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SR-202-001 (74) June 14, 2001 Santa Monica, California INFORMATION ITEM TO: Mayor and City Council FROM: City Staff SUBJECT: Vehicle and Computer Replacement Programs Introduction This information item will provide background and information on the City’s Vehicle Replacement Program and Computer Replacement Program. Vehicle Replacement Program In the late 1980’s an organizational development initiative, “Visions and Values”, was undertaken in all City of Santa Monica operating and internal service departments. The program encouraged and achieved identification of barriers to achieving the full potential of employees and work groups. Among the most frequently cited barriers was the age and condition of City equipment. In the ensuing years, improvements were made in the Fleet Maintenance division’s repair capacity and procedures. Although a recession delayed initiation of an 1 aggressive vehicle replacement program, it provided time to conduct a reassessment of the vehicle budgeting process. Lower value vehicles had customarily been purchased and replaced through the capital outlay operating budgets while higher value vehicles competed with other priorities as part of the Capital Improvement Program. Vehicle purchase and replacement consequently led to significant swings in budget allocations and pitted vehicle replacement against other worthy needs. The Vehicle Replacement Program was started in FY 96/97 and covers approximately 585 vehicles and pieces of equipment (generators, compressors, sign boards, etc.) The total number changes as vehicles are retired from service without being replaced or vehicles are added through enhancements to operating divisions. A review of vehicle budgeting practices at that time identified the following: 1. 241 vehicles or 41% of the fleet used in the City’s daily operations were being maintained past their normal recommended replacement cycles. 2. 85 vehicles had repair costs in excess of $5,000. Of this group, 25 vehicles had repair costs in excess of $10,000. In many cases, the cost of repairs was equal to or in excess of the cost to replace the vehicle. 3. The age of the fleet caused excessive downtime leading to significantly reduced productivity and raised serious concerns over safety. Fleet Maintenance staff were working in a reactive mode with little time available to concentrate on preventive 2 maintenance. 4. Only 15% of the fleet was operating on alternative fuels. This was considerably lower than the Sustainable City Program goal of 75% of the fleet being alternative fuel powered by year 2000. 5. Justification and analysis of vehicle replacement decisions were taking an inordinate amount of department head and city management time. Given competing priorities, replacement of vehicles was often deferred. To address these problems, the City initiated a vehicle replacement program consisting of the following components: 1. An economic life cycle was established for each class of vehicle based on the City’s utilization and maintenance history. The replacement point in this cycle is where annual repairs exceed the present value of the vehicle. 2. A master replacement schedule was prepared for the initial replacement of each vehicle in the fleet at the time the program was established. Age, annual repair costs and annual utilization were factored into the development of this schedule. This schedule is updated as vehicles are added to the fleet. 3. A current replacement cost was computed for each class of vehicle. Future replacement costs were computed based on inflation and the estimated useful life of the vehicle. 4. The Divisions responsible for control and operation of the vehicles are not only 3 required to provide sufficient funds for the initial purchase of a vehicle, but are also required to make annual contributions so that the full replacement cost will be available in the year in which it is scheduled for replacement. 5. The annual contribution for future replacement is based on the estimated replacement cost divided by the number of years of scheduled useful life of the vehicle and assumed interest generated by the contribution. This funding mechanism ensures that sufficient funds will be accumulated to replace each vehicle when it has reached the end of its useful life. 6. A vehicle may not be automatically replaced at the end of its useful life cycle. If the vehicle has experienced lower than normal use or has minimal wear and repair cost or can be re-assigned to another use, then replacement could be postponed. Fleet Maintenance and the operating Division make this assessment on a vehicle by vehicle basis. 7. New vehicles purchased from the fund are alternative-fuel powered wherever possible. If a Division has operational considerations where the use of alternative powered vehicles is not appropriate, a written waiver must be obtained from the Director of Environmental and Public Works Management before the purchase of a non-alternative-fuel powered vehicle is initiated. Timing of the initiation of the Vehicle Management Program proved fortuitous in that the Governmental Accounting Standards Board (GASB) has established new standards for municipal financial reporting in regard to infrastructure and other assets, which are 4 effective July 1, 2001. Until now, the value of such assets and their future replacement costs had not been carried on fund balance sheets except for enterprise funds. Starting in FY 2001-02, such information must be disclosed for all funds. The Vehicle Management Program exemplifies the City’s prudent protection of the value of its assets. The status of the Vehicle Replacement Program, by fund, for the three-year capital improvement cycle can be found at page III-17 of the Proposed Capital Improvement Program Budget 2001-02/2003-04 (the smallest of the three budget volumes.) These amounts primarily represent the annual, additional amounts still required to fund future vehicle replacements. The current estimated balance in the fund available for future replacements is about $10.6 million. Further contributions to “build up” the fund will be necessary for six to seven more years. At that future point, on-going, annual contributions should be about equal to expenditures for the replacement of all fleet vehicles. Computer Equipment Replacement Program Like the Vehicle Replacement Program, the City operates a program to replace computer equipment. Implemented four years ago, the program provides scheduled replacement of server, desktop computer and printer equipment for all City operations. There are 51 servers, 920 desktop computers and 376 printers in the program. The program provides for upgrades to server, desktop and printer equipment, which is 5 important given that new releases of software continue to require faster computers with more memory and larger hard disks. The standards change yearly and after three years, the desktop computer is no longer able to support advances in software technology. The same applies for printers, and after four years, for servers. The status of the Computer Equipment Replacement Program, by fund, for the three- year capital improvement cycle can be found at page III-13 of the Proposed Capital Improvement Program Budget 2001-02/2003. Other Replacement Programs A systemic approach for replacing City facilities and equipment is under discussion by the City’s Capital Improvement Program Working Group. Like vehicles and computer equipment, the scheduled replacement of facilities and equipment that have reached their useful lives is essential for the maintenance of quality public services. Staff’s goal is to present for Council approval a facilities and equipment replacement program as part of the FY 2002-03 budget. Conclusion These replacement programs, established to correct serious deficiencies in prior policies and procedures, are an intelligent approach to management of sizable City 6 assets. Since the inception of the Vehicle Replacement Program, the City’s vehicle fleet has been modernized, fuel efficiencies have been improved, vehicle emissions have been reduced through the purchase of alternative fueled vehicles, employee morale/pride has been positively affected, productivity has been increased and employee/public safety has been enhanced. The Computer Replacement Program has allowed the City to maintain up-to-date computer equipment in a constantly evolving technology environment, preserving the integrity and reliability of the City’s operations and public services. As long as the City uses and maintains vehicles and computer equipment, these programs will need to continue. Prepared by: Craig Perkins, Environmental & Public Works Management Director Renee Cowhig, Maintenance Manager Jory Wolf, Chief Information Officer Mike Dennis, Finance Director 7