We last wrote about the benefits of vendor payable accounts (VPAs) for state, local and tribal government organizations in 2021. Inflation was top of mind then, as were unprecedented supply chain slowdowns related to the pandemic.
Today, price increases are a continuing concern. There are still significant delivery delays for certain types of equipment. Federal Reserve interest rate hikes are a major consideration. And VPAs provided by Baystone Government Finance are helping municipalities across the nation navigate these obstacles to obtain the equipment needed for essential services.
What equipment slowdowns are affecting communities the most? What are VPAs, and how can they help government organizations and non-profits manage rising equipment prices and ongoing delays? Are there any examples of municipalities that have benefited?
Our experts in government funding and non-profit equipment financing have answered your questions with the help of Aaron Lindsten, vice president.
What are vendor payable accounts (VPAs)?
VPAs are escrow accounts that lock-in interest rates for a customer and require only limited paperwork. They offer other advantages in the current economy, which we’ll discuss below.
Are supply chain slowdowns still affecting municipalities? What types of equipment?
Equipment delivery delays remain a significant factor for state and local government organizations. Ambulances continue to have a long lead time. Yellow iron construction equipment (i.e., wheel loaders, excavators), plow trucks and fire trucks all remain equipment that, when ordered, can take months or more than a year to receive.
Equipment delays have certainly improved since the pandemic. How bad is the situation today compared with normal times?
While delivery times have improved, these are far from normal times. Pre-pandemic delivery times were generally weeks to a month or two depending on the type of equipment.
What are you hearing from municipal customers about concerns over rising equipment prices?
Most manufacturers have an annual price increase. With the inflation we have seen in 2023, this increase has been substantially higher. This will ultimately influence municipal budgets and lower their purchasing power unless a tax increase is approved.
Rising interest rates are a huge concern now compared with 2021, when we last wrote about VPAs. What concerns are you hearing about this from municipal customers that a VPA can help alleviate?
Rate increases remain a daily concern. When you combine this with delayed delivery times, it is difficult to plan a budget for upcoming purchases. Our VPAs allow us to lock in the current rate for customers now, place the funds in escrow and defer any payments until after the expected delivery date. In an increasing rate market this a great option for municipalities to save money.
Can you give an example of a municipality that has recently benefited from using a VPA?
We have a great example of this. In November of 2022, a school district in Illinois decided to purchase 12 new buses for $1.4 million. They signed our finance contract, locked in the interest rate and we deferred their first payment until after delivery. The school district recently took delivery of the buses. By using our VPA, they avoided a 0.96 basis point rate increase and saved over $30,000 in interest expense. We appreciate our customers and like to save them money!
What is Baystone’s experience in the essential equipment and real property sector?
Baystone Government Finance has provided affordable nationwide funding for state and local governments, tribal equipment financing resources and non-profit funding since 1987. Our many customers include private and charter schools, hospitals, volunteer fire departments and water districts. Baystone is the government and non-profit lending division of KS StateBank. Any and all capital projects, equipment and property regarded as essential use is considered for financing. Examples of equipment and infrastructure upgrades we have funded include fire trucks, ambulances, police gear, police vehicles, vocational trucks, school buses, and school technology including computers.
Who can I contact for more information on VPAs?
What additional resources are available for direct financing?
Visit our direct financing solutions page for information about financing services, including tax-exempt municipal leasing programs.
Request a government funding quote from Baystone.