by Bradley Parsons
Staff Writer
The City’s efforts to save annual millions by changing the way it replaces vehicles is on the right track, according to a specialist in fleet management who reviewed the City’s progress last month.
Blair Fonda oversees fleet management for Enterprise Leasing Company, a component of the national car rental chain. Fonda has consulted with Chicago and Pittsburgh on similar fleet overhauls and said he walked away from a pair of December meetings impressed with the City’s evolving program and the personnel putting it in place.
Fonda said he met in December with interim Chief Financial Officer Walt Bussells, Finance Director Cal Ray and Fleet Management Chief Sam Houston to see if Enterprise could help implement the City’s new pay–as–you–go approach to replacing vehicles. Fonda said the City was already employing techniques at the industry’s leading edge and didn’t need Enterprise’s expertise.
“I was impressed to see how they’re running the shop over there,” said Fonda. “All the ideas we brought to the table, they were already aware of.”
During Mayor John Peyton’s transition, Bussells proposed the City lease vehicles to save large up–front expenditures from buying new. When Peyton took office, the City had set aside $58 million to fund future purchases. By leasing, Peyton hoped to free about $30 million of that money for investment into the General Pension Fund. That fund targets an 8.5 percent return on investments versus the estimated 1 percent the money earned sitting in a money–market account.
If the pension performed as targeted, the City could earn more than $2 million annually through the new leasing structure.
It makes sense for cities to free up their cash, Fonda said, because of current market conditions and their unique ability to borrow tax–free.
“It’s absolutely the right move,” said Fonda. “With their borrowing advantages and the current return available on money out there, they’re going to save money for the City for sure.”
Fonda credited the new structure’s architects, Bussells and Ray, as having “a good understanding about the cost of money. What it costs to invest and what it costs to save.”
Since June, when he took over Peyton’s transition, Bussells has been working to take better advantage of the City’s strong credit rating and tax–exempt status to borrow at lower rates. He has advocated re–investing that money into taxable markets with traditionally higher rates of return.
Fonda said the leasing program still appeared to be a work in progress, but said it looked to be based on solid fundamentals.
Similar programs Enterprise has structured for Chicago and Pittsburgh are based on cycling cars without large capital outlays, said Fonda.
“These programs allow cities to lease only for the useful life of a car,” said Fonda. As purchased vehicles near the end of their service, the cost to maintain them often becomes prohibitive he said.
“This way you save money on maintenance, and you cycle your fleet without laying out the cash in advance,” he said.