A School District s Guide to Bus Financing

A School District s Guide to Bus Financing

Tax-Exempt Financing: The Basics* What is a Tax-Exempt contract? A contract that allows a public entity to purchase equipment and related services* by making periodic payments over the useful life of the asset (i.e., an installment purchase contract). Included as a line item in the borrower s operating budget and treated as a lease (not debt) under applicable state law. Interest rates are lower than commercial rates due to the taxexempt treatment. Installment payments are subject to annual budgetary appropriations by the municipality. Voter referendum is generally not required. *Subject to Internal Revenue Service rules Who is eligible? Any municipality or political subdivision which can issue taxexempt securities generally can utilize tax-exempt financing. Examples include: States Counties State Universities Government-Owned Hospitals Cities School Districts Special Purpose Districts What assets are commonly financed? School buses Essential-use assets Vocational vehicles (i.e., emergency service vehicles) Telecommunications equipment Computers (hardware and software) Government motor vehicle fleets Modular classrooms/buildings Heavy equipment (i.e., trucks, street sweeps) Public works equipment What are the benefits of tax-exempt financing? Low-cost, tax-exempt capital Flexible repayment terms Maximizes use of budgeted funds Protection against obsolescence Matches expense with product useful life Easy to add-on schedules Transaction treated as a lease (not debt) under applicable state law Straight-forward and efficient Contact your tax advisor for tax advice. Why choose Daimler Truck Financial? Over $250,000,000 of successful tax-exempt financing expertise Competitive rates Customized finance packages Expertise in all 50 states and with a variety of municipality-types Easy application and approval process Simple documentation 35 plus years in commerical finance

Tax-Exempt Financing: Transaction Requirements** General Requirements Borrower must be a state or local governmental unit (as defined in Section 103 of IRS Code). The equipment must be for essential government purposes and borrower must represent that they will not impair the tax-exempt status of the transaction, i.e., private activity issue or violation of management contracting rules, etc. Non-appropriation is the only acceptable reason for termination, i.e., no termination for convenience. Contract must be for the acquisition of an asset and take the form of a conditional sale as opposed to a rental agreement. Master Installment Purchase Agreement must be separate from service or performance requirements. Along the same lines, payment must be unconditional and not subject to set-off for any reason. Borrower must be responsible for taxes, insurance and maintenance (triple net agreement). Contract purchase obligation must be incurred under the borrower s borrowing power and must contain an interest component. Borrower holds title and lender has a security interest. Lender makes a disclaimer of warranties and risk of loss is with borrower. The contract cannot be assigned by borrower without lender s consent. Documentation Master installment purchase agreement Opinion of lessee s counsel (transactions over $250,000) Insurance certificate/invoice instructions UCC-1 on equipment Payment and equipment schedule Certificate of signing authority Final acceptance certificate 8038-G or 8038-GC, as applicable Acceptance of installment payment obligation Dealer or vendor invoices Tax opinion or arbitrage reps (based on deal size) Credit application/essential use/financials, if applicable Excerpt of board minutes are accepted in lieu of opinion of counsel on transactions of certain amounts **This document is not intended to be an exhaustive list, but is a summary of general requirements. It was a learning process for me, and Daimler Truck Financial helped me through the whole process, which was really important to me. Customer service was excellent. - Mark Smith, Flora CUSD Flora, IL We asked for quotes from several financing sources and Daimler Truck Financial was the most competitive. - Kenneth Hamilton, District Treasurer Springs Public Schools, East Hampton, NY

Flexible Financing Structures Offering innovative financing solutions tailored to meet the needs of our customers.*** 100% financing no down payment - Including ancillary equipment, add-ons, etc. Defer first payment for up to 1 year Balloon payments Escrow fundings may be available on larger transactions ***Actual rates, terms, down payment, and program eligibility will be determined by Daimler Truck Financial (DTF) Credit Team based upon creditworthiness of customer. All transactions subject to DTF Credit approval. Tax-Exempt Financing: Example Situation: School district has aging fleet, increasing maintenance costs, and a shrinking budget. Assumptions: Age of Bus (Years) 1 5 8 10 Annual Maintenance Cost 1 $500 $2,500 $3,500 $4,500 Current Purchasing Strategy: Equipment: Purchase 2 buses Payment: $150,000 8 years Annual Maintenance Cost: $81,000 Daimler Leasing Solution: Equipment: Lease 9 buses Annual Payment: $145,657 5 years Annual Maintenance Cost: $67,500 Results in First Year: Maintenance Savings: $13,500 Fuel Cost Savings: $11,223 Trade-in Value Savings: $5,500 Total Savings: $30,223 8 years Total Units in Fleet: 27** Annual Acquisition Budget: $150,000 Maintenance Budget: $100,000 Cost of New Bus: $75,000 1 Estimate includes, tires, oil, etc. **(2= 1 yr, 2 = 2 yr, 2 = 3 yr, etc.) Solution: Turn acquisition payment into lease payment, lower average age of fleet, and reduce maintenance costs.

Daimler Truck Financial 13650 Heritage Parkway Fort Worth, TX 76177 U.S.A. Phone +1 800 222 4221 www.daimler-truckfinancial.com 2010 Mercedes-Benz Financial Services USA LLC is the captive financial services provider of Daimler Trucks North America LLC, a Daimler Company. All rights reserved. 11/2010