Equipment Fund - 2010 Budget Message

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Our unique Equipment Fund (EF), a major asset of the Township, is an internal service fund that accounts for the operating and maintenance costs of the Township’s fleet and communications equipment – over 1,000 pieces of equipment. Costs, which include fuel, materials, maintenance and asset replacement (or depreciation), are determined annually on a full cost recovery basis. Township departments that use this equipment are assessed a “rental” charge, which reimburses the EF for these costs through interfund transfers. The asset replacement component of the rental charge is a current operating expense to gradually pay for the use of an asset during its economic life, thus providing funding for the future asset replacement. Based on the EF financial position at December 31, 2008, the fund was close to fully funded, assuming continuation of typical annual funding.

As a result of this financial flexibility coupled with current budgetary challenges, for the first time in decades, it is recommended that less new funding be contributed to the Fund than in the past. This proposed budget recommends that only 50% of the otherwise planned amount for future replacements be contributed by the GF to the Equipment Fund for 2010, or $430,000.

This recommended reduced set-aside of liquid assets for future equipment replacements comes at a time when the EF has undergone significant discussion throughout 2009, with the goal of increasing overall awareness of the purpose of the Fund and its methodology to partially pre-fund required equipment replacements. It is viewed that this reduction of $430,000 can be sustained for quite a number of years, assuming new unbudgeted assets are not expected to be purchased or replaced from the EF.

This action is not without consequences. If such lower funding contribution levels are continued for the future, eventually the Equipment Fund would expend its reserves and require the Township to begin to replace equipment on a “pay-as-you-go” basis. While this is what most other local governments are forced to do, it would represent a significant decline in the Township’s overall fiscal strength and flexibility.

More seriously, if annual GF contributions are ceased to the Equipment Fund, it is anticipated that funding for GF-related equipment purchases in the Equipment Fund would be gone in five to ten years, triggering a much sooner “pay-as-you-go” requirement. Also, there is currently no identified or budgeted funding for the substantial upcoming possible equipment purchase needs for the following key categories: (a) 800 MHz radios for police, fire and public works; (b) automated refuse trucks and containers for residents (if this collection method is selected in 2010); and (c) replacements for fire apparatus (estimated in the range of $1M per year, previously funded from bond proceeds). A decision to purchase one or more of these three major equipment categories from the $9M of current Equipment Fund liquid assets would accelerate the depletion of the Equipment Fund.

The 2010 EF Expenditure Budget is approximately $3.5 million or -$132,000 (-3.6%) lower than the 2009 Budget. Gasoline and diesel fuel costs represent $611,000 or 17% of the total 2010 Budget and equal to the amount budgeted in 2009, since the cost for vehicle fuel has stabilized significantly. Current gasoline prices are $2.12 per gallon for gasoline and $2.15 for diesel.

The EF major revenues are interfund transfers from Township departments for communication equipment and vehicle rental charges. The 2010 rental charges include costs for fleet operations, fuel, maintenance, and vehicle/equipment purchases and are budgeted at $3.2 million, or -$153,792 (-4.6%) decrease compared to the 2009 Budget. This decrease is directly related to the reduction of the $430,000 GF contribution for future asset replacements.

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