FINANCIAL MANAGEMENT POLICY MANUAL

the amount, are considered expenses. Ownership is not transferred
to the government.
(3) Capital Lease
Capital leases are considered investments. They usually require
authorizing legislation with an amount equal to the annual lease
payment appropriated annually. FMB must be consulted on a lead-
time away basis when activities are considering use of capital lease
agreements. A "capital" lease is an agreement that meets any one
of the following criteria:
(a) The lease transfers ownership of the property to the lessee
by the end of the lease term.
(b) The lease contains an option to purchase the leased property
at a bargain price.
(c) The lease term is equal to or greater than 75 percent of the
estimated economic life of the leased property.
(d) The present value of the rental and other minimum lease
payments, excluding that portion representing executory costs,
such as insurance, maintenance, and taxes to be paid by the
lessor, equals or exceeds 90 percent of the fair market value of
the leased property.
(4) Lease-Purchase Analysis.
A lease-purchase analysis, as prescribed in OMB Circular A-94, is
required when the following two tests are met:
1. A capital asset, (including durable goods, equipment,
buildings, facilities, installations, or land) is
(a) leased for a term of three years or more; or
(b) a new asset, with an economic life of less than three
years, and is leased for 75 percent or more of its economic
life; or
(c) built for the express purpose of being leased to the
government; or
(d) leased to the government and clearly has no alternative
commercial use.
2. The capital asset or group of related assets has a total fair
market value in excess of $1 million.
All leases of capital assets must be justified as preferable to direct
government purchase and ownership. This can be accomplished in
Financial Management Policy
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