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State, Local
and Municipalities Financing
Selling
technology into State or Local government agencies is today as tough as
it’s ever been. Cash-strapped state and local governments face new
fiscal pressures as they deal with Homeland security issues, reduced
federal aid, Medicaid overhauls, and increased education requirements
from the Department of Education.
As technology vendors, the ability to sell effectively can be eased by
simply proposing payment spread across multiple fiscal years. To
accomplish this, and protect your ability to recognize revenue - you
must overcome budgeting requirements, such as “Non-Appropriation of
Funds”. Contractually lenders must accommodate items like a “fiscal
funding out clause”.
For any asset acquisition decision, the principal financial objective is
to obtain the use of the asset for the lowest possible total cost, as
measured over the period the asset is to be used. Other factors
affecting the selection of a financing option which should be considered
by a governmental entity include:
- Availability of cash at the time of procurement
- Competing demands on capital resources
- Essentiality of the asset to the basic functions of the entity
- Useful life of the asset
- Desirability of matching costs and benefits over time
- Ability to improve bargaining positions with vendors; and
- Political attitudes toward debt financing.
What is a non-appropriation clause?
A non-appropriation clause enables the buyer to terminate the payment
agreement at the end of the current appropriation period without further
obligation or penalty. This may be done only in cases where the buyer
was unable to obtain funding for future payment obligations on the
agreement. Typically, the clause will contain a ‘best efforts’
requirement whereby the buyer must use its best efforts to obtain the
necessary appropriation for the agreed payments. The non-appropriation
clause enables the buyer to account for the payment obligation as a
current expense instead of debt.
First, understand that a large percentage of personnel in these entities
are not aware they have the ability to enter into multi-year contractual
agreements. We can help by explaining this approach with your customer.
The most prominent issue these agencies have to deal with is budget. The
ability to spread payment for your solution over multiple years—is an
advantage for the vendor and the client. It is important to understand
the issues and address them correctly. These issues include contractual
language that must be included in any agreement for State, Local, and
Municipal financing.
EBA will
address these common Issues:
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Non-Substitution Language
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Warrant of intent to use: “Essential Use Statement”
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Current fiscal year funding
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Non-Appropriation
Like any unique
business model—making EBA an integral part of the sales process with
increase your success.
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