Vehicle Fleet Replacement Plan Update

Vehicle Fleet Replacement Plan Update

RECOMMENDATION:

THAT the report titled “Vehicle Fleet Replacement Plan Update” from the Manager of Accounting be received for information.

PURPOSE:

To provide Council with updated information regarding the resource requirement for vehicle replacements at the Town of View Royal for the next twenty years (2023-2042). This report provides the updated inventory of fleet vehicles, their respective age and condition, planned renewal year, replacement estimates and funding requirements. Vehicle replacements and associated funding scheduled for 2023-2027 will be incorporated into the draft five-year financial plan to be deliberated in February 2023.

TIME CRITICAL:

As part of the preparation of the 5-year Financial Plan, in advance of financial plan workshops in February.

EXECUTIVE SUMMARY:

This plan provides for replacement of the vehicle fleet within each vehicle’s useful life, ensuring the safety of staff and the public while desired levels of service are maintained. This replacement plan will inform the 2023-2027 Financial Plan and does not require a change to reserve funding levels to meet replacement targets. The financial impact of “greening” the vehicle fleet where appropriate has been incorporated into this plan as staff continue to integrate environmental sustainability into their decision making.

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. As an important component of View Royal’s asset management program, 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 bylaws and included in 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.

This report has been prepared with the assumption that the planned vehicle replacements for 2022 are complete before the end of the year. If any planned replacements are not completed in 2022, any remaining balance will be carried forward and reflected in the 2023 budget proposal.

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 2022 to 31 years. Condition assessments were established relative to reliability, maintenance requirements and other operating cost drivers; 16% of the fleet have condition ratings of fair or poor (2021 – 25%). Replacement costs are projected based on historical costs, industry knowledge and inflation. Where staff can reasonably expect an alternative fuel vehicle (hybrid or electric) will be a viable option for replacement, the planned replacement cost includes an estimate of the additional cost associated with this upgrade.

DISCUSSION:

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 shown in the plan.

In the case of large Fire apparatus replacement (>$250,000), the current level of reserve funding is not sufficient to sustain the long-term replacement plan. In the recent past, Council has chosen to fund these purchases through Casino reserve, since the volatile nature of Casino revenue lends itself well to funding large one-time purchases. Alternatively, debt is a funding option but comes at a higher cost due to the cost of borrowing. The Vehicle Fleet Replacement Plan assumes that the Casino reserve is the funding source in 2023, and debt in 2026. As economic conditions change and are considered, funding decisions will be at Council’s discretion as determined through each year’s budget process.

The fire apparatus replacement plan does not yet consider the effect, if any, of an amalgamation or further cooperation with any other municipal fire department. It seems likely that if such an amalgamation or cooperative agreement were to occur, the current fire apparatus fleet plan may need to adapt to a rationalized combined plan.

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 full 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.

SUSTAINABILITY/CLIMATE CHANGE IMPACTS:

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 lifecycle cost savings from lower maintenance and fuel costs. Moving toward a “greener” vehicle fleet would also help achieve View Royal’s goal of carbon neutrality.

Suitability of electric or hybrid fleet vehicles is dictated by many factors including fuel efficiency and practicality. Currently, the market offers greater electrified options for commuter vehicles than work vehicles and staff will continue to balance practical needs of the Town with market availability. Where electric or hybrid options are impractical or not available, the purchase of a gas or diesel powered vehicle may still support “green” objectives, as newer vehicles are more likely have improved technology, making them more efficient and environmentally sensitive.

FINANCIAL IMPLICATIONS:

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 vehicle 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, which moves the Town closer to its strategic objective of financial sustainability.

Based on the draft fleet replacement plan as outlined in Appendix B, Tables 1 and 2 below demonstrate that maintaining annual contributions to the Fire Department Machinery & Equipment Depreciation Reserve and the Machinery & Equipment Depreciation Reserve of $32,000 (2021 – $32,000) and $63,500 (2021 – $63,500) respectively will sustain positive reserve balances during next 20-year planning horizon.

Table 1: Fire Department Machinery & Equipment Depreciation Reserve (2023-2042)

Table 2: Machinery & Equipment Depreciation Reserve (2023-2042)

If vehicles or other equipment not contemplated by this plan were to be added to the fleet, and as we continue to include the impacts of “greening” the fleet (where possible or economical) annual planned contributions may increase to maintain the sufficiency of reserves to meet plan funding requirements. Having a bit of a buffer in the reserves offsets potential negative impacts that might result if estimates and inflation assumptions are lower than realized.

ALTERNATIVES:

Council may choose to increase or decrease planned annual reserve contributions that support the Vehicle Fleet Replacement Plan. Staff would then analyse the effect to the plan and the downstream likely effects to service delivery and return with an adjusted plan.

CONCLUSION:

The Vehicle Fleet Replacement Plan as presented indicates that a change in annual reserve contributions is not required at this time. The plan includes replacement of vehicles timed to support sustainable service delivery, minimizing risk of failure or gaps in service while smoothing the financial impact to taxpayers.

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