Vehicle Fleet Replacement Plan Update - Finance and Administration Report

TOWN OF VIEW ROYAL FINANCE AND ADMINISTRATION REPORT

TO: Committee of the Whole FROM: Steven Vella, Manager of Accounting DATE: November 5, 2020 MEETING: November 10, 2020

Vehicle Fleet Replacement Plan Update

RECOMMENDATION:

THAT the Committee receive the Vehicle Fleet Replacement Report for information.

CHIEF ADMINISTRATIVE OFFICER’S COMMENTS:

I concur with the recommendation. Per KA

DIRECTOR OF PROTECTIVE SERVICES’ COMMENTS:

I concur with the recommendation.

DIRECTOR OF ENGINEERING’S COMMENTS:

I concur with the recommendation.

PURPOSE OF REPORT:

To provide Council with updated information regarding the resource requirement for vehicle replacements at the Town of View Royal for the next twenty years (2021-2040). This report provides the updated inventory of fleet vehicles, their respective ages and conditions, planned renewal year, replacement estimates and funding requirement. The vehicle fleet replacement plan will be incorporated into the five-year financial plan to be deliberated in February 2021.

BACKGROUND:

At its November 6, 2018 meeting the Committee received the inaugural Fleet Vehicle Replacement Plan which was subsequently included in the approved five-year financial plan. Each year, this plan is instrumental in establishing replacement cycles for fleet vehicles and in determining the funding requirements for input into the five-year financial plan.

Reserves for municipal and fire vehicles, machinery and equipment were established by the Reserves and Surplus Policy (1600-020). The policy provides for reserve funds to be used for replacement of vehicles and equipment included in the Town’s fleet. Funding for reserves is provided through annual budget allocations and proceeds from sale of vehicles and equipment. By utilizing reserve funding for vehicle and equipment replacements, the plan spreads costs evenly over time and has a stabilizing effect on the overall financial plan.

DISCUSSION:

This report has been prepared such that the planned replacements for 2020 are incorporated. If any replacements are carried-forward to 2021 it will be reflected in the 2021 proposed five-year financial plan. The vehicle fleet consists of vehicles and heavy mobile equipment owned and operated by the Town. The current fleet inventory as shown on Appendix A (attached) comprises 25 vehicles, ranging in age from newly acquired in 2020 to 29 years. Condition assessments were established relative to reliability, maintenance requirements and other operating cost drivers; 28% of the fleet has a condition rating of fair or poor (2019 – 44%). Replacement costs are projected based on historical costs, industry knowledge and inflation.

Fire Apparatus

Underwriters of Canada (ULC) sets out standards for the replacement of fire engines. A fire engine may be used for first response to an emergency event for the first 15 years of its useful life. From age 16 to 20 years it becomes a second responder unit and at 20 years it goes into backup status, with retirement no later than 25 years of age. Consideration of these parameters, in addition to condition assessments undertaken by the Director of Protective Services, has resulted in the replacement timeline.

Council’s previous funding direction has avoided future debt service costs by choosing to fund through Casino reserve rather than debt. The instability of Casino revenue caused by the COVID-19 pandemic combined with the long-term nature of fire apparatus vehicles make debt an appropriate future funding source. In 2021, the plan funds only the chassis portion of the Superior E-One replacement from Casino and the balance from debt. This carries an estimated annual debt servicing cost of $47,871 equivalent to approximately 0.51% in property taxes. Council may consider funding the entire purchase through debt, increasing estimated debt servicing costs to $72,454 or a 0.77% in property taxes. Planned budget workshops in February 2021 will allow for further discussion of preferred funding options based on Casino Reserve projections and other spending priorities.

Municipal Vehicles

Planned replacement dates for municipal vehicles have been determined through a careful review of current condition assessments with the Director of Engineering and Parks Supervisor as well as discussion around servicing needs. Whether a vehicle is heavy duty or light duty has an impact on its replacement timeline for purposes of this report.

This plan assumes funding from the Machinery & Equipment Depreciation Reserve for municipal vehicles, as these replacements are typically at lower relative costs such that the reserve can accommodate the replacement plan through stable annual contributions.

Future Considerations

The plan outlined in this report makes certain assumptions about methodologies, condition ratings, replacement timing, profiles of replacement vehicles, and funding strategies. The vehicle market continues to evolve. Where appropriate, the plan includes the financial impact of “greening” the vehicle fleet, where the market offers similar vehicle models with reduced GHG or emissions ratings, such as electric or hybrid vehicles. Generally, an electric or hybrid vehicle may cost about 20% more, however this premium would likely be somewhat offset by cost savings for lower maintenance and fuel costs in future. Moving toward a “greener” vehicle fleet would also help achieve View Royal's goal of carbon neutrality. Staff will be incorporating our move in this direction over time and as the opportunities for green equipment improves.

As the community grows, resources required to maintain established service levels may increase. The fleet replacement plan does not contemplate adding new vehicles to the fleet; however, the value of this plan is maximized by updating it annually as part of the greater asset management plan. This plan is a living document, providing the basis for future long-term financial plans. When large capital expenditures are planned and not reactive, and when reserves or debt are used as funding mechanisms, the result is a smoothing of the annual cost to the taxpayer.

BUDGET IMPLICATIONS:

Based on the draft fleet replacement plan as outlined in Appendix B, Tables 1 and 2 below demonstrate that annual contributions to the Fire Department Machinery & Equipment Depreciation Reserve and the Machinery & Equipment Depreciation Reserve of $30,000 (2020 – $30,000) and $63,500 (2020 – $63,500) respectively will sustain positive reserve balances during next 20-year planning horizon.

If vehicles or other equipment not contemplated by this plan were to be added to the fleet, and as we include the impacts of “greening” the fleet (where possible or economical) annual planned contributions would likely increase to maintain the sufficiency of reserves to meet plan funding requirements.

RECOMMENDATION:

THAT the Committee receive the Vehicle Fleet Replacement Report for information.

SUBMITTED BY: S. Vella, Manager of Accounting

REVIEWED BY: D. Christenson, Director of Finance

Attached: Appendix A – Current Fleet Vehicle Listing Appendix B – Fleet Replacement Plan – 5-year excerpt