(7)AAR 011910 Lease-Purchase of Two New Aerial Device Trucks

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Staff Report to the Mayor and City Council Aerial Device Truck Lease January 19, 2010 Page 2 vehicles, as bid, because our total fleet of heavy-duty vehicles is currently under 15 and the acquisition of these vehicles will not increase the fleet to 15 or more vehicles. On January 20, 2009, City Council awarded the bid for the five-year lease purchase of two (2) aerial device trucks to Altec Industries, Inc., at a unit cost of $224,537.00, plus sales tax, and authorized the City Manager to execute the lease documents with Altec Capital Services, LLC as the financing company for lease/purchase agreement. The annual lease/purchase payment based on market conditions in April 2008 was to be $106,171.86. The delivery time for this equipment was quoted at 300 days. ISSUES/ANALYSIS After bids were received and awarded, two events occurred affecting the cost of the equipment. First, during the engineering and manufacturing stages, minor revisions to the bid specification were made, reducing the unit cost by $4,289.00 each. Second, the State of California, in an effort to close its budget shortage, raised the sales tax rate for all purchases by one percent. The net effect of these two events results in a net increase to the purchase cost of $4,837.84 for both units. With the volatility in the financial market over the past year Ahec Capital Services, LLC. has notified the City that they are not currently entering into tax-exempt municipal lease agreements. Ahec Capital Services, LLC has provided an alternate funding option through a financial partner, Key Government Finance, Inc. (KGF). The lease presented by KGF does not include a non - appropriation clause, which is typically included in public agency leases in order to address a debt limitation requirement in the California Constitution. They have presented a "Rental Abatement Lease," with an annual payment of $106,312.43, which is intended to be used instead of a lease with a non -appropriation clause. In addition to the lease payment, the City will be required to purchase and maintain rental interruption insurance at additional cost. Aon Risk Insurance Services West, Inc. has estimated the cost of rental interruption insurance to be up to $1,500 per year. The City recently entered into a Master Lease Agreement with PNCEF, LLC, dba PNC Equipment Finance (PNC) for the lease/purchase of three digger derrick trucks. This lease includes a non -appropriation clause. Staff has been in contact with PNC in regard to the possibility of adding the lease/purchase of the two bucket trucks to the existing Master Lease Agreement. PNC has agreed to add this equipment to the Master Lease Agreement for an annual lease payment of $106,783.43. The annual payment to PNC will be $471 more than the annual payment to KGF, but the City will not incur additional expenses for rental interruption insurance, likely resulting in a net savings to the City. Under either lease, the City will own the units at the completion of the lease term (5 years). Considering the terms of the lease agreements and the costs associated with each, staff is reconnnending Council approve a change in the lease financing company from Altec Capital Services, LLC to PNCEF, LLC dba PNC Equipment Finance with an annual lease payment of $106,783.43.