How the Improving Economy Is Affecting Fleet Budgets

January 2014, Government Fleet - Cover Story

by Thi Dao - Also by this author

Whether a fleet is in financial distress or not largely depends on the tax base in their areas. Some fleet managers report their fleets are doing just fine, while others still face unfunded budgets. The nation slid into an economic recession in 2008, but there are signs it’s getting better. What does that mean for fleets?

Local Revenues are Up, but Not Back to Normal

With municipal fleets, budgets are largely dictated by the local economy and city or county tax revenues. The National League of Cities’ 2013 survey of city finance officers revealed that economic conditions are gradually improving, and in many cities, this was occurring after several years of shortfalls and service cuts. In fact, 72% of city finance officers surveyed by the organization reported that their cities are better able to meet fiscal needs than in 2012. However, respondents, surveyed in early to mid-2013, only projected a small year-over-year increase in general fund revenues in 2013.

Some of the factors that affect city finances are sales and local income tax revenues, which experienced increases in 2012, and property tax revenues, which declined in 2012. Survey respondents expected these increases and decreases to continue into 2013.

Jim Phillips, media relations manager for the National Association of Counties, said while it is hard to generalize about the overall county budget situation, U.S. Census Bureau data shows positive year-over-year growth in state and local tax revenue for the past 15 consecutive quarters ending in the second quarter of 2013. However, “many counties are still a long way from where they need to be to continue to provide essential services and meet financial obligations,” he said

He continued, “After several years of budget cuts, including layoffs, purchasing delays, and delays in moving forward with infrastructure maintenance and capital improvement projects, many counties are still struggling with their budgets to meet both short-term and long-term goals and existing obligations.”

How the Economy is Affecting Fleets

Despite the revenue increases public agencies have achieved, this doesn’t necessarily trickle down to fleet operations. With a backlog of other services and projects for public agencies to consider, the fleet budget, including replacement funding, isn’t often the top priority.

Government Fleet sent out a survey in November 2013 to see how fleet budgets are faring for 2014, using the fleets’ most currently available financial data. The conclusion? Nearly 60% of respondents said their budgets are back up to or exceed their budgets from five years prior. A large number of fleet managers said they are finally able to purchase vehicles after pushing back replacements, and some are increasing their fleet budget and size due to added services or increased population. However, while not all fleets are in a dire financial situation, the ones who are feel frustrated.

● Personnel Budgets Just Cover Salary Increases

More personnel budgets have increased than decreased (42% increase, 18% decrease), but 40% said their personnel budgets have stayed the same. (See Chart 1.)

The main reasons for personnel budget increases were employee raises and increased cost of benefits. While oftentimes, raises are contractually obligated or negotiated by unions, one respondent said the elected board agreed to salary increases when members recognized the need to keep the staff from leaving due to low pay. Those with internal service funds said they would recover the cost increase by raising their labor rates. While many said their personnel budgets only increased enough to cover employee salaries and benefits, others said they would be able to focus on training with increased budgets.

A more experienced workforce may be exceptionally knowledgeable about the fleet, but they are often higher-paid workers. A commonly stated reason for reduced personnel costs was retirements of these higher-­paid workers and the hiring of new employees at lower salaries or reduced benefits.

Other effects of reduced or unchanged budgets are that fleets aren’t filling vacant positions or in rare cases, furloughing staff.

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