Vehicle Fleet Replacement Plan Update

FINANCE AND ADMINISTRATION REPORT

TO: Committee of the Whole DATE: October 3, 2019 FROM: Steven Vella, Manager of Accounting MEETING: October 8, 2019

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.

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 (2020-2039). 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 2020.

Additionally, Council may wish to consider the “greening” of View Royal’s vehicle fleet, where possible or economical.

BACKGROUND:

At its November 6, 2018 meeting the Committee received the Fleet Vehicle Replacement Plan which was subsequently included in the approved five-year financial plan. 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:

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 1 to 29 years. Condition assessments were established relative to reliability, maintenance requirements and other operating cost drivers; 44% of the fleet has a condition rating of fair or poor (lowest two condition ratings). 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.

Previous iterations of the replacement plan recommended that funding for significant fire vehicles be undertaken through debt financing due to the insufficiency of current reserves and the relatively high cost and long-term nature of these vehicles. However, based on Council’s direction for the most recent acquisition, staff assumes that Council would prefer to fund these purchases through use of Casino reserves rather than debt. The use of Casino funds avoids future debt service costs and is an economic source of funding, however doing so may limit the amount of funds available for other purposes. The current plan assumes this financing model; if approved, impacts to the Casino reserve will be included in the draft financial plan. Council may consider other financing options for these major purchases as the commitment dates approach.

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. At this time, the plan has not included 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 in terms of 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 (2019 – $30,000) and $63,500 (2019 – $61,710) respectively will sustain positive reserve balances during next 20-year planning horizon.

Table 1: Fire Department Machinery & Equipment Depreciation Reserve (2020-2039)

Table 2: Machinery & Equipment Depreciation Reserve (2020-2039)

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 in order 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