How significant is the risk of non-appropriation or default?
Non-appropriation is a popular topic in the tax exempt leasing industry. It is on the agenda of every tax-exempt leasing conference and seminar and is the subject of frequent articles, newsletters, and surveys. However, in the authors view, the non-appropriation risk is not a significant risk and all the attention makes a nominal risk seem major. Non-appropriation is the proverbial tempest in a teacup, as the combined rate of default and non-appropriation is appreciably less than the rate of nonperformance in similarly sized commercial equipment leases. To illustrate just how low the nonperformance risk is, consider the results of two surveys done by an industry trade group, the Association for Governmental Leasing and Finance. AGL&F polled its members in 1998 on their experiences with government nonperformance in their entire portfolio of tax-exempt leases (the 1998 survey) and in 1999 on their experiences with tax-exempt leases under $100,000 (the 1999 survey). The 1998 survey showed
