Is anyone else curious about the disparity between the proposal to purchase a new EMS ambulance for $280,000, and the fact that Bellaire leases other City vehicles instead of purchasing them?
After an extensive discussion of the high cost for the ambulance and new equipment at the Council meeting on October 21, 2019, (it seems the cost for similar purchases by the City of Houston was much lower) a second request was presented on Monday, November 4, 2019. Council approved the full $280,000 by a 6 to 1 vote.
Now to the leases. Bellaire has always purchased City vehicles. A special fund, the Vehicle and Equipment Replacement Fund, was established years ago for that purpose. Then, in fiscal year 2019, payments for leased vehicles began and more are planned in FY2020.
In a presentation to Council on October 21, 2019, our City Manager explained that leasing is easier on the City staff, less work and fewer records to maintain, and that somehow we’re coming out ahead by not purchasing vehicles.
My experience with leasing a vehicle extends to a week or two when I travel. Friends and relatives tell me the only auto leases they’re familiar with are for business use, vehicles that can be expensed. But Bellaire doesn’t need those kinds of write-offs.
The general overview is that if you always want to drive a newer car, it’s best to lease and not worry about equity, but the best value is to purchase a car and drive it for years after it’s paid for. If you decide it doesn’t fit your needs you have the option to sell it or trade it in on another vehicle.
After reviewing the 6 page Enterprise Lease Agreement I came away confused, not certain who pays for what. It appears to hold the City responsible for all maintenance, insurance costs, fees, damages, inspections and licenses, etc. Just about all the costs. Mr. Hofmann mentioned the purchase of a maintenance agreement, too.
As I understand an Open End Lease, which is the type of lease negotiated by the City, the lessee (Bellaire) pays for the use of someone else’s vehicle (Enterprise) for a prescribed period of time based on the value of the vehicle at the beginning of the lease and the amount of the vehicle’s value used during that period. At the end of the lease the lessee may purchase the vehicle at the reduced book (residual) value included in the lease.
What if the City no longer needs or wants to own a particular vehicle? Can it just return it to the leasing company at the end of the term? In that case, what happens to the thousands of dollars paid out on the lease?
There may not be a problem if a replacement vehicle is leased. But that means vehicles would never be acquired as assets, available to be sold or traded in. Would we ever stop paying for vehicles? Would one lease just roll into another one? That’s how it works in the business world.
In the case of the EMS ambulance currently under discussion, the cost will be reduced by the $10,000 trade-in of the City-owned 14 year old existing model. Perhaps the old ambulance could even be sold for a higher price.
For now the City Council seems committed to the Enterprise lease program – spending over $113,400 in 2019, approving $225,800 in 2020 – for leased vehicles. How many vehicles could the City have purchased for $339,000? And the $78,000 a year for the 12-year lease/purchase on the new Fire truck is not included in these figures.
Bottom line, unless Bellaire must finance vehicles via a lease agreement, why not just purchase them? Is the City just too strapped for cash? Modern vehicles are amazingly well built, and with proper care and maintenance it’s not unusual to for them to last 10 to 15 years, 150,000 miles, or more. Three years is the minimum warranty on a new vehicle, some are even longer, extended warranties are available, and even my ancient Highlander signals me when the 5-month maintenance is due.
What happened to our pay-as-we-go philosophy?
That still seems to be the protocol for other cities in our area. I did a little research. West University, Pearland, Sugar Land, Hedwig Village, Southside Place. All those cities purchase vehicles. While not all the cities have a separate list of vehicle purchases, here’s West University’s list of for 2020. Hedwig Village is a little more casual in their budget proposal.
Links to Contracts for five (5) vehicles, including a lease/purchase plan for one of our fire trucks, are listed below.
- Fire Truck – Lease Purchase Agreement -Signed – COMPLETE
- 2018 Ford F-150XL (686PR) (Per this lease, payback on a $30,189 truck over 5 years, plus the Reduced Book Value of $7,697 at the end of the lease = $38,777)
- 2019 Chevy Tahoe – Fire (690F)
- 2019 Chevy Tahoe – Police (695P)
- 2019 Ford F-150 – PW (691ST)
Bellaire’s Debt is $123.8 million at the end of FY2019
Not including the interest. The estimate FY2020 is over $126 million.
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