by Bradley Parsons
Staff Writer
The City’s finance director said Tuesday a new vehicle replacement system — championed by Mayor John Peyton and questioned by the City Council — would free $60 million for the City’s use.
Cal Ray told the mayor’s Blue Ribbon Financial Committee that money could be used to pay the City’s $25 million pension contribution, provide $3 million in start-up capital for water and sewer infrastructure expansion and fund $1.3 million in technology improvements. The committee is tasked with evaluating the vehicle program in concert with proposed changes to the City’s investment strategy.
The money currently sits in an account earning about 1.5 percent. In tight budget times, Ray said the City needed to find a way to make its money work harder.
“We have substantial cash here that is now viewed as a lazy asset,” said Ray. “We’ll leave enough to replace this year’s vehicles and put it somewhere where we’ll enjoy a substantially better return.”
Under the proposed program, the City would pay each year to refurbish its 3,200-vehicle fleet. Since 1989 the City has paid for replacements out of an account that set aside money for projected needs.
That account has swelled to $58 million. After paying about $15 million to fill the fleet’s current needs and $25 million to the City’s pension contribution, Peyton’s plan calls for about $25 million to be invested with the City’s general pension.
The $1.5 billion pension targets an 8.5 percent return. However, the fund has lost money two of the last three years. The fund averaged about 6 percent over the last six years.
Ray emphasized Council Auditor Richard Wallace’s participation in the program’s conception. However Wallace told the committee, “That’s not to say I don’t have questions.”
Among the issues to be settled as the Council evaluates the program, Wallace wants to know how the City will fund future pension fund contributions.
“I want to be sure we understand we are doing this to pay for a budget deficit,” said Wallace. “Next year we will have to put another $25 million into the pension, and we’ll have to figure out where that money will come from; we’re dipping into a one-time source, but this is a recurring cost.”
The City will also have to fund about $16 million annually to replace and maintain vehicles. The City has budgeted $15.5 million for next year’s replacements, escalating to $17.1 million in 2008. Since the City switched to the current system in 1989, those funds have always been in place. Under the pay-as-you-go program, the City will have to find the money in its general revenue.
That wasn’t always easy. Prior to 1989, the City employed what Ray described as a “catch as catch can” system. Wallace said last week that the lack of a coherent policy led to a deteriorating fleet as the City postponed buying new cars until funds emerged. The problem? They never did.
Ray said during the meeting that, under the old structure, the City would sometimes pay $15,000 to maintain a car that would have cost $4,000 to replace. He said the City rarely accumulated enough capital to replace the vehicles and instead poured money into repairs that initially cost less but accumulated over time.
Ray said the new program would be different. He said strict replacement criteria will be spelled out in legislation currently under construction. Ray said the ordinance would assign points to vehicles for years of use and mileage. When the vehicles cross a to-be-determined threshold, they would be replaced.
The legislation will grant the City some leeway. For instance, Ray said a police cruiser with four years of service, but only 60,000 miles could be carried over for another year. However, he said the ordinance would compel “strict replacement discipline.”
In extreme situations, Ray said the Council could simply opt out of the plan.
“In a bad year; in a perfect-storm scenario, the Council could back away from this. With 10 votes, the Council can uncreate anything it has created.”