As in many cities, Houston's equipment replacement process is far from ideal. The city has an equipment acquisition fund of $22 million for fiscal year 2006, but funding levels go up and down yearly, according to the availability of money. So monies available don't always match up with needs.
Under a revolving fund concept now being discussed by Houston public works officials, however, payments for new equipment would be stabilized from year to year. “The goal is to roll up fleet replacement into a central fund for the entire department,” said Carl Bowker, Houston's assistant director of public works and engineering.
In the quest for improved equipment funding processes, it is useful to consider Houston's revolving fund concept. This article also looks at equipment funding challenges and solutions in Westminster, Colo.; Alexandria, Va.; Roanoke, Va.; and Bismarck, N.D.
With Houston public works' contemplated equipment fund, “The public works and engineering's operating divisions would pay ‘rental' that would cover expenses, depreciation, and inflation for each piece of equipment,” said Bowker. “Once you build this huge revolving fund, the money is already there. There are economies of scale, and we would work closely with the operating groups on funding it. You want the operating groups to have flat funding payments from year to year.” Bowker and his staff maintain some 4200 pieces of rolling stock for 14 departments and agencies.
Bowker said the vision calls for a fully funded self-perpetuating vehicle and equipment fund, requiring no new appropriations, specifically for the replacement and maintenance of the public works and engineering fleet. The goal is to create a simplified method that links the vehicles and equipment required with the annual work programs of the divisions. What's more, such a fund would reduce the number of vehicles and equipment—and age of the department's fleet—and cut the cost to maintain and operate it.
Creating such a fund would involve challenges, not the least of which is to educate operating division officials. They would want to know why new “rental” payments are needed for a piece of equipment that is already paid for. “The education part is that you're paying for the next one,” said Bowker.
The operating groups would be charged back for the units they use on an annual basis. Units not used daily are pooled and rented out on a daily, weekly, or monthly basis. Units that the operating divisions no longer require due to a reduction in the annual work program would be returned to the pool. The units would be offered for annual rental to other operating divisions for permanent rental. Under-used units would be sold at auction.
Justifying the Cost
As part of the annual budget process, operating divisions would be required to justify additions to the fleet; these would have to be approved by the city council or governing body of the municipal body or agency along with the initial funding to purchase these units. Replacements would occur automatically based on the schedule set by the fleet branch.
Another challenge is to fund the existing accumulated depreciation. If, for example, a city has assets originally worth $200 million, and the assets have depreciated by 50%, then accumulated depreciation is $100 million. That amount has to be deposited in the new revolving fund to pay for equipment when replacement time comes.
“You could start out small and write a check for $10 million, then grow that money over time,” said Bowker. “You have to come up with the seed money, and it could come out of a city's acquisition fund, or it could come from commercial paper. Those decisions have to be made by the city administration and the director.”