AGENDA #4c

MEMORANDUM

TO:                  Mayor and Town Council

FROM:            W. Calvin Horton, Town Manager

SUBJECT:      Fiscal Year 2004-05 Vehicle Replacement Plan

DATE:                        May 23, 2005

The attached resolution would authorize the Manager to seek proposals for financing of Town vehicles as part of the vehicle replacement plan.  The proposed financing would provide funding for the purchase of the list of vehicles included in Attachment 1.

BACKGROUND

Seven years ago we contracted with a consulting firm, David M. Griffith, Inc., now MAXIMUS, to develop a long-range vehicle replacement plan that would allow the Town to replace vehicles and related capital equipment in accord with the normal useful life of each vehicle.  The two main goals of the vehicle replacement study were to develop a vehicle replacement plan that would eliminate the backlog of deferred replacements and to provide a predictable level of annual funding requirements.

David M. Griffith found that historically, the Town was spending approximately $650,000 per year for vehicle replacements.  In order to achieve an optimal replacement schedule they recommended that we should spend about $1,500,000 per year.  David M. Griffith gave the Town several options to achieve the Town’s goals.  Key elements of the option recommended by the Town Manager and selected by the Town Council are as follows:

· Immediately begin spending about $1,500,000 annually on vehicle replacement.

• Fund vehicle replacements with installment financing.

• Gradually increase the contributions from the general fund from about $850,000 to $1,600,000 over about 10 years.

• As debt service costs rise, use the increasing fund balance of the vehicle replacement fund to cover debt service costs in those years where contributions from the general fund are less than the total debt service requirement.

In April 2001 we retained the services of MAXIMUS for a follow-up “Vehicle Replacement Program Post-Implementation Review.”  The key recommendations in the report that were approved by the Manager and Town Council are summarized below:

· Extend loan terms to more closely match vehicle life expectancy.

· Conduct a more thorough annual update of the plan.

· Review and adjust replacement parameters annually.

· Ensure that contributions to the fund are adequate.

· Distribute costs for all charges for all vehicles back to user departments.

DISCUSSION

Fiscal Year 2004-05 Vehicle Replacement Plan

Attachment 1 consists of the list of vehicles slated for replacement in the current year.  The list includes 26 items of equipment with a total estimated replacement cost of $686,400.  At the beginning of the fiscal year 2004-05 budget process, this list included 35 items that had reached their planned service life with a total estimated cost of $833,500.  In accordance with standard procedures of the vehicle replacement program, each vehicle on the list was reviewed considering age, mileage and mechanical condition.  Based on that review, we were able to defer replacement of nine vehicles to a subsequent year.

The fiscal year 2004-05 budget request of $690,000 for vehicle replacement is much lower than the $1,500,000 annual outlay recommended by MAXIMUS.  This drop in requested funding is due in part to the fact that we are now in the seventh year of the vehicle replacement program.  Aggressive replacement of aging vehicles over the first six years of the plan has dramatically improved the operational effectiveness of our vehicles.  As we move into the eighth year in fiscal year 2005-06, we expect to see our budget request return to the recommended levels as the vehicles replaced in the early years of the plan reached their next scheduled replacement dates.     

Vehicle Replacement Funding Plan

 As shown on the attached vehicle replacement list, some of the items listed have loan terms of three years, while most of the vehicles have seven-year terms.  The three-year vehicles include police cruisers, a fire command vehicle and sanitation vehicles with an expected useful life of three years.  It has been determined that all other vehicles have an average life of seven years.  Financing would be obtained separately for these two groups in order to align the financing period with the terms of their useful lives.

The combined principal and interest payments necessary to finance $472,400 of seven-year vehicles would be approximately $550,000 based on current interest rates.  The total needed to finance $214,000 of three-year vehicles would be about $229,000.

CONCLUSION

We recommend that the Council adopt the attached resolution authorizing the Manager to seek proposals for the financing of Town vehicles with a replacement cost totaling $686,400.

ATTACHMENT

1. List of Vehicles for the Funding of Purchase (p. 5).

A RESOLUTION AUTHORIZING THE TOWN MANAGER TO SEEK FINANCING FOR VEHICLE REPLACEMENT PURCHASES FOR THE 2004-2005 FISCAL YEAR (2005-05-23/R-4)

WHEREAS, the Town of Chapel Hill has developed a vehicle replacement plan to set forth a process for the purchasing and financing of Town vehicles; and

WHEREAS, the Town of Chapel Hill currently has police cruisers and other vehicles that are scheduled for replacement in accordance with this plan; and

WHEREAS, funds were budgeted as a part of the 2004-05 adopted budget for this purpose;

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council authorizes the Town Manager to seek proposals from financial institutions for the financing of three-year vehicles totaling $214,000 and seven-year vehicles totaling $472,400 as set forth in Attachment 1 during fiscal year 2004-05.

This the 23^rd day of May, 2005.

ATTACHMENT 1