If you're a fleet manager, correctly funding your equipment replacement needs is a task that presents a number of challenges. For one, you've got to peer into the future and estimate when you'll need new equipment. And if you “rent” equipment to user departments, then you want to charge them correctly for current equipment usage so that replacement funds will be available when the vehicles wear out.
In Yakima County, Wash., Dave Veley is the equipment services manager for more than 200 pieces that include sheriff's vehicles, motor graders, backhoes, dump trucks, and more. “There's quite a lag between the time you write the bid specification and delivery of some machines, like trucks,” said Veley. “We try to anticipate when the vehicle will be needed. It can take 120 to 180 days from the date of an order to delivery of some equipment. And we want to be geared up by the time snow flies.”
Veley says his position was vacant for about 18 months, so he's only now catching up to actual equipment needs. For 2006 he estimates a need for $2.5 million for equipment replacement—more than double the $1 million or so that he had for 2005. “Whether we can pull that off or not remains to be seen, but that is the need,” said Veley.
The goal is for equipment depreciation charges to equal equipment replacement costs. “We don't always hit the mark,” said Veley. “If we fall short, the participating (user) department will come up with the shortfall. Or if they want a larger, more expensive truck or machine, the user department will do the budgeting to fund that.”
For example, the Yakima County Solid Waste Department opened a new transfer station, and budgeted for a couple of new trucks to serve it. “Our division just operates the Equipment Rental and Revolving Fund,” said Veley.
He said it's best to take a conservative approach in estimating equipment life—to err on the side of a shorter life. It's a delicate balance. If you estimate an equipment life that's too short, you'll overcharge the user department. But if you estimate a life that's too long, then the vehicle wears out early and you won't have enough money in reserve.
“So to be fair to our customers we want to hit those milestones as close as we can,” said Veley. “If you estimated a five-year life, and at three years it needs to be replaced, the user department has to come up with the difference—and budget surprises are not good.”
Equipment reserve funds works similarly in Santa Barbara County, Calif. “An assigned vehicle has a monthly bill and a mileage bill,” said Mitchell Guenthart, fleet manager for the Department of General Services. “If we bill $240 a month for capital replacement, that $240 goes into a capital replacement bucket for that vehicle.
“It works extremely well,” said Guenthart. “If a user department wants an additional vehicle, they have to buy into the fund. They contribute the original money. We just manage the vehicles and the contributed capital toward replacement. We don't have to do annual budgeting for capital replacement.”
Having enough replacement money means predicting the cost of new vehicles years ahead of time. “We never hit it spot on,” said Guenthart. “It's impossible to precisely predict the cost of vehicles.”
He says the cost of light-duty vehicles actually has come down recently. “If a vehicle actually costs $15,000, and we budgeted $ 17,000, we do a true-up,” said Guenthart. “We would give the extra money back to the contributing department—or if we're short, they have to make up the shortfall.”
— Daniel C. Brown is a freelance writer in Des Plaines, III