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5.5. SR 05-12-2008Item # 5_5. MEMORANDUM TO: City Council FROM: Lori Johnson, City Administrator DATE: May 12, 2008 SUBJECT: Equipment Replacement Fund The Fleet Committee was charged with several tasks and goals when it was re-established last year. One of the goals was to develop a policy that establishes guidelines fox replacement and useful life of vehicles and equipment and puts in place mechanisms to improve purchasing and budgeting. The attached City Vehicle Acquisition and Replacement Policy accomplishes that goal. Along with that policy, we axe proposing that the Council consider establishing an Equipment Replacement Fund. This funding method would help reduce the volatility in budgeting fox capital purchases. The City Vehicle Acquisition and Replacement Policy will be used by the Fleet Committee as the Committee annually reviews equipment and vehicle requests. Based on the criteria in the policy, the Committee will recommend to me the equipment and vehicles to be included in the proposed budget. Phis approach will help to ensure that the highest priority needs axe funded and that, whenever possible, equipment is shared among various departments. All of the purchases would be funded by the Equipment Replacement Fund if the Council approves its establishment. After an initial transfer to start the fund, annual revenue would come from re-payment from departments fox their purchases and from a portion of Elk River Municipal Utilities' contribution (three percent of Elk River electric sales). The purchases, share of ERMU conuibudon, repayment from the General Fund, and other revenue sources would still be reviewed annually and approved by the Council during the budget process. Of course, the annual amount to be spent on equipment each yeas and the funding sources axe always up to Council discretion. Finally, several members of the Fleet Committee will be present at Monday's meeting to go over the proposed policy and Finance Director Tim Simon will explain the Equipment Replacement Fund in more detail. The members of the Committee axe Mark Thompson, Bob Rupxecht, Bill Nlaertz, Bruce West, Bxad Rolfe, Tim Simon, and Gary Leirmoe. Egnipmrnt Replacement Pund City Council May 12, 2008 Attachments • EgLUpment replacement fund memo from Finance Ditectox Tim Simon • City Vehicle requisition and Replacement Policy Page 2 S:\Couucd\Lori\2008\Equipment ]ieplacementdoc Item # 5.5. ver MEMORANDUM TO: Mayor and City Council FROM: Tim Simon, Fleet Committee Member DATE: May 12, 2008 SUBJECT: Equipment Replacement Fund Establishment of an Equipment Replacement fund to work in conjunction with the Fleet Committee will provide a fund where money will be accrued fox future vehicle purchases. The fund balance inside the Equipment Replacement (Internal Service Fund) will allow for significant year to year differences in capital replacement without significant impact on the General Fund. Also the interest earnings and auction proceeds will stay within the fund to help cash flow future purchases. 'The Equipment Replacement fund will pay fox the purchase of equipment, and equipment users (i.e. departments) pays the fund back a pxo- xated share of the purchases over the next 10 years, plus a surcharge (if necessary) to keep a positive cash flow. If the fund requires additional capitalization, the use of a surcharge will be necessary. The Fleet Committee has produced a set of replacement parameters that make sense fox the City's fleet and projected ten-year mplacement plan. Each piece of equipment will be scheduled fox replacement based upon its projected life and use, but evill not actually be replaced until its age, mechanical condition, and need warrant it as determined by the Fleet Committee. The Fleet Committee group will examine the replacement plan annually, evaluating each vehicle fox replacement in the current cycle. Once the Fleet Convnittee has detextnuied the current year replacements, they will work with fmance to ensure enough cash flow exists in the equipment replacement fund to replace all items, if not a priority rate will be established and lowest priority will need to be wait-listed until cmxent year costs on all items and amounts are determined. If funds axe not available the priority rating of the item will be higher the next year. Any capital purchases used for enterprise purposes will be funded from enterprise funds. CITY OF ELK RIVER CITY VEHICLE ACQUISITION AND REPLACEMENT POLICY I. PURPOSE AND NEED FOR POLICY The Fleet committee philosophy is to establish and maintain a fleet which supports the services provided to our customers. Overall management of the City vehicles is the responsibility of various City departments. A significant part of this responsibility is to ensure effective planning for the purchase, replacement, and assignment of all city vehicles. Coordination of vehicle purchases, replacements, and reassignments will be done 6y the Fleet Committee in conformity with city policy and the vehicle and equipment replacement schedule. The purpose of this policy is to establish standard replacement schedules for vehicles of similar type and use. II. POLICY The Fleet Committee will be responsible for controlling the fleet size and coordinating any changes in the replacement schedule. The City's mechanics will be an integral part of the process; the mechanics will not evaluate the necessity of requests, but may provide suggestions on the vehicle maintenance history, mechanical condition, and alternative solutions that may meet our needs. The standard guidelines for our replacement schedule by type of vehicle is as follows: Police Vehicle Tvpe Replacement Schedule Guidelines Police Squad Cars Police Investigation/Admin CSO Trucks Building Safety Building safety vehicles Fire Fire Administration Engines/Pumpers Tankers Grass Rigs Rescue units Parks Streets Tractors Park maintenance trucks Snowmobiles Trailers Sidewalk Machines Mowers Sprayer Tractor Attachments Tow-behind Mowers Ballfield Maint. Equipment Utility ATV Sweepers Light Trucks Heavy Trucks Loaders Motor grader 3 years 7 years 6 years 10 years 9 years 25 years 20 years 15 years 15 years 10-12 years based on usage 7-10 years based on usage 3-5 years based on usage 10-12 years based on usage 8-10 years based on usage 5-7 years based on usage 20 years 10 years 10 years 10 years 8-10 years based on usage 10 years 7-10 years based on usage 12-15 years based on usage 12-15 years based on usage 15-20 years based on usage GtY o! Elk -.--~ River Brush chipper Crack-filling kettle Patch trailer Asphalt roller Cold mill Air compressor Forklift Ice Arena Ice Resurfacer Cable TV/Administration Van Cars Sanitary Sewer Jet Truck 7-10 years based on usage 7-10 years based on usage 7-10 years based on usage 12-15 years based on usage 7-10 years based on usage 15-20 years based on usage 15-20 years based on usage 10 years 10-12 years based on usage 10 years 17-20 years based on usage When applicable, the Fleet committee will establish the replacement year when the replacement schedule guideline is based on usage. The Fleet committee will also determine all other miscellaneous equipment replacement schedules based on usage, manufacturer's recommendations, and condition of equipment. Hand down vehicles that require a specific set up will be put into service for a minimum of 2 years. Replacement exceptions may be made based on mechanical reliability, financial considerations, safety, and vehicle availability as recommended by the Fleet Committee and approved by the City Administrator. III. PROCEDURES 1, All vehicle purchases, replacements, and reassignments must be coordinated by the Fleet Committee. 2. The Fleet Committee will meet regularly during the beginning of the capital improvements planning process and after the final budget is approved. 3. The Finance Director will coordinate all additions and revisions to the ten year vehicle and equipment replacement plan with the Fleet Committee as part of the capital improvements planning process. The Fleet Committee will accumulate all requests and submit the ten year vehicle and equipment replacement schedule, list of additions and revisions, and any other suggestions to the Finance Director. The City Administrator will have the final approval to all vehicle and equipment purchases and recommendation to the City Council for approval.