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MINUTES
SPECIAL JOINT MEETING
BOARD OF COUNCILMEN AND BOARD OF FINANCE
JULY 30, 2007
A SPECIAL JOINT MEETING OF THE BOARD OF COUNCILMEN AND THE BOARD OF FINANCE was held on Monday, July 30, 2007 in the Council Chambers.
Those in attendance included Mayor Ryan J. Bingham, City Councilors Thomas C. Jerram, Rick E. Dalla Valle, Andrew J. Slaiby, Marie P. Soliani, and Drake L. Waldron, Board of Finance members Bruce Cornish, Mark Bushka, Thomas Scoville, and James Zeller, Corp. Counsel Ernestine Yuille Weaver and Board of Public Safety member James Potter. Councilor James F. McKenna, and Board of Finance members James Nichol and Daniel Farley were absent.
Mayor Bingham called the meeting to order at 6:35 p.m.
A presentation was given by Paul Lauria, President of Mercury Associates, Inc. on Vehicle Replacement. He was joined by Dave Tetreault, Senior Consultant.
Mr. Lauria said that they were in the business of advising organizations on how to improve the management and operation of their fleet of vehicles. They have worked with a number of clients in the State of Connecticut, including the CT Department Administrative Services, CT Department of Transportation, and cities of Glastonbury, Groton, Stamford, and Waterford. They have experience working with small municipalities like Torrington, not only in New England, but all over the United States. They worked on fleets of vehicles with as few as seven to as many as 42,000.
The scope of this project had three major components: 1) Assess the current fleet management practices of the city’s Equipment Maintenance Department, 2) Review of vehicle utilization levels and fleet right-sizing opportunities, and 3) Assess the city’s fleet replacement costs, the appropriateness of the current replacement reserve fund balance and financing practices.
Mr. Tetreault indicated that Torrington’s fleet consists of 394 units, of which 239 are licensable, wheeled-type vehicles that require replacement and maintenance. They include light duty vehicles, cars, sedans, pick-up trucks, police & fire vehicles, plow trucks, dump trucks, sweepers, and other construction equipment. The estimated cost to replace the entire fleet at this time is $11.8 million, $1.4 million, annualized replacement cost and $800,000.00 in annual maintenance costs. The city spends approximately $500,000 a year on fuel. Equipment Maintenance staff consists of nine personnel, a manager, a service coordinator, six technicians and a welder. There is one central shop location for the entire city which has seven bays and one shift of operation.
Mr. Tetreault stated that the Equipment Maintenance Department is in the top percent of fleets of organizations they have encountered, however, significant areas should be improved. The first area checked was the organization structure and management. Their findings indicated that the city has a centralized facility whereby technical and administrative tasks are located. Policy and procedures have not been documented and implemented in all areas and should be addressed. Formal business plans have not been developed, and management reports containing key performance indicators and information are not generated and used. Mr. Tetreault stated that, for every area that needs attention, there were three or four which were found to be satisfactory in performance and they were documented in the report.
Since their visit a couple of months ago, Mr. Michaud has taken action to implement corrective action based on the findings of the report.
The next areas looked were fleet funding and financial management best practices, best in class fleet management organization, utilized internal service funds and cost charge back systems. Their findings were the replacement fund is used to finance some but not all the asset replacement costs. There is no internal service fund to finance fleet management and operation costs. A full cost charge back system is not in place. Mr. Michaud generates some charge back systems to some paying customers, but everyone is not on a charge back system. No routine financial reporting was observed other than the annual budget. There’s no typical monthly financial report from the fleet to the user departments stating what they spent and what remains in their budget.
The next area checked was the vehicle disposal practice. The best practice in that area was to insure the vehicles are removed permanently from the fleet at the end of their useful life and disposed of in a timely manner that maximizes the vehicle’s residual value and that repairs are no longer needed and the item is removed from the inventory. Their findings indicated that the majority of vehicles are removed from the inventory in a timely manner when replaced. Vehicles are typically old and worn when sold, which is missing the optimum point at which resale would minimize total life cycle cost.
The next area looked at was fleet maintenance. Effective fleet maintenance also requires acquisition, management, and control over a wide array of resources including mechanics, vendors, work space, tools and parts. They focused on those major areas. Their findings were that the preventive maintenance program does not incorporate multiple levels of progressive services. Typically, the best practice is an ABC type service and every time they would be titled different checks in systems and components. The PM intervals were not scheduled in accordance with the manufacturer’s recommendations, which can lead to an over and under PM condition. Mr. Michaud has already adjusted some of the PM intervals. There is no formal performance measurement system or a quality insurance program. Some of the simpler performance measurement systems include fleet availability, PM compliance, repair turnaround time, etc. The quality insurance program would insure that the work performed in the
shop is checked before it’s returned to service to avoid call backs. They didn’t see a high rate of call backs, but there was no formal process in place for the quality. That also involves checking the vendor’s work when the vehicle returns from a vendor.
They checked the facility itself. The best practice in that area would be a safe and productive maintenance facility, adequate staging, storage space, and appropriate shop tools and equipment. Their finding is that the facility is marginally adequate in terms of size, location, lay out and general condition in respect to the size of the fleet. Areas that can be improved are organization in storage of parts and materials. General housekeeping could be improved. The attention to safety and environmental compliance procedures could use some attention. There was no heavy lift capability, and shop lighting was poor. Under parts inventory and supply, the cost effective and timely provision of high quality repair parts and supplies is a key element in the overall provision of fleet
maintenance services. The procurement of parts, both the sourcing and the purchasing, parts inventory management, warehousing and inventory control, all affect the overall success of the fleet maintenance and repair program. Their findings in that area was that they didn’t see any policies and procedures governing the performance of parts management activities. The automation of the parts’ inventory was weak. The majority of the parts were not in the automated system. There was less than adequate accountability in inventory procedures. The size of the inventory, in their opinion, appears to far exceed that of comparable municipal fleet operations. There were more parts than they felt comfortable with. The process used to source purchase parts such as requisitions, contracts, and quotes, needs improvement to be efficient. They believe that better pricing can be obtained on parts, and the requisition process can be
slimmed down and automated to improve efficiencies.
Customer communication is essential to the effective performance of any fleet management organization. Good customer service management stems from an acute sensitivity to meet all the needs and concerns of the fleet users. Their findings are, current customer satisfaction is very high, however, until everyone gets placed on a charge back system, people tend not to talk badly about another party who is paying their bills. Customers may have a different opinion once they pay for the services they obtain. Customer responsibilities have not been defined and enforced. They did not see any written policies or procedures on what the operator, supervisor and/or owner of the equipment should and should not be doing in terms of their roles and responsibilities with both preventive maintenance and
replacement policy development. Service level agreements for each customer are not being used. Each department has a specific number of vehicles they need at the beginning of the business day. An example of the type of service level agreement which they would establish for each of the user groups is the police department needing 25 cruisers at 7:00 a.m. every Monday morning. There’s no Fleet Management Advisory Board representing the city’s fleet users to help the Equipment Maintenance set priorities. They are made up of user groups and can help the Fleet Manager develop policies and procedures and govern the fleet. There was no customer satisfaction survey program in place.
Management Information System: All fleet operations typically follow data and all need some type of automated system. The city’s automated system in place is called CFA, and is not being used to its fullest capabilities. PM scheduling, compliance items, component standards, measuring the fleet, capturing the cost of all labor and parts, etc. are not being documented into the system. Those that are, are being done in a general sense whereby costs are lumped into one amount instead of being broken down. The system has a lot more to offer and they encouraged the city to explore and use it. Data integrity needs to be improved: whatever data is captured by technicians and parts people, as what’s recorded on the work order, what goes into the system, when it goes into
the system, how often it goes into the system, etc. There is a need for refresher and additional training on the CFA system for the staff, including service and parts employees. Only a few people use it, but when it’s used to its capacity, technicians could enter their time from the floor, eliminating a lot of paperwork on their end. Additional terminals and access to the shop floor are recommended so technicians can look up the history of vehicles and enter their time appropriately.
Vehicle Replacement and Acquisition: Timely replacements are important for controlling vehicle availability, safety, reliability, acquisition costs, resale values and overall operation efficiency. How often the fleet is replaced will affect the operation and status of the fleet. The best maintenance program in the world alone cannot get us by. The replacement cycle was not in line with energy standards, but it may be lengthened because of the low utilization rates. Keeping a truck for 25 or 30 years is normally not cost effective. The Equipment Maintenance Department has not accessed alternative finance methods or cooperative purchase agreements, and multi area bids are not being used. Formal policies and procedures don’t exist for specification development and
definition for roles and responsibilities of all people. Everyone getting a new vehicle should be involved in that process and they should have roles and responsibilities. There should be a process, particularly done on a flow chart, stating who does what and when and what the next step of the process is. Everything at the current time falls on Fleet, and that’s not the best solution.
Key recommendations: Mercury Associates recommend that the city completely overhaul the parts operation. They should start from scratch; conduct a physical inventory, dispose of anything that is obsolete, set up new replenishment standards using the CFA program based on the demand history, revamp the parts’ inventory system from A to Z, and reevaluate the role of the service coordinator. They believe the service coordinator should have more of a service role and less of a parts role, particularly because the gentleman filling that position is a highly skilled, master certified ASC Technician. Because the parts department is in such rough shape, a lot of his time is taken up with parts, but he should have more of a service roll.
Expanding and improving the charge back system to include all departments, establish performance metrics that the Fleet Department can be measured by; the simple ones are Fleet Availability, PM Compliance, and Repair Turn Around Times.
Improve information management use, which is the CFA System, and improve the PM Management. Develop key fleet management policies and procedures, have them issued by the proper authorities, which they believed was the Mayor’s Office, because the Fleet Department reports directly to the Mayor. Those are policy procedures for everyone, not just internal fleet, but the users as a group as well.
General Housekeeping: Clean up the shop, install better lighting and lifts, and improve the management of the controlling products and other potential hazards. The heavy lift and lighting are two critical items on that list and they should be given attention.
Mr. Cornish asked if they had identified anything low cost, easily implemented items that they could do today, seeing they are already in a new budget.
Mr. Tetreault indicated that the city could evaluate the roll of the Service Coordinator and establish the performance metrics system. They could improve the information management use and the PM Program, which Mr. Michaud already started. They could perform some shop clean up.
Councilor Soliani asked if they found any documentation of policies and procedures in place on how the garage works.
Mr. Tetreault said there’s a take home vehicle policy, but it doesn’t relate to the normal day-to-day operation. A few training and skills’ assessment policies are in place here and there, but there needs to be one overall that addresses all the different areas within the fleet.
Councilor Soliani asked if there was any indication on follow up concerning the policies and procedures that are in place. Any documentation of follow ups on whether those policies and procedures in place are actually followed.
Mr. Tetreault said yes, he believed there were. An example was the technicians’ development program. He reviewed some files where documentation was occurring on different dates and certain technicians knew what the next steps were for them to improve themselves and advance. It was his belief that the ones he saw were being adhered to.
Mr. Lauria suggested hiring a college intern to work with Mr. Michaud. Part of the problem of having a small Fleet is that the director of the organization has to wear so many hats and it’s difficult for him to find the time to document the complete set of policies and procedures. Mr. Lauria said his company writes Policy and Procedure Manuals that may consist of as many as 50 or 60 separate policies and procedures. There are a lot of free examples out there and it’s simply a matter of taking the time to do some research to gather them and figure out what works for the City of Torrington. Those are the kinds of activities that are perfect for an intern.
Mr. Cornish said he observed in the report where they weren’t sure if the CFA system provided information that would be useful, areas that didn’t meet certain standards.; However, it seemed like there was a lot of information that could be gathered through the system that could be helpful, and asked what it would take, besides training?
Mr. Tetreault said a couple of terminals in the shop, one on the light side and one on the heavy side and some training to show people how to find the data they want to capture. There is a terminal in Mr. Michaud’s office and one in the parts’ room but they are not conducive to the technicians. It’s better to get the terminals to the technicians rather than get the technicians to the terminals. Mr. Tetreault said he did some research on the CFA system and it was his belief that, although it wasn’t the best system, it was suitable for the city’s application.
Mr. Lauria indicated that it was a waste of time and talent to have skilled people feed data.
Mr. Tetreault noted that Mr. Michaud currently enters a lot of the parts and labor information himself, which takes time away from focusing on the bigger picture, the policies and procedures, etc.
Fleet Utilization Review: Mr. Tetreault said, due to the limited geographic area in which the fleet operates, it’s difficult to achieve utilization levels comparable to other local organizations. Nevertheless there are opportunities to improve. The vehicles don’t accumulate many miles because of the geographical area where they operate. They reviewed the entire rolling fleet stock consisting of 294 pieces and, based on an average life time use of 3,500 miles, which is quite low, and a 2006 accumulation of 2,000 miles and/or 300 hours, they identified 38 vehicles that should be addressed to see if they should be retained. They asked each department head where these vehicles were assigned, to comment on their need for the vehicle, what role it played, how often it was used, and
could it be substituted with a short term rental or lease. Department heads were very responsive to the survey, and a recommendation was made to retain 28 of the 38 vehicles. Of the 32 responses, three recommended replacements with new or more suitable units. They also recommended a fleet pool and loaner type pool, and that some of the vehicles be moved into that pool. Examples include air compressor, skid steer, wood chippers, and a couple of sedans. Typically, one department would own it and have very low usage. Their recommendation was to own one and let departments draw from the pool. That would increase the utilization and reduce the number of vehicles in the fleet. They also recommended increasing the rental of equipment versus buying new equipment and having it on hand. Owning a piece of equipment for occasional use is no longer recommended.
Mr. Lauria spoke on fleet replacement. The city owns 394 pieces of equipment, including some very small power units. Two hundred and thirty nine (239) are licensed over the road vehicles. It’s a very diverse fleet for a small municipality with approximately 50 different types of assets included in this inventory of 239 items. The current average age of vehicles is eight years, which is quite high, and replaced every 16 years. For comparison purposes, they recommend a replacement cycle in the seven to nine year range, which means the average age of the assets would be about half, or four and one half years old. One reason the city has an abundance of older vehicles is because they don’t accumulate much mileage. They feel jurisdictions can reduce the total cost of
ownership of the fleet by replacing vehicles sooner. The average recommended cycle of the different type of assets in the fleet that they came up with during the course of this study is about 10 ½ years, which is significantly less than the current 16 years.
Mr. Lauria noted that the original purchase price of the vehicles in the fleet was $8.6 million, the current replacement cost today is about $12 million, and the average annual replacement cost is about $1.4 million. If the city was to replace every vehicle and piece of equipment that meets the recommended replacement cycle all at one time, we would spend $4 million. They are not recommending replacing $4 million worth of vehicles in the next year. The city uses a replacement reserve fund to finance the replacement of approximately 160 of the 240 licensed over-the-road vehicles. For various reasons, some departments don’t participate in the central fleet replacement reserve fund. Some get federal grant money so there’s no assurance that the vehicle will be replaced in the future. There are a number of low cost assets included in the inventory but not part of the replacement program. For the majority of the big ticket vehicles and equipment in the city’s fleet, the city has
established and used for a number of years a replacement reserve fund. Every year there’s an appropriation of funds that is put into the replacement reserve fund and proceeds of these contributions are used to defray the cost to replace vehicles. Not all vehicles in the city’s fleet are included in that fund, and that represents an opportunity to improve policy and management decisions.
Mr. Lauria reviewed several graphs in regard to Baseline Replacement Plans versus Smooth Replacement Plans.
Mr. Zeller asked if they assumed that the current assets will be more expensive in the future.
Mr. Lauria said yes. They used an inflation rate of 3% across the board. The numbers on the graphs include the inflation rate, but they don’t make any assumptions about changes in the quantity or type of vehicles of the fleet in the future. One of the key questions they were asked to address as part of this project was the appropriateness of the current reserve fund balance, which is about $1.7 million. The graph on page 66 suggests that there’s more money than we need in the reserve fund at this time. If the city budgets the amount of money represented by the red line in the graph on page 66, starting with $550,000.00 in the next fiscal year, the city will be tying up a lot more cash in the reserve than necessary. Both, Mr. Lauria and Mr. Tetreault were quite confident in
saying there was no reason to leave $1.7 million in the fleet replacement reserve fund, assuming that the replacement program continues to be limited to the vehicles that are currently financed. If they were to expand the scope of the replacement reserve fund to encompass all city assets, then it’s a very different picture.
Councilor Soliani asked if their recommendations were conservative in the fact that the city’s fleet may grow within the next ten years. She didn’t want to see the fund depleted to the point where there wouldn’t be enough money to cover what they need and have to raise the mill rate because of it.
Mr. Lauria said the city currently has excess cash to purchase additions. Ideally, if the city is going to use this type of mechanism to finance the replacement of fleet assets, if a city department wants to add a new vehicle to its inventory, the way it should work is, they get a lump sum appropriation for the full purchase price of that additional vehicle and in the fiscal year in which that vehicle is added, they should also give an appropriation to start paying replacement charges for its eventual replacement. The city should not be taking cash from the replacement reserve fund to pay for the additional vehicle. If there is cash sitting in the reserve fund that enables you to do so, that says you’ve collected too much money for the assets already in there. In fact, if the city was
under the state jurisdiction rather than local, that would be disallowed by federal guidelines.
Mr. Lauria said the city has a range of choices. One option is to keep the $1.7 million in the fund balance and essentially use a lot of that cash to buy down the charge back rates, the amounts you should charge for the use of each vehicle for the next several years. That means that the rates would be unofficially low, they wouldn’t really represent the true cost of replacement of each police car, each plow truck, etc. Another option is to take the money out of the replacement reserve fund, put it back in the general fund, start charging charge back rates that actually reflect the true cost of replacement for each type of asset in the fleet. They’ve actually provided the Comptroller a schedule of recommended replacement charge back rates for next year by individual vehicles. The
city can continue to make lump sum contributions and not utilize the charge back system at all. One of their recommendations is to institute a fixed monthly charge to each department for each vehicle they use. They believe this will have a positive impact on the size and the composition and utilization of the fleet. Because the city is using the lump sum appropriation of funds, the capital costs to replace vehicles are not really recognized by departments as to how much it costs to have a vehicle at their disposal day after day, month after month.
Mr. Cornish pointed out that the taxpayers have already chipped into this fund to the tune of $1.7 million. He agreed that the charge back mechanism is a good idea. It’s not really a lump sum appropriation into the fund right now; it’s an allocation from every department. Every department has some accountability for the portion that’s going into the fund. What’s missing certainly is the charge back on the actual operating costs, so they’re collecting the capital but very few departments are being charged with recognizing the operating expenses for the ongoing of those particular vehicles. In that respect, he agreed to the shrinking of the size of the fleet, making vehicles available when they are determined by the departments to be appropriate. From the
taxing perspective, he had a real problem with taking something they have taxed routinely to provide for the future and now changing their minds and doing something without the public being involved in that something. He thought the charge back system would be helpful. He asked if fire apparatus was included in the graph on Page 66.
Mr. Tetreault indicated that fire apparatus was included in the graph.
Mr. Lauria said they didn’t recommend reducing the fund to zero, they actually recommended reducing it to $500,000.00. That doesn’t mean the city should spend the remaining $1.2 million. The city could put it toward the rainy day fund. He didn’t think the city would ever be confronted with spending $3 million in one year; that would be poor asset management. Ideally, the city should refresh this plan every year.
If the city was to do that, the charge back rates would be higher. Ideally, the city should have a set of charge back rates and a reserve fund balance that reflects a true yearly cost to replace equipment. To have $1.7 million is overstating the cost to replace the city’s fleet.
Mr. Lauria said it was a challenge to administer and manage the replacement reserve fund properly. To our credit, the city has a lot of cash in there, the city hasn’t depleted the reserve fund balance. If anything, they would suggest tying up more cash in the city’s big house bank account than is necessary to insure the timely replacement of vehicles. Another option, rather than operating our own revolving fund, is simply to use capital markets and borrow money on an as-needed basis to replace vehicles.
So, their recommendation was to consider reducing the replacement reserve fund balance to $500,000.00 providing that the scope of the fund is increased to encompass all city vehicles, implement the replacement charge back rates for each vehicle, update the replacement plan on an annual basis, and establish a Fleet Replacement Advisory Board to help Equipment Maintenance make better decisions. If it is decided to retain the city’s current longer replacement cycles for the time being, they recommend moving toward shorter cycles over time. The city may do some cycle cost analysis to substantiate that it’s really not in the city’s best interest to keep vehicles for fifteen years.
Councilor Soliani asked if it would be to the city’s advantage not to deplete the replacement fund if their recommendation was to replace the fleet in a more timely manner than it’s currently being done.
Mr. Lauria said the numbers are done on the shorter cycles. If they had done the analysis based on the current cycles, the $1.7 million would be even less necessary. The projected replacement cost and the charge back rate which they provided to the Comptroller for the first year, are predicated on the recommended replacement cycles, the average being 10.5 years, and not the 15 years for the sweeper, for instance, that the city has been using.
ADJOURNMENT #2990
On a motion by Mr. Cornish, seconded by Councilor Jerram, the boards voted unanimously to adjourn at 7:50 p.m.
ATTEST: JOLINE LeBLANC
ASST. CITY CLERK
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