To Lease or Not To Lease.

You are responsible for leading technology initiatives in your school district, but your community is not interested in funding a bond issue to purchase computers that will be obsolete before the debt is retired. Your capital outlay budget won't support a 3- to 5-year cycle for the purchase of new computers. Your educational community wants computers, and the staff, students and parents are growing impatient.

If this scenario sounds familiar, you might be facing circumstances similar to those experienced in the Walled Lake, Mich., schools three years ago. After three unsuccessful attempts to pass a bond issue containing new computers, we explored the option of leasing. We are glad we did. Now in our third year of such an arrangement, we are leasing 1,150 personal computers and plan to lease another 2,350 before we reach our baseline target of 3,500 computers to serve our 13,200 students.

So why did leasing make sense for us?

Reluctant Voters

Like many school districts, Walled Lake was in the habit of passing bond issues to support the purchase of computers. And, similar to most, the time between bond issues was such that it left users with computers that were old and outdated. Five years ago, our elementary school computer labs had Apple II's and our secondary school labs had a combination of old 8088's and 286 PC's. While teachers and students were surfing the Internet at home, they were limited to the most basic software at school.

The school district, through its strategic planning process, had a welldefined technology plan that included technology staff developers in every building. The plan also called for developing performance benchmarks in the use of technology for all students. But we were unable to implement the plan because of the limited computer resources.

In defeating three bond issues (ranging in size from $114 million to $136 million) over a four-year period, the community was sending us this message: Fund the computers without bond dollars. With professional staff members crying out for new equipment, we decided it was time to explore other options.

A Budgetary Perspective

As we began changing our paradigms with regard to computer acquisition, we set out to define the major issues surrounding computer purchases. The two major factors that repeatedly surfaced were budget and organizational structure. It was impossible to examine one in isolation of the other.

As we studied the costs associated with our technology structure at the time, we realized our largest expenditure was in computer maintenance. We employed two full-time technicians to repair computers in 19 schools and the central office, and they had an operating budget for repair equipment, parts and supplies. Between salary, benefits and operating expenses we were spending about $130,000 per year to maintain computers.

In addition, because our computers were old (making replacement parts hard to find) and the volume was so large (500 computers per technician), our capacity to provide efficient service was severely handicapped. It was not uncommon for a computer to be out of service for four to eight weeks. This analysis dictated the first condition of a lease proposal: on-site repair or replacement for the life of the lease.

If the cost of leasing, including on-site repair/replacement, would not exceed an outright purchase by more than $130,000 (our budget for computer maintenance), we would save money. Also, we would add value by dramatically improving our repair rate. Because we intended to increase the number of computers in the district by threefold, the difficulties associated with computer maintenance would only become more problematic, from both budgetary and user perspectives.

Furthermore, as our networks were expanding at lightning speed, the hiring of a skilled network administrator was inevitable. Leasing would allow us to offer these new job advancement opportunities to our current computer repair technicians, thus avoiding layoffs since we had eliminated their previous positions. While not an easy sell in the beginning, both employees now enjoy their new enhanced roles.

Coping With Obsolescence 

As we further examined the possibilities of leasing, it dawned on us that if we built maintenance into the life of the lease, we didn't need to lease new machines. Traditionally, when we purchased computers, we bought the latest-and-greatest machines, knowing they would be around for an indefinite period of time. If through leasing, we could develop a reasonable replacement timeline, we could be more flexibile in our specifications.

As we talked with vendors about leased computers, we discovered that three years was a common lease window. This time frame would become our next specification.

To ensure that teachers, administrators and support staff would have the up-to-date equipment for achieving their goals, we developed a process, borrowed from the business world, by which a user could build a case for an upgrade within the three-year window. Not only would users be assured of an upgrade every third year, they could have one within the three-year window if they could build a value-added case.

In the Beginning

With at least some initial parameters in writing, we set off to explore the world of leasing. In June 1995, we sent 24 vendors a set of bid specifications that called for a three-year lease of 154 computers that were less than three years old; minimum technical specifications; set-up and delivery; and 24-hour on-site repair or replacement. We received seven proposals and selected a proposal of used Compaq computers costing about $43 per month per machine or $237,172 over the three-year life of the lease.

The vendor, from whom we leased, MicroAge of Novi, Mich., told us had we purchased the same computers new and bought the same warranty service for three years it would have cost approximately $400,000. Leasing used computers saved us about $163,000 over the cost of buying new machines, complete with three-year, on-site 24-hour repair or replacement.

Now in our third and final year with this first group of leased machines, our experience has been excellent. I can count on one hand the number of calls I have received about the leased Compaq computers being out of service. In June, we will have the option of purchasing these computers for $91 or the vendor will pack them up and ship them off to the lease agent.

The Leasing Agent

It didn't take us long to realize we were novices in the world of leasing. After our board of education approved our recommendation to lease, we processed a purchase order for the computer vendor. MicroAge, however, informed us that we would not pay them but rather the lease agent. They had bid through the leasing agent with whom they had a partnership. We suddenly realized we now were dealing with two vendors--the service provider and the lease agent who provided the financing. Although we needed to return to our board with a revised resolution, it worked out well in the end.

As a result, we solicited bids for 450 additional computers in year two, following the same process. Because we picked a different vendor, O/E Systems of Troy, Mich., we now found ourselves working with two service providers and two lease agents. The future was looking awfully confusing.

Our district's executive director of business services, Sandra Motz, and I decided to interview lease agents to examine our lease options. Through this process, we learned that most organizations that lease tend to use a single lease agent as a point of contact for financing and coordination of services. We subsequently interviewed several lease agents, prepared a bid document and finally entered into a five-year contract with one agent, O/E Systems, to provide all financing and services.

Each year, the firm will finance, at an agreed rate, the computers for which we receive the lowest bid. In addition, they will provide configuration of computers at their plant, setup and delivery of all leased computers, 48-hour on-site repair or replacement, asset management inventory of all leased computers, help desk support for our computer resource teachers and technicians and packing and shipping at the end of the lease.

These services cost us approximately $100 per machine per year over the cost of purchasing a new machine. If we were to purchase new computers, however, an extended three-year, on-site warranty would cost anywhere between $100 to $250 per computer, not including all the other services mentioned. We believe our deal makes good financial sense.

With used computers, the picture is even better. A used computer, with all of the aforementioned services, can be leased for the same price or lower than the purchase of a new computer. If you consider we no longer employ computer maintenance personnel or purchase associated replacement parts and equipment, we save money.

Intanglible Benefits

Making computer leasing a line item in the general operating budget has given it a significance equal to other long-standing line items, such as athletics, transportation or textbooks. Through leasing, the district has made an important statement on the value we place on technology, which has not gone unnoticed among district personnel. Also, our long-term commitment to our lease agent has resulted in a strong business partnership that ensures first-rate service. Our cost-conscious community viewed our decision in a positive light.

We remain firmly convinced that in computer acquisition, as in all other issues faced by school administrators, more than one solution to a problem exists. In Walled Lake, computer leasing is one answer that is helping us move forward in the constantly changing world of technology.

William Hamilton is assistant superintendent for curriculum in the Walled Lake Schools, 850 Lake Rood, Building D, Walled Lake, Mich. 48390. E-mail: [e-mail]