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BACKGROUND At the time the City was planning for the initial maintenance of the Calllippe Preserve Golf Course, it determined that maintenance equipment acquisition could be best achieved through a lease purchase option as this mechanism allowed lease payments to be made consistent with on -going golf course revenues. To that end, the City entered into a five year lease purchase agreement in 2005 and final payment on that lease was made in May 2010. While the lease term has ended, most equipment acquired in 2005 has a six year useful life and has remained in use. In anticipation of the need to replace equipment purchased in 2005, staff and CourseCo prepared an equipment replacement list representing the type and cost of the new equipment required to be purchased over the next three years (Attachment 2). With this information prepared, staff reviewed various options for acquiring the equipment, including financing it from the manufacturer, cash and a lease /purchase agreement. Based on that review, a lease purchase agreement was determined to be the most advantageous because (1) it provides a match of the equipment expense with the years of usage; (2) it is a cost - efficient and common practice in the golf industry to lease this type of equipment; and (3) the City has the extra advantage of securing low -cost financing. DISCUSSION City Staff and CourseCo solicited lease rates from various companies to finance the proposed equipment. CourseCo sought lease rates through the manufacturing company, Toro, and was offered a rate of 7.35 %. Staff requested five year lease rates from both Wells Fargo and Bank of America and the results are listed below: • Wells Fargo 3.05% • Bank of America 2.34% With the exception of the interest rates, all lease terms are similar. As a result, staff is recommending Bank of America. A summary of lease payments and terms is as follows. Summary of Equipment Lease /Purchase Financing Principal Amount Interest Total Interest Total Principal Payments and Interest $352,900 2.34% $22,077.40 $374,977.40 Equipment lease payments will be an operating expense of the golf course and will become part of the annual operating budget for Callippe Preserve. Although revenues of the golf course are expected to pay for the annual equipment lease payments, the General Fund will provide the pledge for repayment. This means that the General Fund is obligated to make the payment if there are insufficient funds in the golf enterprise fund which is consistent with the terms and conditions of the previous lease. At the end of the lease the equipment becomes the property of the City. Page 2 of 3