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REPORT`TO COUNCIL
�
�_ FROM: Qillis A. Paterson ' DATE: OcWber 20,1998
Director of Finance end Treasu�er
REPORT NUMBER: FIN 24-98
3UHIECI': Finencing of Capital Expcndituns - Vehicles
R�CObA4ENDAT[ON:
�I That Repon FIN 2498 be received for information and thaL• .
�'� .
a) the arneral Meneger and DirecWr of Finance and Trea9urcr be aut6oriud to execute
ihe necessary egmmrnts to permanenUy finance, through the entcring into lease
artangements, ihe acqul�ition of eny or all vohicles contatncd in the 1998 Capital
Budget es approved by Council;
b) ihe costs of such financing be charged to 1998 Capital Expendihues financed from
Current Revenua for each cespccdve captta! acquisition; end
(2) the eppropriate officiels of the Town of Pickering bc authorized to give effcet theroto.
ORIOIN:
Director of Finance end Treasurer
AUTHORI'fl': , '
Tho Municipal Act, RS.0.1990. av amended:
FINANCIAL IINPLICATi0N3: ,
No4 eppllcabla.
EJ�CUIIVE 9[JMMARYs
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NotappUcabie
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'' Subjecf: Financiag of Cepitel Expenditures Vehtalea `P e 2
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: BACK4ROUND:
�. At its matiag of Sune 10,1998, tho Budget Committa requested informetion ngarding variow
opdons for fineuciag Ido ecquisidoa of vehiclq es found in various Departrnent Capital 8udgcts,
71use vehicies rango &om 522,000 for a car in tho By.1aw 3ection of the Clerk's Departmrnt t�
5320,000 for a pwnper for the Fire Depaztment
The 1998 Capitel8udget, av approved, contained the following proposed velucic purchases:
By-Law
Firo
Public Works
Roads
Transit
denoral dovt
Parks
- Car
. p�p�
- Fire Prevendon Ctu
- Utility Vehicles (2)
-1 Dump Trucic
-1 Stakc Truc�
- Buves (4) (netj
- Property Maintenunce
- Pick Up Tnick
- Cab & Chessis
S 22,000 •
320,000
18,000'
60,450 •
113,000 •
40,000 •
408,983 •
38,000 °
30•000
51.050.433
• potentiel leave candidates; balance to be by debt or capital from curtenG
In summary, for each SI00,000 spent on vehicle acquisitioro, the foliowing financing costs
` would be incurted if the purchase was not paid out of current rovenues.
' I. Debt Financina - Aacuming a six per cent intercat rate with a five year temi, the unnunl
tepayment amowt would be npproximetely 5249,000. One time costs of finencing would
range from one per cent W one and one-quarter percent of the principal amount or S 10,500 to
513,100.
2. �jpy costs would be similar on those few large assets that could be leased in the
"wholesale" mtukct, being tho buses and the pumper. Sometimes suvings can be effceted but
usually only on lerge dollaz icaus iu excess of SI00 million. Of wurse, rctail leasing can be
undeAeken on nny of the vetdcles but may not be wst beneficial in all cases.
For vehicles used in deily operations, a lea9ing progcam, in conjwction with a plenned
nplecement scheme, cen produce mw�agemrnt txnefits, In that cosU are 6xed for die term
of ihc ieace end a new vehide is acquind upon expiration. [.ea9ing elso avoids the uphont
capital ouQay requ'acd for a purchase.
3. intemal Financina could, if suflicient funds are availabic for the Poll temt of the financing,
offtt some savinge, First, fw�ncing cosis could be evoided although some miaor legel costs
mey be nece.ssary. Thete is nlso tho opportunity for intercst rak savings, being the differcnce
between tho borrowing rnte and the rate at which tht �sserve fund cauld be tnvested for a
similat term.
At thia time, a five year loen would carty an intercst rato of epproximately 6 per cen� A fiva
year invatmmt in a Provtnce of Onterio bond woWd earn 5 per cent The differena of i p�
cent wrould result in total eavings of oaly 53,000 per S100,000 so fmmced over tt�a fivo
y�. .
In conciwion, with 51,050,000_,ro be financcd, en intemnl program could save the
� ` foUow[ng co�iss
FinencingCoate . S10,500
� . • Iatetent Rate 9eyinga `
' ' , � {e� 19i [at Rve yeara) 3,�,qg� �
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''' �� ` ^ � M COUacil FTI�2498 � � ��ober 20,1998
:��� �,�t� ' : �
° &�ib7wt ` �lnanciag of Capital ExQepcfituna Vehiclea , , . � � ''
.� F�p Page 3
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�' , Howevu, it is �ffe' opWon ti�aat �icient tntemal fund� mey not be availebfe for the
' ,f. � requtred ternu (3 to 10 years) at this timc: If will contiauo to bo coasidered:
In conclu�ion, leasing may prodace lower lnidal ouUays and ennue! cash payoutn wldch
may be baieRciel, espcctaUy for relatively quick tumovtr vel�cles, such at auWmobiles,
utlllty vehicles, pickup 4uckn cic: For larga specielty, end sinal! quantlty vehiclp, such
es firo hucics and buses; it may not be cost beneficiai to leave ead, theroforo, debt
.: , fmancing may be Uu oaly eltemaUva
ATTACFIIvIENTS:
Not applicabla
Appmved/Endorsed By: ,
' �
�'�dillis A, Patecson
Director of Finance and Trcasurer
` dAP/md
Copy: Cienua! Meoager .
:' Recommeaded for the coasideraUon of
` Pickering Tawn• 7
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