Leasing

Baltimore Mayor Proposes Lease Financing Vehicles to Free Up Fleet Replacement Funds

March 20, 2013

Baltimore Mayor Stephanie Rawlings-Blake proposed a 2014 fiscal-year budget that aims to close a $30 million budget shortfall while protecting core city services and reducing property tax. The mayor hopes to take the $30 million from the City’s Mobile Equipment Fund and change the City’s vehicle purchasing method to a lease finance model to free up the funds.

The City currently pays the entire capital cost of each vehicle up front. Under the lease financing approach, the purchase of each vehicle is financed over its useful life.

According to budget documents, Fleet Management maintains more than 5,600 pieces of motorized equipment, with an average vehicle age of approximately 8 years. The mayor’s administration estimates that without a change in approach, the estimated average vehicle age will continue to rise to 9.2 years over the next 10 years, leading to higher maintenance and repair costs, higher fuel costs, and more downtime. The Mayor’s proposal to use a lease finance model to purchase vehicles would allow the City to modernize its fleet more rapidly than under the previous model, reducing vehicle age to 4.2 years.

The one-time fleet fund transfer will be used to for road and bridge repairs, recreation center upgrades, blight elimination, and IT modernization.

In addition to the new purchasing model, the City is also evaluating its optimal fleet size. Based on its review of the fleet and the planned fleet modernization, the City hopes to reduce fleet size by at least 5%. A smaller fleet should result in lower fuel and maintenance costs.

The budget proposal also increases fleet operating budget from $42.7M to $51.1M in fiscal-year 2014.

The proposed budget would put into effect some of the initiatives identified in the City’s Ten-Year Financial Plan released by the mayor in February. The Ten-Year Financial Plan aims to close a $750 million structural budget deficit. Earlier in February, a consulting firm presented a study stating that Baltimore would face “financial ruin,” or a $744.8 million deficit over ten years, if it didn’t make financial changes, according to Reuters.

The budget must go before the Board of Estimates and City Council for approval.

Comments

  1. 1. David Bragg, Bragg Fleet [ March 22, 2013 @ 10:18AM ]

    Having managed two 100 Best Fleets and worked for years in the private sector as a dealer and leasing executive, I find this idea mind boggling.

    Having accumulated $30 million in a fleet reserve fund, they apparently have a pretty well managed fleet organization in place which actually amounts to an in house leasing company. A fleet of this size with proper management can manage an in house leasing company as well as the private sector for less cost because of public tax advantages and lack of the need to generate profit. Leasing is an advantage to private business for tax benefits; when the fleet is not large enough for full time professional management; or to eliminate a bloated and inefficient in house organization.

    The only advantage I can see to this proposal is that once consummated, the City will forever be tied to a leasing company and the political decision makers can no longer raid the fleet fund or cut funding and expect the vehicles to keep running. When the lease is up or the payment not made, the leasing company will simply come and get the vehicles per their contract. The City will be forced to renew and fund the lease or operate without vehicles.

  2. 2. john mc Corkhill [ March 29, 2013 @ 01:51PM ]

    I agree 100% with Mr. Bragg and see this as another example of a short-term politician most likely hoping to ascend to a higher level political position while making shortsighted decisions along the way. I've seen this happen many times over my municipal fleet career where decisions are made by an official knowing they may be in office for 2-4 years then gone leaving a mess for somebody else to clean up. The decision may look good on paper but unfortunately in this case the fleet management organization and its group of dedicated employees are left with a riddled agency that may never recover

 

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