AGENDA #4e

MEMORANDUM

TO:                  Mayor and Council

FROM:            W. Calvin Horton, Town Manager

SUBJECT:      Award of Bid for Lease Purchase of Vehicle Replacements for the Current 2000-2001 Fiscal Year

DATE:             November 13, 2000

INTRODUCTION

Two years ago, the Council established a capital equipment replacement fund using lease-purchase contracts for replacing vehicular equipment on a more frequent schedule in accord with the equipment's useful life.  Establishment of this fund and program was recommended based on a study conducted by the consulting firm of David M. Griffith, Inc., and was continued last year.

The attached resolutions would authorize the Manager to enter into installment contracts with First Union Bank and Branch Banking and Trust for the lease-purchase of a variety of vehicles and related equipment for the current fiscal year totaling $1,552,000 as budgeted.  These include 15 police vehicles ($366,000); a fire pumper ($206,000); three sanitation trucks ($246,000); a backhoe loader ($68,000); a two-ton diesel truck ($60,000); and a variety of other small vehicles.

BACKGROUND

Two years ago, we contracted with a consulting firm, David M. Griffith, Inc., 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 consultants recommended that the Town change its vehicle replacement practices from a cash purchase plan to an annual lease-purchase program.  The primary benefit of this plan is that it allows the Town to replace capital equipment in accord with the equipment's useful life, while retaining more cash and taking advantage of the Town's ability to borrow funds at tax-exempt rates.  This program was established in 1998-99 and continued last fiscal year.

FINANCING PROPOSALS

Requests for proposals for financing the purchase of these vehicles were sent to six financial institutions with responses requested on November 7.  The proposals specified quotes for five-year fixed rate installment payments on $1,186,000 of vehicles with an expected useful life or 5 or more years, and three-year fixed rate installment payments on $366,000 for police vehicles with an expected life of 3 years.

Five responses were on November 7 as follows:

*Although Wachovia bid lower interest rates, their proposal included administrative and escrow fees

 that make their total cost higher than that of Branch Banking & Trust.    

EVALUATION OF BIDS

Based on the proposals received, we recommend splitting the bids for the three-year term and five-year term lease purchases.  By splitting the bids, the Town recognizes an overall savings of about $3,000 over the cost of a combined contract with only one financial institution.

For the five-year financing of $1,186,000, First Union offers the lowest total cost with a bid of 4.98%  (total cost of $1,354,509 or $3,753 less than Branch Banking & Trust.)  For the three-year financing of $366,000, Branch Bank & Trust offers the lowest total cost with a bid of 5.07% (total cost of $399,151 or $3,140 less than First Union.)

Because of the additional savings that can be realized by splitting the bids, we recommend separate awards to First Union for the five-year term and Branch Banking & Trust for the three- year term.  Attached are resolutions authorizing the Manager to execute lease-purchase contracts with these two financial institutions for the purchase of vehicles for the current year.  

The majority of vehicles included in this purchase are available through the Town's participation in State purchasing contracts.  Some individual items will require formal bids in accord with normal bidding requirements and will be presented to the Council for approval.

RECOMMENDATION

We recommend that the Council adopt the attached resolutions authorizing the execution of two lease-purchase contracts for vehicle purchases in the current year totaling $1,552,000.

A RESOLUTION AUTHORIZING THE TOWN MANAGER TO EXECUTE A LEASE-PURCHASE CONTRACT FOR VEHICLE REPLACEMENT PURCHASES FOR THE 2000-2001 FISCAL YEAR (2000-11-13/R-5a)

WHEREAS, the Town of Chapel Hill solicited and received competitive proposals from financial institutions for the lease-purchase of a variety of vehicles for various departments; and

WHEREAS, First Union Bank offers the lowest total interest cost for the 5-year term for the purchase of $1,186,000 for vehicles totaling $1,186,000;

NOW, THEREFORE, BE IT RESOVED by the Council of the Town of Chapel Hill that the Council authorizes the Town Manager to enter into a contract with First Union on behalf of the Town for the lease-purchase of vehicles at a fixed interest rate 4.98%.

BE IT FURTHER RESOLVED, that the aforesaid contracts by and between the Town of Chapel Hill, various State contract and other vendors, and First Union Bank, together with the amounts to be paid thereunder, be and the same are hereby designated as qualified tax-exempt obligations of the Town of Chapel Hill for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended.

BE IT FURTHER RESOLVED, that the Council does not reasonably expect that the Purchaser (and any subordinate entities) will issue more than $10,000,000 in qualified tax-exempt obligations pursuant to such Sections 265(b)(3)(ii) during the current calendar year.

This the 13^th day of November, 2000.

A RESOLUTION AUTHORIZING THE TOWN MANAGER TO EXECUTE A LEASE-PURCHASE CONTRACT FOR VEHICLE REPLACEMENT PURCHASES FOR THE 2000-2001 FISCAL YEAR (2000-11-13/R-5b)

WHEREAS, the Town of Chapel Hill solicited and received competitive proposals from financial institutions for the lease-purchase of a variety of vehicles for various departments; and

WHEREAS, Branch Banking & Trust offers the lowest total interest cost for the 3-year term for the purchase of vehicles totaling $366,000;

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council authorizes the Town Manager to enter into a contract with Branch Banking & Trust on behalf of the Town for the lease-purchase of vehicles at a fixed interest rate of 5.07%; and

BE IT FURTHER RESOLVED, that the aforesaid contracts by and between the Town of Chapel Hill, various State contract and other vendors, and Branch Banking & Trust, together with the amounts to be paid thereunder, be and the same are hereby designated as qualified tax-exempt obligations of the Town of Chapel Hill for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended.

BE IT FURTHER RESOLVED, that the Council does not reasonably expect that the Purchaser (and any subordinate entities) will issue more than $10,000,000 in qualified tax-exempt obligations pursuant to such Sections 265(b)(3)(ii) during the current calendar year.

This the 13^th  day of November, 2000.