AGENDA #4b

 

MEMORANDUM

 

TO:                  Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

 

SUBJECT:       Award of Bid for Lease-Purchase of Vehicle and Computer Replacements for the 2002-2003 Fiscal Year

 

DATE:             February 24, 2003

 

 

The attached resolution would authorize the Manager to enter into installment contracts with RBC Centura Bank for the lease-purchase of a variety of vehicles and related equipment included in the current year budget totaling $566,100 ($396,900 in vehicles with an average life of 7 years and $169,200 in vehicles with an average life of 3 years) and $142,000 for computers and computer equipment included in the current budget.  See Attachment 1 for a listing of the vehicles and Attachment 2 for a listing of the computer equipment.

 

BACKGROUND

 

Vehicles

 

Five years ago, we contracted with a consulting firm, David M. Griffith, Inc., now DMG 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 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.

 

DMG Maximus reviewed our plan two years ago and recommended that we extend the lease period for all vehicles other than police vehicles to seven years instead of 5 years to more accurately reflect the normal life of these vehicles.  This practice was instituted last year and we propose to continue the seven year lease period this year.  We propose to continue a three-year lease period for police vehicles as originally recommended by DMG Maximus.

 

Computers

 

Four years ago the Town at the recommendation of the Technology Committee began a three-year replacement program for computer equipment.  We are currently using the program to finance desktop computers, servers and related equipment, and propose to continue a three-year replacement cycle.

FINANCING PROPOSALS

 

Requests for proposals for financing the purchase of vehicles and computer equipment were sent to six financial institutions with responses requested on February 13.  The proposals specified quotes for seven-year fixed rate installment payments on $396,900 of vehicles with an expected useful life averaging 7 or more years, and three-year fixed rate installment payments on $304,200 for police cruisers and computer equipment with an expected life averaging 3 years.

 

Responses were received from four financial institutions on February 13 as follows:

 

	3 Year Term   ($311,200)		7 Year Term  ($ 396,900)
Financial Institution	Interest Rate	Total Principal, Interest & Fees	Interest Rate	Total Principal, Interest, & Fees
RBC Centura Bank	2.00%	$ 322,814	2.63%	$ 437,466
Ashford Capital Corporation	2.375%	$324,261	2.915%	$ 441,645
Branch Banking & Trust	2.29%	$ 323,726	3.47%	$ 448,547
Wachovia	3.04%	$ 339,681	3.04%	$ 443,931

 

EVALUATION OF BIDS

 

The bids received were very competitive and reflect the low interest rate environment in the current economy.  Based on the proposals received, we recommend accepting the low bids from RBC Centura of 2.0% for the 3-year financing totaling $311,200 and 2.63% for the 7-year financing totaling $396,900.

 

Acceptance of bids at the low rates of 2% and 2.63% will help reduce the overall annual cost of the vehicle and computer replacement programs over the next several years.

 

Attached is a resolution authorizing the Manager to execute lease-purchase contracts with RBC Centura for the purchase of vehicles and computer equipment for the current year.

 

The majority of vehicles and computer equipment 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 and computer equipment purchases in the current year totaling $708,100.

 

ATTACHMENTS

 

1.      Listing of Vehicles (p. 4).

2.      Listing of Computer Equipment (p. 5).

 

A RESOLUTION AUTHORIZING THE TOWN MANAGER TO EXECUTE LEASE-PURCHASE CONTRACTS FOR VEHICLE AND COMPUTER EQUIPMENT REPLACEMENT PURCHASES FOR THE 2002-2003 FISCAL YEAR (2003-02-24/R-2)

 

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

 

WHEREAS, RBC Centura offers the lowest total interest cost of 2.00% for the 3-year term for the purchase of vehicles totaling $169,200 and computer equipment totaling $142,000; and

 

WHEREAS RBC Centura offers the lowest total interest cost of 2.63% for the 7-year term for the purchase of vehicles totaling $396,900;

 

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 RBC Centura on behalf of the Town for the lease-purchase of vehicles and computer equipment totaling $311,200 at a fixed interest cost of 2.00% for a three year term with total principal and interest cost of $322,814 and for the lease purchase of additional vehicles totaling $396,900 with a fixed interest rate of 2.63% for a seven year term with total principal and interest cost of $437,152.

 

BE IT FURTHER RESOLVED that the aforesaid contracts by and between the Town of Chapel Hill, various State contract and other vendors, and RBC Centura, 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 24^th day of February, 2003.