Arizona Takes Control Over Leases

It's a question private-sector businesses face every day: Why spend big money on new information technology equipment that will depreciate and be outdated in a few years when you can lease it instead? For state and local government IT shops handling taxpayer dollars, the question is even more pressing.

The dilemma of whether to lease has been around far longer than the PC revolution. And governments and businesses share many of the same fears about leasing. Mainly, vendors that lease computer equipment dictate the terms of the lease, often forcing customers to keep equipment longer than its useful life.

But Arizona's Government Information Technology Agency (GITA) has fashioned a set of rules to govern the leasing of hardware, software and related services that may turn conventional leasing on its head.

A key component of GITA's IT leasing strategy is giving the state more control.

"During the [request for proposal] process, we developed our own lease agreement. So in our case, the leasing provisions and the agreement are dictated by the state, rather than by the vendors. That helps us to avoid the traditional disadvantages of leasing," said Lisa Meyerson, GITA's statewide project specialist and contract administrator for leasing contracts.

The state's standardized approach eliminates the chance of keeping equipment longer than its useful life by dictating that state agencies cannot enter into any lease for more than three years and can't extend the term of any lease for more than one year.

"Computers depreciate very quickly, and support costs are quite high, as are the impediments to upgrading to new technology," Meyerson said. "That's why we don't allow lease-finance transactions. We don't allow an agency to buy the equipment at the end of the agreement because we believe that the benefit of leasing is that it allows you to refresh your technology every few years."

The process of redefining its leasing arrangements also is helping the state newly realize the value of IT equipment. Overcoming the traditional assumption that a PC's worth derives primarily from its ownership, the Arizona approach assumes that a system's value also takes into account its usefulness to the end user and the way in which it fits into the state's overall IT environment.

For example, leasing encourages the view that PCs are more an operational expense, such as a utility, rather than a long-term capital expense, Meyerson said. That gives agencies more flexibility in how they budget for that equipment.

The leasing initiative is part of Arizona's comprehensive Asset Management Program, which was designed to cut the cost of the state's equipment and make sure it's managed well. GITA acts as a central point of information and a clearinghouse for all lease agreements involving products or services valued at more than $250,000.

In an environment where vendors have long enjoyed a lucrative advantage in the balance of negotiating power, all vendors aren't happy with Arizona's idea. But the competitive demands of the rapidly evolving market for state and local IT products and services are forcing them to adapt, Meyerson said.

"We've had some push back from the vendor community, but we gave them enough room to comment during the RFP stage, so they knew what to expect," Meyerson said.