Fleet Services Fund
2022-2027 Financial Plan
Introduction
The Fleet Services Internal Service Fund manages the acquisition, maintenance and disposal of approximately 1,700 units of equipment, primarily the City’s fleet of vehicles, including police cars, fire trucks, snowplows, sedans and pickup trucks along with off-road equipment. This fund provides the services of technicians to maintain the equipment. In addition, the fund manages the field coordination of City-owned and contractual equipment and operators as well as the procurement and sale of fuel for these vehicles. The Public Works Department is responsible for management of the operations within the fund.
The Fleet Services Division develops fleet replacement programs for all vehicles and equipment to meet the needs of City departments. The City departments are allocated a rental rate for these units that is calculated through an activity-based cost allocation model and designed to capture the replacement cost of the vehicle. Fleet Management also monitors and reports on fleet utilization, registers and licenses all City vehicles. The City’s fleet of vehicles and equipment has an acquisition value of $100.1 million and accounts for 64.2% of the net value of the long-term assets in this fund.
Historical financial performance
From year-end 2019 through year-end 2020, the Fleet Services fund had a decrease in net position of $285 thousand. Several factors affect the net position, but the decrease is primarily due to budget reductions in 2020 due to COVID19.
The 2020 ending cash balance of $35.4 million was an increase of $1.7 million from the 2019 ending balance of $33.7 million. The 2020 target cash reserve was $24.3 million, an increase of $569 thousand from 2019 ending balance of $23.7 million. The fund exceeded the target by $11 million in 2020.
In 2019 and 2020, the fund received a transfer from the General Fund of $317 thousand from Property Services as a rent allocation for non-Fleet departments that were located at the Currie Maintenance Facility to help offset the debt cost.
Current year projections
Revenues
The 2021 revenue for the Fleet Services fund is projected to be $39.4 million which is 3% more than the budgeted amount of $38.2 million. The projected revenue is more than budgeted primarily due to an increase in external contract rental charges and because sales are more than budgeted.
Expenditures
The 2021 expenses are projected to be $38.8 million or 0% less than the budgeted amount of $38.9 million. This is mainly due to the costs of operation work orders being less than anticipated.
Net Position & Cash Balance
The Fleet Services Division Fund projects net position to be $93.6 million at the end of 2021, an increase of 0% or $600 thousand from the budgeted amount of $93 million. The reason for this increase is because the change in net position for budgeted is less than the projected change in net position.
The year-end 2021 cash balance is projected to be $36 million, a decrease of 4% from the budgeted amount of $34.7 million. The 2021 target cash reserve is projected to be $23.4 million and the fund is projected to exceed the target by $12.6 million.
2022 budget
There are anticipated changes in 2022 for ongoing cost containment measures due to COVID19, which will reduce 2022 budgets for the Fleet Services Fund.
Revenues
Total revenues for 2022 are budgeted at $28 million, a 29% decrease from the 2021 projected amount of $39.4 million and a 27% decrease from the 2021 budgeted amount of $38.2 million. The decrease in 2022 budgeted revenue over the 2021 budgeted amount is primarily due to the one-time reduction of $13 million of rent normally billed to internal customers to cover the replacement cost of vehicles. Also, there is no anticipated transfer in revenue for 2022. This is in efforts to recoup some losses caused from COVID19.
Expenses
The 2022 expense budget is $43.6 million, an increase of 12% from the 2021 projected expense of $38.8 million and a 12% increase from the 2021 budgeted amount of $38.9 million. The increase in 2022 budgeted expense over the 2021 projected expense is due to an added transfer from the fund to the general fund of $2.9 million for the Water Distribution Facility. Fleet equipment capital purchases vary from year to year based on a long-term replacement schedule which requires higher amounts of replacement in some years compared to others.
Transfers
In 2021, the Fleet Services Fund will not receive any transfer in, nor will it transfer any funds out. In 2022 there is a transfer of $2.9 million going out of the fund for improvements to the Water Distribution Facility.
Debt Service
The fund has no debt for 2021 or 2022.
Fleet Services financial plan
Net position and cash balance
The net position at year-end 2022 is budgeted to be $77 million, a decrease 17% from the 2021 projected amount of $93.6 million. The primary reason is a budgeted spend down of net position as the expense budget exceeds the revenue budget by $15.5 million. The financial policy related to net position for the Fleet Services Division states that the net position should not fall below two times the annual depreciation amount. The Fleet Services Division Fund is projected to be in compliance with this policy in 2021 and 2022 as the target net position is projected to be $18 million for 2021 and $17.7 million for 2022.
The financial policy related to cash balance for the Fleet Services Division states that the minimum cash balance should be 15.0% of the operating budget plus 1.5 times the next years capital budget. This policy has been updated for 2021 and following. For the year-ending 2022, the cash balance is budgeted to be $19.2 million, a decrease 47% from the 2021 projected ending balance of $36 million. The decrease is due to the timing of capital equipment purchases and because of reduced rental revenue for 2022. The target cash reserve is $23.4 million for 2021 and $16.5 million for 2022. The fund is expected to exceed the target by $12.6 million in 2021 and $2.7 million in 2022. The cash balance includes amounts collected for future vehicle replacements in 2021 but not for 2022, which are not reflected in the target cash reserve amount.
Council adopted budget
The Council adopts cost containment decreases to the budget in the amount of $2.3 million for 2021 and $13 million in 2022.