TITLE
Consider a memorandum/resolution authorizing a lease with purchase option of a backhoe for the Street Services division.
SUMMARY
DATE: October 3, 2017
TO: Ronald L. Olson, City Manager
FROM: Jonathan Locke, Executive Director of Finance
SUBJECT: Authorize lease with purchase option of a backhoe for the Street Services division
BACKGROUND AND FINDINGS:
The three-year lease on one of the Street Services division’s existing backhoes expires in December 2017. Due to the escalating cost of maintaining this type of heavy equipment as it ages, staff does not feel that purchasing the existing unit would be in the best interest of the City. The Street Services division is therefore requesting to initiate a new three-year backhoe lease with a purchase option at the end of the lease.
The division utilizes two backhoes that are critical pieces of equipment for ongoing street maintenance programs. One of these is an 11 year-old unit and is owned by the city; the other backhoe has been replaced every three years through new leases, since 2008, to ensure reliability.
THE ALTERNATIVES CONSIDERED:
1.) Purchase the existing backhoe for $50,715.71. This machine would have no warranty remaining and, as known from past experience, the repair and maintenance costs would dramatically increase. Future reliability would also be of concern.
2.) Return the leased backhoe and not replace it. This would limit the division to one 11-year-old backhoe with no backup and would very likely prevent the division from completing its mission in a timely manner.
3.) Procure a rental unit. This is not practical because these backhoes are not always readily available in this area. Rental cost for the backhoe would also average $3,500/mo. vs. leasing at $1,909.45/mo.
4.) Initiate a new three-year lease, as in the past, for a new backhoe that would provide dependable service.
Which alternative is recommended? Why?
The fourth alternative is recommended in order to provide the required equipment to effectively maintain the city’s infrastructure.
CONFORMITY TO CITY POLICY:
The City of Killeen is a member of several purchasing cooperatives that are in compliance with the Texas Local Government Code section 271.102. Purchases made through a cooperative satisfy competitive bid requirements. The new backhoe would be a Caterpillar 420F2IT provided by Holt CAT of Waco utilizing the TASB BuyBoard Purchasing Cooperative. The lease with purchase option would be facilitated through Caterpillar Financial Services Corporation per the attached finance proposal.
FINANCIAL IMPACT:
The pricing for the equipment is as follows:
|
Make/Model |
Monthly Cost |
Purchase Option |
Total Cost 3-yr + Purch. |
|
Caterpillar 420F2IT |
$1,909.45 |
$62,685.00 |
$131,425.20 |
What is the amount of the expenditure in the current fiscal year? For future years?
The amount of expenditure in FY18 (Dec.-Sep.) would be $19,094.50. The amount of expenditure in the following two fiscal years would be $22,913.40 per year. In FY21, the final two payments made in October and November 2020 would total $3,818.90. At the end of that period, the City would have the option of returning the equipment and initiating a new lease or purchase the equipment in FY21 for $62,685.00
Is this expenditure budgeted? If not, where will the money come from?
This expenditure is budgeted. Funding for this equipment is available in the Street Services division's Equipment Rental/Lease account (010-3445-434.44-10) at a rate of $1,909.45 per month.
Is there a sufficient amount in the budgeted line-item for this expenditure?
Yes. The FY18 budget for this account is $30,454.
RECOMMENDATION:
Staff recommends the procurement of the backhoe from Holt CAT, through the TASB BuyBoard, with financing provided by Caterpillar Financial Services Corporation on a three-year lease of $1,909.45 per month, FY 2018-2021, and that the City Manager or designee is expressly authorized to execute any and all change orders within the amounts set by state and local law.
DEPARTMENTAL CLEARANCES:
Public Works
Purchasing
Finance
City Attorney
ATTACHED SUPPORTING DOCUMENTS:
Quote
Specifications
Agreement
Photo
Certificate of Interested Parties