease the term of which is (i) less than three years, and (ii) less than the greater of one year or 30% of the property's present class life. In the case of 18 -year real property and property with no present class life, a short -term lease is defined as any lease the KUTAK ROCK & CAMPBELL term of which is less than three years. Furthermore, tax - exempt use property does not include any portion of property predominantly used by the tax - exempt entity (directly or through a partnership of which the entity is a partner) in an unrelated trade or business the income of which is subject to tax under Section 511 of the Code (relating to the taxation of unrelated business income of certain charitable organizations). High Technology Equipment Exception Qualified technological equipment leased to a tax - exempt entity for a period of five years or less will not be subject to the lengthened depreciation periods. Qualified technolog- ical equipment which is leased to a tax - exempt entity for longer than five years is entitled to straight -line deprecia- tion, a five -year recovery period and the half -year conven- tion (but not if it is used predominantly outside the United States). The term "qualified technological equipment" includes any computer or peripheral equipment, high technology tele- phone station equipment installed on the customer's premises and high technology medical equipment. However, the high technology exception will not apply to any property leased to a tax - exempt entity if (i) part or all of the property was financed by tax - exempt bonds, (ii) the lease follows a sale (or other transfer) from the tax - exempt entity, or a related entity or (iii) the lessee is the United States or any agency or instrumentality thereof. Property which is sold and leased.back within three months after the property is first used by the tax - exempt entity will not be disqualified under (ii) above. In addition, the Secretary of the Treasury is given the power to determine that any equipment described by the language of the 1984 Act as high technology telephone or medical equipment is not subject to rapid obsolescence thereby depriving it of the high technology exception on a prospective basis only. The report of the joint conference committee (the "Conference Report ") states that: the conferees intend that the Treasury will so provide only if it determines that such property cannot reasonably be expected to become techno- logically obsolete substantially before the expira- tion of its useful life. The term "computer" is defined by the 1984 Act as a programmable, electronically activated device which: (I) is capable of accepting information, applying prescribed processes to the information, and sup- plying the results of these processes with or without human intervention, and (II) consists of a central processing unit contain- ing extensive storage, logic, arithmetic, and con- trol capabilities. 1 KUTAK ROCK & CAMPBELL A computer does not include (i) equipment which is an inte- gral part of other property which is not a computer, (ii) typewriters, calculators, copy machines or similar equipment and (iii) equipment whose primary use is entertainment. The term "related peripheral equipment" includes auxiliary machines (on -line or off -line) designed to be placed under the control of the central processing unit of a computer. High technology telephone station equipment includes such station apparatus and connections as teletypewriters, telephones, booths, private exchanges and comparable equip- ment, but only if such equipment has a high technology con- tent. For example, telephone booths and telephones with standard dialing equipment are not high technology equipment while telephones which have dialing programs, automatic call backs or conference call features are high technology equipment. High technology medical equipment includes electronic, electromechanical or computer -based equipment used in screen- ing, monitoring, observing, diagnosing or treating patients in a laboratory, medical or hospital environment. Examples of such equipment include C.A.T. scanners, nuclear magnetic resonance equipment, clinical chemistry analyzers, drug monitors, diagnostic ultrasound scanners, nuclear cameras, radiographic and fluoroscopic systems, halter monitors and bedside monitors. Incidental use of such equipment for other purposes, such-as research, will not disqualify it. Service Contract Exception The 1984 Act provides that a contract will be treated as a lease and not a service contract if such treatment is more properly taking into account all relevant factors including whether: (i) the service recipient is in physical possession of the property; KUTAK ROCK & CAMPBELL (ii) the service recipient controls the property; (iii) the service recipient has a significant economic or possessory interest in the property; (iv) the service provider does not bear any risk of substantially diminished receipts or sub- stantially increased expenditures if there is nonperformance under the contract; (v) the service provider does not use the property concurrently to provide significant serv- ices to entities unrelated to the service recipi- ent; and (vi) the total contract price does not sub- stantially exceed the rental value of the property for the contract period. The Conference Report cites an example in the Senate Committee Report as illustrating the proper application of these general service contract rules. In that example E, a school district, and T, a privately owned school bus company, enter into a multi -year agreement (up to four years) under which T will provide transportation for all school children within the district." T was awarded the contract under com- petitive bid and is paid, so long as it performs under the contract, at a fixed monthly rate. Under the agreement, T has the exclusive authority to designate bus stops and estab- lish pickup and delivery schedules although it does consult with E. E designates the children to be transported and the time they are to be at school. T has sole title to the buses, which generally have an economic useful life of 9.5 years, and has total discretion regarding the number and type of vehicles to be used. The agreement requires that all vehicles, equipment and drivers must comply with applicable state and federal safety regula- tions. Under the terms of the contract, T is responsible, subject to state requirements, for maintaining insurance coverage within specified limits. T is also responsible for the training and employing of drivers, and for the storage, repair and maintenance, which is significant, of all vehi- cles. In addition, T decides when a bus should be replaced, determines what models should be purchased and what features they should have, and exercises discretion over substitu- tion. It is unlikely the buses will be used for other pur- poses during the school year. KUTAK ROCK & CAMPBELL Absent other factors to the contrary, the agreement is a service contract under the bill. The following facts provide the basis for that conclusion: (i) T has physical possession of the buses; (ii) T has control of the buses; (iii) T bears a substantial risk of nonperformance in that, among other things, it will not get paid unless it performs; and (iv) the monthly rate substantially exceeds the rental value of the property. The facts that the buses will not be used for other purposes during the school year, that the agreement is for up to four years (which is not a substantial portion of their useful lives), and that T must comply with applicable regulations do not, by themselves, support a conclusion that the agreement is a lease. Solid Waste Disposal, Energy and Clean Water Facilities The 1984 Act provides more liberal rules for determining whether a contract is a service contract with regard to qual- ified solid waste disposal facilities, cogeneration or alter- native energy facilities or water treatment works facili- ties. These liberal rules provide that any contract or arrangement between a service provider and a service recipi- ent with regard to the specified facilities will be treated as a service contract unless: (i) the service recipient operates such facility; (ii) the service recipient bears any signifi- cant financial burden of nonperformance under the contract or arrangement (other than for reasons beyond the control of the service provider); (iii) the service recipient receives any significant financial benefit if the operating costs of such facility are less than the standards of performance or operation under the contract or arrangement; or (iv) the service recipient (or a related entity) has an option to purchase, or may be required to purchase, all or a part of such facil- ity at a fixed and determinable price (other than for fair market value). With regard to these favored types of service contracts, certain factors are not to be considered. First, a service recipient may be given the right to inspect any facility, to exercise any sovereign power it may possess or to act in the IN KUTAK ROCK & CAMPBELL event of a breach of contract by the service provider. In addition, the service recipient may be allocated any finan- cial burden or benefits in the event of any change in any law. Moreover, the costs of any temporary shut -down of the facility for repairs, maintenance or capital improvements, or any financial burden caused by the bankruptcy or similar financial difficulty of the service provider, may be allo- cated to the service recipient. Finally, any significant financial benefit merely because payments by the service recipient under the contract or arrangement are decreased by reason of increased production or efficiency or the recovery of energy or other products will not cause the contract to be treated as a lease. For purposes of the special service contract rules pre- cise definitions are supplied for qualifying facilities. A qualified "solid waste disposal facility" includes any facil- ity which provides services for residents of part or all of one or more governmental units and substantially all of the solid waste processed at such facility is collected from the general public. A "cogeneration facility" is a facility which uses the same energy source for the sequential gener- ation of electrical or mechanical power in combination with steam, heat or other forms of useful energy. An "alternative energy facility" is a facility for producing electrical or thermal energy if the primary energy source for the facility is something other than oil, natural gas, coal or nuclear power. Finally, a "water treatment works facility" includes any devices and systems used in the storage, treatment, recycling and reclamation of municipal sewage or industrial wastes of a liquid nature. In addition, the term includes facilities necessary to recycle or reuse water at the most economical cost over the estimated life of the works, includ- ing intercepting sewers, outfall sewers, sewage collection systems, pumping, power and other equipment, as well as ele- ments essential to provide a reliable recycled supply such as standby treatment units and clear well facilities. The term "treatment works" also means any other method or system for preventing, abating, reducing, storing, treating, separating or disposing of municipal waste, including storm water run- off, or industrial waste, including waste in combined storm water and sanitary sewer systems. Low- Income Housing The tax - exempt leasing rules specifically do not apply to low- income housing if the apartment complex is operated by a 501(c)(3) or (4) organization and at least 80% of the units in the complex are leased to low- income tenants as determined by the Secretary of the Treasury. � r \_J KUTAK ROCK & CAMPBELL Partnerships If property is leased to a partnership in which a tax - exempt entity is a partner, a portion of that property will be treated as being leased to that partner. That por- tion is determined by finding the "proportionate share" of the property owned by the tax- exempt entity. A tax - exempt entity's proportionate share is equal to such entity's share of the partnership's items of income or gain, whichever is greater. If the entity's share of income or gain fluctuates over the term of the partnership, the highest possible share the tax - exempt entity may receive is that entity's propor- tionate share. Similar rules are to be applied to other pass- through entities and tiered partnerships. Furthermore, a "propor- tionate share" of property owned by a partnership of a tax - exempt and a taxable entity will be tax - exempt use prop- erty if any allocation to the tax - exempt entity of partner- ship items is not a qualified allocation. A "qualified allocation" is defined as any allocation which M is consistent with such entity's being allocated the same distributive share of each item of income, gain, loss, deduction, credit, and basis and such share remains the same during the entire period the entity is a partner in the partnership, and (ii) has substantial economic effect within the meaning of section 704(b)(2).� However, items allocated under section 704(c) (contributed property) shall not be taken into account. The Conference Report states that these rules take precedence over other provisions relating to tax- exempt leases. For example, assume that a partnership of a tax - exempt and a taxable entity owns a building leased to a taxable entity. Even if the tax - exempt entity owns only 10% of the partnership interests, unless the partnership's allo- cations to the tax- exempt partner are qualified, 10% of the building will be tax - exempt use property even though a build- ing will not be tax - exempt use property unless 35% is leased to a tax - exempt entity. Furthermore, property may be deemed to be tax - exempt use property by virtue of being leased to a tax - exempt entity as well as being owned by a partnership with an unqualified allocation to a tax - exempt partner. KUTAK ROCK & CAMPBELL �1 Finally, the Conference Report directs the Treasury to prom- ulgate regulations concerning, among other things, guaranteed payments to tax - exempt partners. Effective Dates Generally, the 1984 Act applies to (i) property placed in service by the taxpayer after May 23, 1983 in taxable years ending after such date and (ii) to property placed in service by the taxpayer on or before May 23, 1983 if the lease to the tax - exempt entity is entered into after May 23, 1983. Several transition rules are granted by the 1984 Act. First, an exception is granted for leases entered into on or before May 23, 1983 (or subleases under such leases), or any renewals or extensions of leases entered into on or before May 23, 1983, if such renewals or extensions are pursuant to an option exercisable by the tax - exempt entities which were held by the tax - exempt entities on May 23, 1983. Second, the 1984 Act will not apply to any property leased to a tax - exempt entity if such lease is pursuant to one or more written binding contracts which, on May 23, 1983, and at all times thereafter, required (i) the taxpayer (or his predecessor in interest under the contract) to acquire, construct, reconstruct or rehabilitate such property, and (ii) the tax - exempt entity (or a tax - exempt predecessor thereof) to be the lessee of such property. In addition, the partnership and other pass- through entity provisions will not apply to property owned by a partnership if the property was acquired by the partnership on or before October 21, 1983, or the partnership entered into a written binding contract which, on October 21, 1983, and at all times thereafter, required the partnership to acquire or construct the property. Moreover, if (i) on or before May 23, 1983, the taxpayer (or his predecessor in interest under the contract) or the tax - exempt entity entered into a written binding contract to acquire, construct, reconstruct or rehabilitate such property and such property had not previously been used by the tax - exempt entity, or.(ii) the taxpayer or the tax - exempt entity acquired the property after June 30, 1982 and on or before May 23, 1983, or completed the construction, reconstruction or rehabilitation of the property after December 31, 1982, and on or before May 23, 1983 and if such lease is pursuant KUTAK ROCK & CAMPBELL to a written binding contract entered into before January 1, 1985, which requires the tax - exempt entity to be the lessee of such property, then the 1984 Act will not apply. Finally, for lessees other than the United States or an instrumentality thereof or any foreign person or entity, the 1984 Act does not apply if (i) on or before November 1, 1983 there was significant official governmental action with respect to the project or its design, and (ii) the lease to the tax - exempt entity is pursuant to a written binding con- tract entered into before January 1, 1985, which requires the tax - exempt entity to be the lessee of the property. The 1984 Act excludes from the definition of "signif- icant official governmental action" the granting of permits zoning changes, environmental impact statements or similar governmental actions. 1 i 1 i VYWTATT r TAX - EXEMPT ENTITY LEASING* Ben E. Benjamin O'Melveny & Myers I. Background 4 A. There are valuable tax benefits that can be derived from the ownership of real and personal property. 1. Depreciation deductions. IRC §§ 167 and 168. 2. Investment credits. IRC § 46. (a) Regular credit. (b) Energy credit. (c) Qualified rehabilitation credit. B. In order to realize an economic benefit from these tax benefits, political subdivisions and other tax - exempt entities have engaged in transactions under which ownership of the property rests with a taxable entity but the tax - exempt entity has the benef =cial use of it. A typical example would be the lease of property from a taxable entity to a tax - exempt entity. C. Prior law. 1. Generally, in order to "transfer" the tax benefits the taxable entity had to be the owner of the property for tax purposes. This was determined under case law and IRS pronouncements. See e.g., Rev. Proc. 75 -21, 19 -75 -1 C.B. 715. It is important to note that the new law does not alter the ownership requirement. Thus, the characterization of a transaction as a lease or a conditional sale is still a relevant issue. 2. if property was used by a tax - exempt entity (except im a^ unrelated trade or business) or by the United S =_tes, any State or political subdivision thereof cr any agency or instrumentality of the foregoing, no invest -gent credits were available other than qualified rehabilitation credits. IRC §§ 48(a)(4) and (5). * The provisions dealing with leases of property to foreign persons is outside the scope of this outline. C 1 1 ' (a) Property leased to a tar.- exempt entity or a governmental unit (other than on a casual or short -term basis) was treated as used thereby. Treas. Reg. $§ 1.48 -10) and (k). (b) There was no similar restriction on the availability of depreciation or cost recovery deductions. (c) In order to avoid the restriction on the availability of investment credits some trans- actions were structured as service arrangements rather than as leases. See e.g., Xerox V. United States, 656 F.2d 886 (Ct. C1. 1981); Rev. Rul. 68 -109, 1968 -1 C.S. 10. II. General Operation of Tax - Exempt Entity Leasing Provisions.* A. Overview. 1. Congress felt it was inefficient and inappro- priate to permit tax - exempt entities to transfer tax benefits. 2. To prevent such transfers, with various exceptions and special rules, DEFRA expands the rule denying investment credits for property used by tax - exempt entities and governmental units and substantially restricts the depreciation deductions available for such property. 3. There are different rules for personal property and for real property. 4. Property to which DEFRA restrictions apply. (a) As under prior law, the investment credit limitations apply to property used by (which essentially means leased to) a tax - exempt entity or a g=-nental unit. DEFRA added certain excep- tionS for governmental units. (b) The depreciation restrictions apply to "tar. - exempt use property" ( "TEUP "), which is a key concept discussed in detail infra. * These provisions appear in Section 31 of the Deficit Reduction Act of 1984 ("DEFRA"). C 2 such 5. Treasury is given authority toro riatelto carry regulations as may be necessary or app P out the purposes of the tax - exempt entity leasing provisions. IRC § 168(j)(10)- B. DEFRA restrictions on property used by tax - exempt entities and governmental units. I. Personal property. (a) Investment credits. (i) With limited exceptions, no invest- ment credits allowed. IRC §§ 48(a)( 4 ) and 48(a)(5)(A)(i). This is essentially a con- tinuation of prior law. (ii) One exception is for property leased under a a'leaselwith aotermof governmental less than unit, i.ee.., , 6 months. IRC § 48(a)(5)(B). (iii) Another exception is for property used by a tax - exempt entity predominantly in an unrelamed trade or business that is subject to Federal income tax. IRC §§ 48(a)(4). (b) Depreciation.* (i) Depreciation deductions must be on a straight-line basis over the greater of (1) the property's ADR midpoint life_(12 years if the property has no ADR midpoint life) or (2) 125% of the term of the lease. IRC § 16B(j)(1). IRC § 168(j)(1)• (ii) The half -year convention applies. IRC § 168(j)(2)(B)(i). (iii) Treasury isersonal authority shave 1 is'7 ADR lives for p property that none. IRC § 168(g)(2)- * For purposes of this outline includes "cost recovery" under the System provided for in IRC § 168. C 3 the term "depreciation" Accelerated Cost Recovery 2. Real property. (a) Investment credits. (i) Same as personal property, with exception for qualified rehabilitation credits: (ii) The denial of investment credits does not extend to any qualified rehabilitated building leased to a governmental unit to the extent of the basis of such building attribut- able to qualified rehabilitation expenditures. IRC § 48(a)(5)(C). It also does not extend to qualified rehabilitation expenditures for property leased to a tax - exempt entity. IRC § 48(a)(4). (iii) However, rehabilitation expenditures allocable to the portion of a building which is (or may reasonably be expected to be ) TEUP are not qualified rehabilitation expenditures except for purposes of determining whether the building has been substantially rehabilitated. IRC § 48(g)(2)(B)(vi). (iv) Pursuant to the provisions described in clauses (ii) and (iii), a qualified rehab:'_iation credit is allowed for property that is not TEUP. (b) *Depreciation. (i) Depreciation must be on a straight - lire basis over the greater of (1) 40 years or (2) 1250; of the lease term. IRC § 168(j)(1). (ii) Depreciation must be determined on the basis of the number of months the property is in service i.e., no half -year convention. IRC § 168(j)(2)(B). 3. -Provisions applicable to both real and per- sonal prc ty. (a) Regulations are to be issued prescribing the = =eatment of depreciation deductions for property that either becomes or ceases to be TEUP after being placed in service. IRC § 168(f)(13). C 4 (b) IRC § 168(f)(12) provides limitations on the depreciation deductions for property financed with the proceeds of industrial development bonds. This provision does not apply, however, to TEUP subject to the new depreciation rules. IRC § 168(j)(2)*('E). (c) If the recovery period for property without the new restrictions is longer than the recovery period under the restrictions the longer period is applicable. IRC § 1681(j)(2)(C). C. Definition of tax - exempt use property. I. Personal property is TEUP to the extent it is leased to a tax - exempt entity. IRC § 168(j)(3)(A). 2. Real property is TEUP to the extent it is leased to a tax - exempt entity under a "disqualified lease." IRC § 168(j)(3)(B). (a) A disqualified lease is any lease of property to a tax - exempt entity which also meets at least one of the following requirements: (i) All or a portion of the property is financed with tax - exempt obligations in a financing in which such entity (or a related entity)* participates. (ii) The lease provides for an option or a put involving such entity at a fixed or determinable price. (iii) The lease term exceeds 20 years. (iv) The transaction involves a sale/ leaseback or something comparable (unless the leaseback occurs within 3 months after such entity first uses the property). (b) Real property is TEUP only if more than 35% cf the property is leased to one or more tax - exem,, entities under disqualified leases. IFC § 16B(j)(3)(B)(iii). * All references to an entity will also include a related entity unless otherwise noted. C 5 improvements ptovland)sare notrtreated(ashsQ than property for purposes of determining whetherathee property is TEUP. IRC § 168(j)(3)(B)(iv). 3• Exceptions. (a) Short -term leases. IRC §§ 168(j)(3)(C). (i) Property is not TEUP if leased under a short -term lease. (ii) For personal property and property with a present class life, a short -term lease is one with a term less than 3 years and less than the greater of 1 year or 30% of the property's present class life. (iii) For real property and property with no present class life it is a lease with a term of less than 3 years. (b) Property is not TEUP to the extent it is predominantly used in an unrelated trade or busi- ness the income of which is subject to tax. IRC §§ 168(j)(3)(D). Property which is debt - financed within the meaning of IRC § 514 will not avoid classification as TEUP on that basis alone. e 4. Special rule for qualified technological equipment. IRC § 168(j)(5). (a) Qualified technological equipment leased to a tar.- exempt entity for 5 years or less is not TEUP. (b) If such equipment is leased for more than 5 years it can be TEUP (if the other requirements are satisfied), but it can be depreciated over 5 years. (c) Qualified technological equipment is defined as: (i) Computer or peripheral equipment. (ii) High technology telephone station equipment installed on the customer's premises. (iii) High technology medical equipment. C 6 a (d) Property will technological equipment apply: not be qualified if any of the following (i). Part or all of the equipment is financed with tax - exempt obligations. (ii) The transaction is a sale /leaseback (although there is a 3 month exception). (iii) The property is leased to the United States or any agency or instrumentality thereof. (iv) Treasury determines the property is not subject to rapid obsolescence. other Definitions. 1. Tax - exempt entity. IRC § 168(j)(4)- (a) The United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing. (b) Fn organization (other than a coopera- tive described in IRC § 521) which is exempt from Federal income tax. (c) A corporation is not treated as an instru- mentality of the United States orofft any aState ors _political subdivision if (1) all of such corporation are subject to Federal income tax and (2) a majority of its Board of Directors is not selected by the United States or any State or political subdivision. (d) If an organization was exempt from Federal income tax at any time during the five years ending on the date the property is leased it is treated as a tax - exempt entity, with a special exception for cooperatives. 2. Lease. IRC § 166(j)(6)(A)- (a) A lease is defined to include any grant of a right to use property. 3. Lease term. IRC § 168(j)(6)(8). C 7 i (a) A lease term includes the initial lease term, any period covered by options to renew the lease and the term under two or more successive leases which are a part of the same transaction (or a series of related transactions) with respect to the same or.substantially similar property. (b) In the case of real property, the lease term does not include any period covered by an option to renew at fair market value. (c) The lease term is to be determined on the basis of all the facts and circumstances. See Hoakanson y. Commissioner, F.2d (9th Cir. 1984). 4. Related entities. IRC § 168(j)(7). (a) Each governmental unit and each agency or instrumentality of a governmental unit is related to each other such unit, agency or instrumentality which derives its powers from the same sovereign authority. Query: Is each city within a state a related entity to each other city? (b) Er.tities are also treated as.related with respect to a particular transaction if such trans- action constitutes an attempt to avoid the DEFRA restrictions. E. Service contracts. IRC § 7701(e). 1. A service contract or other arrangement is to be treated as a lease if such contract or arrangement, taking into account all relevant factors, is properly characterized as a lease. 2. Certain factors which are to be taken into account are specifically enumerated. (a) Whether the service recipient is in physical pose =lion of the property. (b) Whether the service recipient controls the ._operty. (c) Whether the service recipient has a sig- nificant economic or possessory interest in the property. C 8 (d) Whether the service provider bears any risk of substantially diminished receipts or. substantially increased expenditures if there is nonperformance under the contract. (e) Whether the service provider uses the property concurrently to provide significant services to different unrelated entities. (f) Whether the total contract price sub- stantially exceeds the rental value of the property. 3. The Committee Reports contain a number of examples illustrating the application of this provision. 4. There are detailed exceptions for service contracts or arrangements relating to the operation of a qualified solid waste disposal facility, the sale of electrical or thermal energy produced at a cogeneration or alternative energy facility and the operation of a water treatment works facility. F. Treatment of partnerships and other pass -thru entities. 1. The determination to a partnership is TEUP is tax - exempt entity partner's property as being leased to § 168(j)(8)- of whether property leased to be made by treating each proportionate share of such such partner. IRC 2. Treatment of property owned by partnerships and other pass - through entities. IRC § 168(j)(9). (a) If a partnership has at least-one tax - exempt entity and one person who is not a tax - exempt entity as partners and any allocation to the tax - exempt entity of partnership items is not a "qu= ??fied allocation, an amount equal to the tax - exempt entity's proportionate share of such property is to be treated as TEUP. (b) A qualified allocation is one which is consistent with the tax - exempt entity being allo- cated the same distributive share of each item of partnership income, gain, loss, deduction, credit and basis and such share remains the same during the entire period the entity is a partner. Such allocation also must have substantial economic effect. C 9 (c) A tax - exempt entity's proportionate share of any property owned by a partnership is to be determined on the basis of its share of partnership items of income or gain, whichever results iii the largest proportionate share. (d) Note that the partnership and other pass -thru entity provisions override the other requirements for TEUP. Thus, for example, real property can be TEUP even if the 35% threshold use requirement is not satisfied. Furthermore, prop- erty can be TEUP under both the general provisions and the partnership provisions. (e) If the partnership provisions apply, the total allowable depreciation deductions are allocated under the normal allocation rules. Query: Can a special allocation be devised to mitigate the partnership provisions? (f) Guaranteed payments will not disqualify an otherwise qualified allocation. (g) The use of multiple partnerships will not avoid application of the partnership provi- sions. 3. Rules similar to those for partnerships are to be applied to other pass -thru entities. III. Effective Dates. I A. The general rule is that the tax - exempt entity leasing provisions apply to property placed in service after May 23, 1983 and to property placed in service before May 23, f 1983 if the lease to the tax - exempt entity is entered into after May 23, 1983. Improvements that are not substantial improvements (w4thin the meaning of IRC § 168(f)(1)(C)(ii) but substituting 20% for 25 %) are not treated as separate property for zh-- s purpose. B. These provisions do not apply to property leased pursuant to a =_ase entered into on or before May 23, 1983 or to any renewal or extension of a lease entered into on or before that date pursuant to an option contained in the lease. C. They do not apply if, on May 23, 1983, there were one or more written binding contracts requiring the owner of the property (or its precedessor in interest under the C10 contract) to acquire, construct, reconstruct or rehabilitate the property and the tax - exempt entity to lease the property. D. They do not apply to property leased to a tax - exempt entity other than United States or any agency or instrumentality thereof if, on or before November 1, 1983, there was significant official governmental action with respect to the project or its design and any lease to the tax - exempt entity is pursuant to a written binding contract entered into before January 1, 1985 which requires the tax - exempt entity to be the lessee. E. They do not apply to qualified mass commuting vehicles financed in whole or in part by tax - exempt obliga- tions and placed in service before January 1, 1988. They also do not apply to such vehicles placed in service after that date pursuant to a binding contract or commitment entered into before April 1, 1983 and with respect to which the delay is due to conditions which are not within the control of the lessor or the lessee. F. There are numerous other transitional rules with respect to specific kinds of property and situations. C 11 `o \111PII /I�� `--' cNB : COLORADO NATIONAL tm LEASING, INC. March 22, 1984 Mr. Bill James The Town of Avon P. 0. Box 975 Avon, CO 81620 RE: Lease #882 Dear Mr. James: 141 IVEa, MAR 8"' 19�:; '/VV '1 a J 7/I 3�a Periodically, it becomes necessary to update the financial information of our customers as required by our internal examiners. In accordance with Paragraph 21 of your Equipment Lease Agreement, we are requesting the most recent financial sta- tement available from you. If you or your company has not yet completed a fiscal year -end financial statement, please notify us to that effect and advise us as to the date in which that report would be available, and the date you would be mailing it to us. Feel free to contact me if you have any questions. If you are unable to submit a year -end financial statement at this time, I would appreciate your responding in writing at the address noted below no later than April 15, 1984. Thank you for your cooperation. 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C CD c 3 N O = -a' CD -« �' C m Cc o ° 3 0 3 a 7 3 m N w 3 tom+ lwalu� lwao"Whivv . 800 Aad i mad, 'e+ _444taq, 6.* /Z.? - %4'Aa -w- ' /6' )S4.4800 March 14, 1984 Mr. Pat Doyle City Hall P.O.B. 975 Avon, Co. 81620 Dear Mr. Doyle: ft was a pleasure speaking with you the other day. CHRISTOPHER CAPITAL and I are most anxious to begin working with you. This letter will give you some additional insight into "our" company. CHRISTOPHER CAPITAL CORPORATION is a wholly owned subsidiary of B. C. Christopher and Company, a 106 year old investment banking firm in Kansas City. Our company and our parent are Midwest based organizations with seventeen offices throughout the operation. B. C. Christopher and Company is a member of the American Stock Exchange, The New York Stock Exchange and all major exchanges. As a subsidiary corporation we are responsible for the origination of municipal lease transactions and the resale through our parent company's Municipal Bond Department. We have been involved in the origination and funding of municipal lease transactions for over three years, and look forward to a sizeable expansion in this market place. I have enclosed several articles for you that are indicative of our leadership in the market place. In addition, you will find some literature that we include in our mailings and an article written by our vice - president that has been republished in several municipal magazines. I look forward to working with you. Please call me at 816 - 561 -4800 anytime. RE CE IVED MAR 1 61984 Regards, Darrel %Jarman Munic' 1 Division he Bond 131 11 The Authority on Municipal Bonds Since 1891 01. W7 Na 28808 New Y"k N.Y. FH&W. Febru=7 3. Bond Firm Signs Deal to Buy Leases For Unit Trusts By George Yacik A Kansas City bond first, that Is putting together a unit investment trust program using municipal leases has struck a deal with a ma- jor corporate lease- maker. Christopher Capital Corp.. a sub- sidiary of B.C. Christopher Securi- ties Co. in Kansas City. has signed an exclusive agreement with Ford Financial Services Inc.. an affiliate of Ford Motor Credit Co.. in which Christopher can buy all the munici- pal leases that Ford Financial ar- ranges in 29 states and package them Into tax - exempt unit trusts. The trusts will be marketed by B.C. Christopher. Robert C. Chambers. vice presi- dent at Ford Financial. said the leases will be of all types of capital equipment for state and local gov- ernments — not only automobile fleets and fire trucks. but also such things as computers. Ford Financial Is a major lessor of capital equipment. both Ford and non -Ford products. to states and cities. Jeff Brooks. who Is running the unit trust for B.C. Christopher. said the firm has applied for approval from the Securities and Exchange Commission. and he expects a 815 million unit trust offering to be out in about,30 to 60 days if the SEC grants approval. The trust Is aimed at retail customem he said, and will be sold in lots as small as $1.000. B.C. Christopher said several months ago that It intended to start the municipal lease unit Invest- ment trust program. But the agree- ment with Ford Financial gives the program a big boost. ..I think you're going to see B.C. Christopher coming out of this as a major name in municipal leasing." Mr. Brooks said. Mr. Chambers said the 29 states are located around the country ex- cept In the Midwest se as not to compete In those states where B.C. Christopher does most of Its business. The unit Investment trust will be insured by Fireman's Fund Insur- ance Co.. a subsidiary of American Express Co. Mr. Brooks said his firm intends to make a secondary market in the trust shares. Mr. Brooks also said the firm In- tends to Include only high- quality leases In the unit trust. not only to keep Insurance costs to a minimum but also to make investors feel secure. H r a aSCALL inEs CHEVROLET- OLDSMOBILE INC. January 18, 1983 Avon Town Council Box 391 Avon, Colorado 81.620 Dear Sirs: As Sales Manager of Hascall & Haines Leasing, I can guarantee the returnee value of leases' cars - in. this case 1983 Buick Skylarks. The value of $4750.00 on cars returned are specifies in lease agreement. Best Regards, A?�ZL-le- 61. G. F. Sinclair Sales Manager P. 0. Box 547 1520 E. Highway 50 Salida, Colorado 81201 (303) 539 -6641 CHEVROLET 1111 O BUICK PONTIAC Zoftln of V- (0_ pax 975 cAilan, Colaruaa 8162LI (30-1) 949 -42819 April 14, 1983 Colorado National Bank Box 968 Grand Junction, CO 81502 ATTENTION: BURL BARLOW Dear Mr. Barlow: I have been requested by Colorado National Leasing to detail the funding for the lease /purchase of three patrol cars and a computer system. First, the three patrol cars for the Police Department are being financed from reduction of operating costs (includes gasoline and maintenance). The Police Department currently has nine patrol vehicles of which seven have over 100,000 miles. The maintenance cost for these vehicles exceeds well over $8,000 annually, of which the Town will save approximately $6,000 in the first year with the new vehicles. Also, the Town previously had a policy of allowing each patrolman to take a vehicle home after his regular shift. This practice has been discontinued and the fleet will be reduced from nine patrol cars to five with an estimated yearly savings of approximately $4,000 per year. The overall savings will be from $10,000 to $12,000, which is sufficient to pay for the lease /purchase of three new vehicles. Second, the computer system has been budgeted for at $12,000 annually for lease /purchase under General Administration Account in the General Fund for 1983. If you need any additional information, please let me know. Sincerely, W�l"7ri m D. James F'nance Director WDJ /jb r'NB� COLORADO NATIONAL tM LEASING, INC. February 28, 1983 Mr. William D. James Finance Director Town of Avon P. 0. Box D Avon, Colorado 81620 Dear Mr. James: Enclosed are the revised Equipment Lease Schedules and Lease Amortization Schedules for the Minolta Copier, Lease #88204 and the Police Pursuit Cars, Lease #88205. Please sign and date these schedules and return with the other documents sent with my letter of February 25, 1983. Please call if you have any questions. I apologize for the misunderstanding regarding the payment amount. Sincerely, Kenneth B. Shuss Lease Representative KBS /chl Enclosure Building 51, Suite 150 14142 Denver West Parkway Golden, Colorado 80401 (303) 278 -7750 v `cNg COLORADO NATIONAL LEASING, INC. February 25, 1983 Mr. William D. James Finance Director Town of Avon P. 0. Box D Avon, Colorado 81620 Dear Mr. James: Enclosed are two lease document packages for the Minolta Copier (Lease #88204) and the Police Pursuit cars (Lease #88205), along with lease amortization schedules. After you have presented these leases to the Town Council for approval, please sign and date the following for the Town of Avon: 1. Equipment .Lease Agreements 88204 and 88205 2. Equipment Lease Schedules 3. Certificates of Acceptance We will also need an ordinance similar to Ordinance #82 -28 dated 12/21/82 or an Opinion of Council letter similar in content to the sample we have enclosed. Please note that some of the necessary dates on the lease documents are left blank. Once you have approved the lease and the equipment is delivered (in the case of the Police cars), we will insert the proper dates. Please call me if you have any questions regarding our leases. Sincerely, Kenneth B. Shuss Lease Representative KBS /chl Enclosures Building 51, Suite 150 14142 Denver West Parkway Golden, Colorado 80401 (303) 278 -7750 JINCO Leasing Corp. MUNICIPAL FINANCE SERVICE LEASE FINANCE SERVICE July 1 , 1982 180 COOK STREET - SUITE 413 DENVER, COLORADO 80206 (303) 393 -0540 Mr. Richard D. Blodgett, City Manager City of Avon P.O. Box D Avon, Colorado 81620 Dear Mr. Blodgett: In regard to our recent phone conversation, I am writing this letter to advise you that JINCO Leasing Corp. is a private firm specializing in providing tax - exempt financing for communities in the Rocky Mountain area. Many local governments lack the necessary funds in their fiscal budgets to purchase equipment and /or facilities that they currently need in order to operate effectively and efficiently. Important for you to consider is our knowledge and experience in financing equipment, buildings and land through lease purchase agreements, bond issues and purchase money notes and mortgages. Enclosed is an information packet on JINCO and leasing. If you have a possible upcoming project, please fill in the questionnaire and return it to us. At no obligation to you, we will be happy to provide answers to questions, more detailed information and financing proposals. Thank you for your consideration. Sincerely, JINCO Leasing Corp. F � CraiP.: Danf' rth Public Fina 'e Specialist Enclosure CPD:lc RECEIVE®JrC6 1982 )INCO Leasing Corp. MUNICIPAL FINANCE SERVICE LEASE FINANCE SERVICE 180 COOK STREET - SUITE 413 DENVER, COLORADO 80206 (303) 393 -0540 WHY LEASE Many local and state governments are faced with higher capital and operating coats and lack the necessary funds in their fiscal budgets to purchase equipment and facilities that they currently need in order to operate effectively and efficiently. Lease /purchase programs offer a solution by providing a way to buy equipment at today's prices and spread payments over an extended period of time at favorable rates. The lease /purchase is a full payout agreement that is written as a one year lease that is annually renewable for the length of time necessary to pay for the acquired property. * Leasing conserves your capital. * You use the latest equipment. * You improve your operating efficiency, * Leasing acts as a hedge against inflation. * Realize the advantage of tax- exempt interest rates. * Maintain the ability to upgrade equipment in the future and renegotiate the lease purchase agreement. * A third party lease may provide lower interest rates, a cash discount, more flexability in structuring the repayment schedules and no application forms or delays, which may be advantageous over a manufacturers lease. * A lease purchase agreement does not create a debt position. It is annually renewable (or cancelable) depending on a yearly appropriation. MUNICIPAL LEASE PROCEDURE You select the equipment and determine the price as if you were purchasing it directly from the vendor. You notify us and we will quote the proposed lease purchase costs according to the term that you desire. When the terms have been mutually agreed upon and finalized, JINCO Leasing can issue a purchase order to the vendor, subject to documentation, opinion of counsel and delivery and acceptance of the equipment. We will then prepare and submit an Agreement for ap- proval by local counsel and signing by authorized persons. The lease will commence when the equipment has been received and acceptance acknowledged by execution and delivery of the receipt certificate to J INCO 1406 ing . There away be variations in each transaction, however, the above is a simple outline of the basic procedures. (71), FACTS ON THE JINCO leasing Corp. LEASE PURCHASE PROGRAM 1. The agreement gives the political subdivision the power to set specifications, to receive all war- ranties and service obligations, bargain for prices and cash discounts and value of trade -ins. 2. It provides funds quickly without undue credit delays. 3. It provides for simple interest payments only on the unpaid balance; no security deposits or advance payments normally required; no add -ons or balloon payments and it provides for prepayment privileges. 4. Each payment includes a principal and interest component which is broken out on an amortization schedule (Exhibit B) as a part of the lease agreement. 5. It allows the equity interest of the political sub- division to build over the lease term. 6. Title rests with the Lessor until the final pa nt is completed or at the time of prepayment at which time title passes to the political subdivision, which then owns the equipment at no additional cost. 7. The agreement is tailored to the specific needs and capabilities of the political subdivision. 8. Payment schedules are set at the convenience of the political subdivision. Used wisely, lease purchase becomes a useful financial tool for state, county, city and special districts in acquiring new or used equipment and facilities. U) Q) I ot U) 0 F-4 wU cy' co U) 00 �4 ON N C) a) —4 00 Ln C) M CY) Lr) CYN M 00 00 00 `n O 00 ON O cy� cn r-4 w Lr) M CD 00 ON C*4 Lr) 00 0 00 m -4 Ln co H CD Ln 0'4% r-4 Ln -4 O C) (DO 0 C) (D 00 O Ln CD (D 0 0 CD C) C) 000C)COO 41 U) CD � CD cu o Q) U) C) Q) >N Ej �4 to 4--) �4 0 >1 (I <-,t cn cn CU �4 (1) C,4 Q1 G Q) 0 PL4 cu 12. a v >-,Lr) CTJ ;:$ U) 0 �4 �4 (1 ) c r 0 Q) d) 0 k-4 P4 44 U) 0 F-4 wU co Ln M M 00 m cn w M C*4 00 co 0'4% O (DO CD (D 0 0 CD C) C) 000C)COO (D CD CD CD CD CD o C) ul O u C) to CD 0 Lr) <-,t cn cn C,4 C,4 C14 Q) W Q i MUNICIPAL LEASE RATES The 'lease rate is to calculate payment per $1,000 of equipment value. Compute the lease payment by multiplying total cost times applicable rate. Example: Monthly in Arrears at 9 % simple interest Equipment cost $38,000.00 5 yr lease rate factor .021 $38,000 x .021 Total payment per montli (Loa- O0 niOiitlas) $798.00 >;xz�n�p e uarterly in Adv.ince iit 13'70 simpte interest Equipment cost $46,000.00 4 yr lease rate factor .07859 $46,000 x .07859 Total payment per quarter (for. 16 quarters) $3,615. 14 Equipment cost $46,000.00 1st payment in advance 3,615.14 New equipment cost for _ �- leasing $4.2,384.86 Other payment schedules will be quoted on ience of the munic'ipa,lity. request for the conven- Some municipalities are subject to certain must be cleared taxes, .any trix question prior to a,firm proposal. This is a full payout, year to year lease to the lessor. purchase and is net net ' A master lease allows consolidation of various improvements under one lease,. whether they types of capital are time.or individually over a period of time. acquired at one JIMCD LEASING CORP. � S"l-ANNUAL LEASE PAYMENT SCHEDULE THE LES'--,:EE IS ANYWHERE U:---:A THE ORIGINAL LEASE VALUE $ 100.000.00 THE FIRS PAYMENT I3 DUE 09/30/80. SUCCEEDING PAYMENTS ARE DUE :,----.EMI-ANNl-lRLLY THEREAFTER. PAYMENT BH�E AMT CREDITED Fit-IT CREDITED TO DATE PAYMENT TO INTEREST ORIGINAL LEH3E VALUE ORIGINAL TERM _______________ 9/30/80 $14,678.52 $.00 $14,678.52 3/ �5,32� ~48 30/81 814.678.52 8 OPTION TO PUPCHH�E . 0519.1 $74!-802.38 ^ 38 VALUE: $77.260.92 ` FIRCT RENEWAL TERM 9/30/81 $14°678.52 �3.646.62 �11,031.90 $63,770 48 3/30/82 $14,678.5� V 3,108.81 �11,569.71 . �52,200^77 OPTION TO PURCHHSE ^ VALUE: $53"438.82 �ECOMD RENEWAL TERM 9/30/82 �14"678.�2 $2,544.79 $12,133 73 �40 067 04 3 $14.678.52 $1,953.27 812,725^ ^25 $2734�^79 OPTION TO Fq]RCHHCE ' ^ VHLUE: $27,734.73 THIRD RENEWAL TERM 345.61 s13 3/Wl/84 �14,678'49 OPTION TO PURCHASE VALUE: $.00 ------------ ----------- ______________ $117,428,13 A17,428'13 -.1i 100"000.00 THE LE3`-,'.EE HEREBY APPROVE- PFlYMFNT AMOUNT'.' AND DFITE�', --:-ET FORTH ABOVE ANYWHERE BY I think it's telling us we're over budget. _. 4 rb TAX EXEMPT LEASES )INCO Leasing Corp. MIINICIPAI IINAN(I SIRVI( f I(AM IINANI I %(H VII 1 180 COOK STREET SUITE 41:1 DENVER, COLORADO 80206 (303) 393 0540 The Tax Exempt Leases: The tax - exempt lease is a simple trans- action used by states, counties, cities, and other political subdivisions to finance the acquisition of machinery and capital improvements. The transaction can be compared to a municipal bond of similar maturity with the execption that the lease /purchase transaction has the added attraction of giving the investor ownership or a first lien on the equipment. As with a municipal bond, interest is exempt from federal income taxation. However, be- cause the lease may be terminated if funds are not appropriated by the political subdivision for any fiscal year, the yields are hi her for the lease /purchase agreement than a similar genera obligation bond. These leases are offered only to insurance companies, banks, and sophisticated individual investors. Parties to the Transaction: a Investor b Lessee c Lessor d Vendor The transaction typically involves four primary participants: The following is a brief description of each participants role: The Investor is the participant who finances the purchase o-r-equipment by contributing funds to the transaction. Transactions are structured to return to the investor the entire principal amount of the Investment, at par value, plus a satisfactory return. The investor may purchase the agreement by assignment from the Lessor and therefore would have all the right, title and interest in the agreement and equipment. As an alternative an investor may buy a participation in an agreement and purchase the stream of payments, JINCO can retain an interest in the stream of payments and its original position as Lessor, retaining title.and a sec- urity interest in the leased equipment. The Lessee, or user of the equipment, is the polit- ical subdivision who makes use of the equipment in return for fulfilLment of certain obligations under the contract including the obligation to pay the fixed periodic payment. The Lessor (JINCO Leasing Corp.) buys the equipment an enters nters into a contract to sell the equipment to the lessee, or user of the equipment, over a speci- fied period of time. The Vendor is the manufacturer or distributor of the equipment. The vendor sells the equipment to the lessor. The Transaction and Agreement: In a municipal lease /purchase transaction the political subdivision, or lessee, signs an agreement typically called a lease and option agreement, with the lessor of the equipment. The investor provides the funds to the lessor for the purchase of the equipment. In return, an investor receives a security interest in the equipment and all rights and interest to the rental stream due under the contract, or all rights and inte- rests of lessor by assignment of the contract. The Lessee has the right to terminate the agreement at the end of the original term or any renewal period if funds are not appropriated to continue the agreement. If the lessee terminates the agreement because of non - appropriation of funds prior to the expiration of all renewal periods, they cannot purchase, lease, or rent equipment performing functions similar to those performed by the equipment. The lessee also agrees not to permit functions similar to those performed through the use of the equipment to be performed by its own employees or by any agency or entity affiliated with or hired by lessee until after the time at which all renewal periods provided in the lease would have expired by such termination. In the event of default on the part of lessee, the lessor has several remedies which shall be cumulative and exercisable concurrently or separately: (1) Terminate the agreement and repossess the pro- perty, in which case the remainder of the rent for the term then in effect plus any related charges shall be immediately due and payable. (2) Sell the property at public or private sale with lessee liable for any deficiency or excess pro- ceeds will be paid to lessee. (3) Take any remedy at law or in equity. Title to the equipment may rest with the political subdivision or lessor depending upon the form of agreement used for the specific transaction. The agreement will provide a tax para- graph stipulating that the lessee or r)()iitical subdivision agrees to pay, and to indenmiiy and hold lessor harmless from all license, sales, use, personal property or other taxes together with any penalities, fines or interest there- on arising from its use of the equipment. Benefits to Investors: (a) The investment is secured by the equipment being financed; there ore, the equipment is held as collateral by the investor. (b) The contract is an obligation supported by the credit - worthiness of the user of the equipment, a po t cal subdivision, to make periodic payments for the term as specified in the contract. (c) Yields on tax- exempt leases are approximately 100 to 200 basis points more than general obligation issues of a similar municipality. (d) The typical financing is short -term (three to seven years). Because pry cfpaT is recaptured with each payment, the average life of the contract is considerab yl shorter trian the stated term of the agreement. (This early recapturing of principal adds to the lessees equity in the equipment with each payment.) (e) Periodic repayment of principal and interest (monthly, quarterly, semi - annual or annually) provides investors with an opportunity to lan cash flow at appointed intervals to meet cash requirements or to re- invest in changing market conditions. Types of Projects & Equipment: Heavy construction equipment. Hospital equipment (i.e., x -ray, "CAT" scanner, etc.) Permanent buildings (i.e., schools, city and county offices, manitenance build i gibs , etc.) Relocatable school buildings. Waste disposal trucks. Computer equipment (i.e., CPU and peripheral equipment). Airport hangar facilities. City parks. Police station. Municipal golf course restaurant. Warehouse. Fire engines. Police communication equipment. Paramedic ambulance. Solid waste balers, compactors, and shredders. Should you have any questions or require further.information, c•:I I i W IVIle Morrison, at 303 /393 -O` IO LAND ACQUISITION FINANCING )INCO Leasing Corp. MUNICIPAL FINANCE SERVICE LEASE FINANCE SERVICE 180 COOK STREET SUITE 413 DENVER, COLORADO 80206 (303) 393 -0540 JINCO Leasing has helped municipalities and political subdivisions by providing financing for land acquisitions for public purpose through a unique instrument titled a Purchase Money Promissory Note and Mortgage. Open space and landfill needs hold a high priority on the list of needs by governmental agencys. With costs of land skyrocketing, population exploding in certain areas along with environmental And social impacts among other considerations, managers find it necessary to look for alter- native financial methods to pay for large land acquisitions to be used for public purposes. A Purchase Money Note and Mortgage, properly done, is an effective tool tp finance land acquisition as -it permits payment to be made over a period of years at favorable rates and release of lien on parcels of land as payments are paid through the financing agreement. The Purchase Money Note and Mortgage has proven to be a convenient and trustworthy tool, and can be used with confidence. Below are some procedural points that are helpful to better understand this concept. (1) The Political Subdivision will execute a Purchase Money Promissory Note that is secured by a Purchase Money Mortgage encumbering the land being acquired. (2) Title to the property rests with the Political Subdivision as purchaser. Land Acquisition Financing Page 2 (3) The Political Subdivision makes annual appropriations for payments. The Political Subdivision, as Mortgagor is entitled to a proportionate release of the mortgage lien with each payment. (4) In the event of non - appropriation, that portion paid for and released from the mortgage remains with the Political Subdivision; and that portion of land encumbered by the mortgage lien which has not been released is deeded to the murtgage holder without further liability to the Political Subdivision. (5) JINCO will rely upon the Political Subdivision to choose the ground and negotiate its purchase price. We believe you may be able to use this method of financing your present and future land needs, and we will be pleased to discuss it with you in detail at your convenience. k JINCO LEASING CORP. JINCO Leasing Corp. has been in business since 1977 providing municipal financing for many Rocky Mountain area public entities, some of which are listed below. Mr. Wayne Morrison, President, has been in the municipal finance business, licensed as a Registered Representative of National Association of Security Dealers and the Colorado Securities Division, for the past 25 years. He spent those years prior to forming JINCO Leasing Corp. as a municipal underwriter, institutional salesman, and manager of the Denver office of a NYSE member firm. Craig Danforth is also licensed as a Registered Representative of the Colorado Securities Division and the National Association of Security Dealers. His history includes five years as a municipal under- writer prior to joining JINCO in 1980. Some of the entities we have done business with: Jefferson County, Colorado - Steve O'Brien, Buyer Hyland Hills Metropolitan Park and Recreation District - Greg Mastriano, Executive Director City of Louisville - Leon Wurl, City Administrator Louisville Fire Protection District - Wayne Varra, Chief University of Colorado - Don Schwartz, C.P.M. Buying and Contracting State of Colorado - Department of Social Services - Willis H. LaVance, Executive Officer of Administrator Town of Crested Butte - Teresa Hunker, Manager Town of Vail - Bill Pyka, Finance Director Weld Board of Cooperative Education Services - Darrell Davis, Director Mesa County, Colorado - Jim Westbrook, Finance Officer Pikes Peak Community College - Don L. Courtier, Dean of Administrative Services Colorado School of Mines - Gordon Scott, Vice President for Business Affairs Hermosa Cliff Fire Protection District - Bill Cowen, Chief Genessee Fire Protection District - James Rumsey, Vice President Pagosa Area Water and Sanitation District - Jack DuLange, Manager TOWN OF AVON POST OFFICE BOX D AVON, COLORADO 81620 (303) 949 -4280 September 10, 1982 N O T I C E T O B I D D E R S The Town of Avon is accepting proposals for warehouse /garage space for the purpose of housing the Town of Avon's Vehicle Garage and Maintenance Shop. Minimum qualifications are an open garage or adjacent garages with inter - garage access and the following: 1. Minimum door width of 12 feet, and minimum door height of 12 feet. 2. 3000 - 4000 square feet of open floor space. 3. Minimum ceiling height of 14 feet. 4. Restroom facilities with hot and cold running water. 5. Concrete flooring. 6. 220 - 240 VAC power source. 7. Adequate heating. 8. Ability to store kerosene, oil, and assorted cleaning and lubricating products and solvents. 9. Adequate lighting. 10. Authority to install proper exhaust venting without penalty. 11. ,Facility must be within Avon Town limits or within one mile of Avon Town limits. All proposals submitted shall include the following minimum information: 1. Annual price per square foot. 2. Annual estimated cost of utilities. 3. Annual lease increases, with a percentage or dollar amount ceiling. 4. Other common or individual assessments such as insurance, snow removal, or taxes. AOW Page 2 Additional information to bidders: Be advised that this space will be used for regular vehicle maintenance, equipment overhaul, carpentry, and sign work; storage of related solvents, tools, and inventory, and related work and storage. Lease shall run two years with three one -year options. Proposals will be accepted until 10:00 a.m. Friday, September 24, 1982, and can be submitted to The Town of Avon, Public Works Department, Box 975, 400 Benchmark Road, Avon, CO 81620. DS / j'e