Date: 01/13/2009
Final
Department of Personnel and Administration Proposed Legislation
COMMITTEE ON CAPITAL DEVELOPMENT
| Votes: View--> | Action Taken: |
| <none> | <none> |
07:46 AM -- Department of Personnel and Administration Proposed Legislation
Mr. David McDermott, State Controller, and Mr. Bob Jaros, Deputy State Controller, both of the Department of Personnel and Administration, proposed new legislation concerning the definition of and review threshold for lease purchases made by state agencies and higher education institutions. Committee members received a summary of the intent and effect of the proposed new legislation, prepared by the department (Attachment D). Mr. McDermott explained that many state agencies currently avoid taking title of property and/or equipment in order to avoid legislative review of lease-purchase agreements. The current review threshold for lease purchases is $50,000 and the proposed legislation would increase this threshold to $500,000. The proposed legislation would also redefine capital lease to conform with the definition in the U.S. Generally Accepted Accounting Principles (GAAP). Mr. McDermott said that if an agency is effectively buying an asset, even if it does not assume title of said asset at the end of the lease term, this transaction should be categorized as a lease-purchase. Mr. McDermott continued by sharing the findings of a survey conducted by the Office of the State Controller about operating and capital leases. Mr. McDermott reviewed the four main provisions of the proposed legislation, including: 1) alignment of the definitions of lease, lease-purchase, and capital lease in statute 2) use GAAP guidelines for the definition of lease-purchase; 3) required review of all leases over $500,000 by the State Controller to ascertain whether a lease qualifies as a lease-purchase; and 4) required legislative authorization for all lease-purchase agreements over $500,000.
07:55 AM
Mr. McDermott continued his presentation about the proposed legislation. He responded to questions from the committee about the review process required by the proposed legislation. Mr. McDermott said the legislation would not make significant changes to the existing review process except that it would require a review for those projects that are, in effect, capital-lease purchases, but previously have not been categorized as such because the agency has not taken title to the asset at the end of the lease term. Representative Riesberg expressed his reservations about the jump in the review threshold from $50,000 to $500,000. Mr. McDermott said the effect of the legislation will actually be tighter control over lease-purchase transactions because his office will now review all transactions over $500,000.
08:04 AM
Discussion continued about the intent of the proposed legislation. Mr. McDermott addressed a question about the existing legislative authorization process required for lease-purchase agreements. Discussion ensued. Mr. McDermott spoke to the revisions and conforming definitions needed in statute. Mr. McDermott addressed additional questions about the definition of lease-purchase versus the definition of operating lease. Senator Schwartz said she would like the General Assembly to be aware of when agencies independently enter into certificates of participation agreements. Representative Riesberg concluded the presentation by remarking that the committee will review the proposed legislation after it is introduced.