Capital leases result in a situation where there is a complete transfer of ownership of equipment from the leaser to the receiving party, giving them the right to enjoy the benefits and cover the losses incurred while under their ownership. Businesses do not have the power to levy taxes in any jurisdiction, as this is a role played only by the government. However, the resources the government has to collect the taxes on are entirely dependent on the amount of wealth the businesses and other members of society have.
Concurrently, it is the government ‘s role to provide services to the public which may not be for profit gain, but essentially for the well-being of the public, meaning such services have to be provided continuously. Despite this fact, the government has a limit as to what it can require of its citizens before it infringes on their rights and well-being. It is, therefore, essential for the government to create a fair balance between providing the needs of the public while maintaining a good relationship with the creditors.
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The concept of general long-term debt is a government's task, which it supports for every business, using whichever strategy they deem fit. Therefore, the government is responsible, through the courts, to determine the obligations that are warranted to be subject to debt limitations. Numerous cases have shown that the court concentrates on the non-appropriation clauses in the capital leases. This strategy aims at giving the government power to cancel the lease if there is a failure of fund appropriation in the lease. The courts have therefore mandated that unlike in the conventional debt cases, the capital leases do not hold the same obligation to the government.
