Resolution No. 2010-183RESOLUTION NO. 2010-183
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON APPROVING AND AUTHORIZING THE CITY'S'
PARTICIPATION IN THE FORD MUNICIPAL FINANCE LEASE
PURCHASE PROGRAM FOR THE PURCHASE OF TWO POLICE
PATROL VEHICLES FOR THE VERNON POLICE DEPARTMENT
WHEREAS, the'Police Department has determined that it needs
two police patrol vehicles to replace two patrol vehicles which have
been in use for a number of years, and suffer from high mileage, and
wear and tear, and because no new vehicles have been purchased; and
WHEREAS, the Vernon Police Department (the "Department") is
requesting authorization to utilize the Ford Municipal Finance Lease
Purchase Program (the "Program") for the purchase of two patrol
vehicles and related equipment using asset forfeiture funds; and
WHEREAS, the Program is an alternative source of medium -
term, tax-exempt financing for state and local governmental agencies
that can be used as an additional or alternative source of funds to
acquire necessary equipment and facilities; and '
WHEREAS, the Program will allow the Department to purchase
the patrol vehicles and related equipment, including installation
costs, and exempt the annual payments from federal income taxes on the
interest portion of the periodic payments using federal asset
forfeiture funds; and
WHEREAS, the City Council of the City of Vernon desires to
participate in the Program and approve and authorize the execution of
the necessary documents for the purchase of the patrol vehicles.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF VERNON AS FOLLOWS:
SECTION 1: The City Council of the City of Vernon hereby
finds and determines that the recitals contained hereinabove are true
and correct.
SECTION 2: The City Council of the City of Vernon hereby
approves the City's participation in the Ford Municipal Finance Lease
Purchase Program.
SECTION 3: The City Council of the City of Vernon hereby
authorizes the City Administrator, or his designee, to take whatever
actions are deemed necessary or desirable for the purpose of
implementing and carrying out the purposes of this Resolution.
SECTION 4: The City Clerk of the City of Vernon shall
certify to the passage, approval and adoption of this resolution, and
the City Clerk of the City of Vernon shall cause this resolution and
the City Clerk's certification to be entered in the File of
Resolutions of the Council of this City.
APPROVED AND ADOPTED this 6th day of December, 2010.
ATTWT :
f,
Willard G. Y�dmauch(ij City Clerk
Name: Hilario Gonzales
Title: Mayor yaF ei
2
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
I, Willard G. Yamaguchi, City Clerk of the City of Vernon, do
hereby certify that the foregoing Resolution, being Resolution
No. 2010-183, was duly passed, approved and adopted by the City Council
of the City of Vernon at a regular meeting of the City Council duly
held on Monday, December 6, 2010, and thereafter was duly signed by the
Mayor or Mayor Pro-Tem of the City of Vernon.
Executed this /'o day of December, 2010, at Vernon, California.
(SEAL)
illard Y ag c i, City Clerk
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CITY CLERK'S OFFICE
INTEROFFICE MEMORANDUM
DATE: December 13, 2010
TO: Daniel Calleros, Interim Police Chief
FROM: Willard Yamaguchi, City Clerk
RE: Resolution No. 2010-183 — A Resolution of the City Council of the City of Vernon
Approving and Authorizing the City's Participation in the Ford Municipal Finance Lease
Purchase Program for the Purchase of Two Police Patrol Vehicles for the Vernon Police
Department
Transmitted herewith is a copy of Resolution No. 2010-183 referenced above, which was approved by
the City Council on December 6, 2010.
Thank you.
WY:dj
Attachment
c: Rory Burnett
Purchasing Department
Resolution No. 2010-183
STAFF REPORT
VERNON POLICE DEPARTMENT
DATE: October 19, 2010
TO: Honorable Mayor and City Council
FROM: Daniel Calleros, Captain
RE: Ford Municipal Finance Lease/Purchase Program
Summary
RECEIVED
NOV 0 3 2010
CITY CLERK'S OFFICE
The Police Department (PD) is requesting authorization to utilize the Ford Municipal Finance
Lease/Purchase program for the purchase of two police patrol vehicles and related equipment
using asset forfeiture funds.
Facts
The PD currently has a fleet of 17 patrol vehicles. Of the 17 patrol vehicles, at least 2 patrol
vehicles are in need of replacement. The two patrol vehicles in question have been in use for a
number of years and have high mileage ranging from 136,757 and 96,935 miles. Both patrol
units also have significant wear and tear. Because of the current City fiscal situation the PD has
not replaced any aging patrol vehicles in several years. The last patrol vehicles replaced due to
high mileage and wear and tear was in early 2005.
Municipal Finance Program Overview Option
While identifying methods to fund the purchase of patrol vehicles using asset forfeiture funds,
we learned from other police agencies that the Ford Municipal Finance Lease/Purchase
program (FMFLPP) is a reasonable method of financing the purchase of police vehicles and
related patrol vehicle equipment. The FMFLPP has been used consistently by both the City of
Hawthorne and the Los Angeles County Sheriff's Department for the purchase of police vehicles
and equipment.
The FMFLPP is a designated alternative of medium -term, tax-exempt financing program for
state and local governmental agencies that can be used as an additional or alternative source of
funds to acquire necessary equipment and/or facilities. The FMFLPP does not require security
deposit, has no prepayment penalty, no mileage penalty, or hidden fees. However, there is a
$425 documentation fee that is required per transaction but can be paid at delivery or funded
over the term of the agreement.
Any state or local government may qualify as a lessee for a Municipal Lease/Purchase
transaction. The municipal lease -purchase program is like a conditional sale or an installment
Gfi�
purchase transaction with the lessee making periodic payments of principal and interest to the
financing source (lessor) and obtaining ownership of the equipment for $1.00 at the lease
maturity. The structure of the FMFLPP transaction provides the lessor an exemption from
federal income taxes on the interest portion of the periodic payments, and the transaction is
considered a current obligation of the lessee.
Under the structure of the Municipal Lease/Purchase transaction, the lessor runs the risk, on an
annual basis, that additional funds will not be appropriated by the lessee to continue to make
the periodic payments. Therefore, to obtain competitive interest rates and to reduce the lessor's
risk of non -appropriation, all equipment financed under the Ford Credit Municipal Finance
Program must be considered essential to the ongoing operations of the governmental unit.
The FMFLPP also allows for the financing of equipment needed to outfit patrol vehicles as the
equipment is considered essential for the ongoing operations of the governmental unit. Listed
below is equipment that will be purchased and installed on both patrol vehicles as part of the
FMFLPP program. The cost for the equipment and installation is estimated at $15,000.00.
• Federal Light Bar and LED lights
• Side and rear LED lights
• Prisoner Security Cage
• Computer and keyboard mounting solution
• Equipment slide tray
• Power center distribution system
• Federal park control switch
• Shotgun timer
• Auxiliary battery and tray
• Smart siren and rumbler
• Siren speaker and related equipment
• Shotgun and rifle rack and lock devices
• Trunk box with locking device
• Wig wag headlight flasher
• Red clear dome light assembly
• Dual cup holder
• Floor plate for console
• Corner and hood LED lights
Also listed are some examples of vehicles that may be considered essential for ongoing
operations through the FMFLPP:
• Police patrol vehicles
• Administrative vehicles
• Rescue vehicles
• Light/medium/heavy trucks
• Ambulances
• Fire trucks
• Garbage trucks
• Snow removal equipment
• Road repair equipment
• School buses
• Street sweepers
• Tractors
Backhoes and graders
The structure of a lease/purchase transaction can be extremely flexible with respect to terms
and payment amounts. Recent declining tax bases and taxpayer revolts have resulted in many
governmental units being unable to replace worn out equipment and to maintain other services.
The flexible structure of lease/purchase financing can help a governmental agency by allowing
them to stretch out the payments for the acquisition of the equipment over its useful life. This
flexibility, allows the governmental agency to acquire the needed equipment even when the total
purchase price may be too large to finance in a single year's budget.
To identify overall costs of the program we obtained a quote from FMFLPP which included the
cost of a patrol vehicle and related equipment and installation costs. Listed below is the finance
proposal breakdown for two police vehicles and related equipment and installation costs should
we elect to finance the vehicles for a 4 year period applying annual payments for a 4 year
period.
Number of
Total Amount
Number of
Payment
A.P.R.
Payment
Payment Amount
Vehicles &
Funded
Payments
Timing
Factor
Per Year
Equipment
(Vehicle and
Funded
equipment)
2
$85,040.00
4
Annual
7.25%
0.276826
$25,755.90
Advance
Recommendation
Based on the available financing through the FMFLPP program, I recommend that the PD
receive authorization to utilize this program for the purchasing of police vehicles and related
equipment. Using the FMFLPP program will allow the PD to stretch out annual payments for
purchasing of vehicles and equipment using asset forfeiture funds. In addition, the FMFLPP
program provides an exemption from federal income taxes on the interest portion of the periodic
payments.
Fiscal Impact
General funds will not be used for this purchase. Federal asset forfeiture funds will be used for
the purchase of two patrol vehicles and related equipment and installation costs.
Attachments:
• Ford Credit Municipal Finance Program Overview
x'� i l . so
103# oe23.(00
FINANCE
PROGRAM
yls
Ford Credit Municipal Finance Program
Overview
Municipal Lease/Purchase Financing is an alternative source of medium -term, tax-exempt
financing for state and local governmental units that can be used as an additional or alternative
source of funds to acquire necessary equipment and facilities.
Generally, any state or local government unit or any political subdivision of these units (e.g.,
state agencies, school districts, public universities, hospitals, etc.) may qualify as a lessee for a
Municipal Lease/Purchase transaction. The municipal lease -purchase transaction resembles a
conditional sale or an installment purchase transaction with the lessee making periodic payments
of principal and interest to the financing source (lessor) and obtaining ownership of the
equipment for $1.00 at the lease maturity. The structure of the Municipal Lease/Purchase
transaction provides that the Lessor is exempt from federal income taxes on the interest portion
of the periodic payments, and the transaction is considered a current obligation of the lessee
Under the structure of the Municipal Lease/Purchase transaction, the lessor runs the risk, on an
annual basis, that additional funds will not be appropriated by the lessee to continue to make the
periodic payments. Therefore, to obtain competitive interest rates and to reduce the lessor's risk
of non -appropriation, all equipment financed under the Ford Credit Municipal Finance Program
must be considered essential to the ongoing operations of the governmental unit.
I. The Municipal Lease/Purchase Transaction
A. What Is A Municipal Lease/Purchase Transaction?
A Municipal Lease/Purchase transaction is a lease between a governmental entity, that is
acquiring equipment, and an investor, that finances the transaction. The Municipal
Lease/Purchase transaction is, in essence, a "finance lease" or a "conditional sales
agreement" and not a "true lease."
Under a "true lease":
• The primary purpose is to give the lessee use of the lessor's property over a
period of time.
• The lessor holds title to the property.
• The periodic payments are considered rent.
• The lessee may have the option to purchase the leased property at lease maturity at
the fair market value (or at a fixed amount under a finance lease.)
• The lessor utilizes the ITC, if available, and depreciation from the property.
Under_ a Municipal Lease/Purchase:
• The primary purpose is for the lessee to finance the acquisition of the property
over a period of time.
• Title to the property generally goes to the lessee at the beginning of the
Agreement.
• The periodic payments are made up of principal and interest.
• The lessee has the option to purchase the property at the end of the agreement for
one dollar ($1.00) or at the end of any fiscal year for a specified amount
(unamortized balance of the obligation).
• The lessor does not utilize ITC or depreciation, but is exempt from paying federal
taxes on the interest portion of the lessee's payments.
B. What Financing Alternatives Are Available For Governmental Units?
• Pay Cash —If the governmental unit does not obtain some means of financing an
acquisition, a cash purchase would be required.
Disadvantages:
• Prohibits the acquisition of equipment if existing budget appropriations are less
than the purchase price.
• Does not provide the flexibility to obtain all the equipment required because of
limited available resources.
• Issue Bonds ---Municipal bonds are normally issued with maturities of 15 to 30
years. Recent tax and spending limits have made it more difficult for tax -secured
bonds to be issued for capital projects.
---Disadvantages:
• May require a voter referendum to approve their issuance.
• Term is much longer than the useful life of the equipment being acquired.
• Usually offered in dollar amounts greater than individual projects.
Rental or Lease on an Operating BasisA desirable method to obtain the use of
equipment if the equipment is subject to rapidly changing technology or if the
equipment is needed for only a short time.
---Disadvantages
• Lessee does not accrue equity in the equipment.
• Because ITC is not available for equipment leased to governmental units,
an operating lease may be more expensive than other financing methods.
• Municipal Lease/Purchase ---- An installment purchase or conditional sale
agreement, not a "true lease," which provides for the acquisition as well as
the use of the equipment.
• Total cost of acquiring equipment is greater than for a cash purchase
because interest payments are required.
C. Who is Eligible?
Eligibility of potential lessees is covered under Section 103(a) of the Internal
Revenue Code of 1986, as amended. Under this section, the interest received on
an obligation of a state, a territory, a possession of the United States, any political
subdivision of the above or the District of Columbia is exempt from federal
income taxation.
This section of the Code is typically interpreted to allow states, cities and counties
to be lessees in a tax-exempt lease/purchase transaction. In addition, special
purpose districts, authorities, boards, commissions, agencies or units that act on
behalf of a state government or on of its political subdivisions may qualify to
enter into a lease/purchase transaction.
Examples of potential eligible lessees include:
• Cities
• Villages
• Townships
• Counties
• States
• State universities
• School districts
• Community colleges
• Hospitals (funded by a governmental unit)
• Fire, water, parking or sewer districts
• Municipal -owned airports
• Municipal -owned utilities (not a utility whose stock is owned by the public)
Being a Non -Profit Or Tax -Exempt Organization Does Not Necessarily Make
It An Eligible Governmental Unit
Examples of Lessees Not Eligible:
• Boy Scouts of America
• American Red Cross
• Agencies of the Federal Government
D. What Equipment is Eligible?
Basically, any equipment that is used for a purpose considered Essential to the
ongoing operations of the governmental unit will be considered eligible under the
Ford Credit Municipal Finance Program.
Some examples of equipment which may be considered essential are:
• Police vehicles
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• Administrative vehicles
• Rescue vehicles
• Light/medium/heavy trucks
• Ambulances
• Fire trucks
• Garbage trucks
• Snow removal equipment
• Administrative vehicles
• Road repair equipment
• School buses
• Street sweepers
• Tractors
• Backhoes and graders
E. Why Is Lease/Purchasing Financing Attractive?
The structure of a lease/purchase transaction can be extremely flexible with respect
to terms and payment amounts. Declining tax bases and taxpayer revolts have
resulted in many governmental units being unable to replace worn out equipment
and to maintain other services. The flexible structure of lease/purchase, financing
can aid a governmental unit by allowing them to stretch out the payments for the
acquisition of the equipment over its useful life. This flexibility permits the
governmental unit to acquire the needed equipment even when the total purchase
price may be too large to finance in a single year's budget but yet too small to
issue a bond.
II. What Are Some Of The Commonly Asked Questions About Municipal Lease/Purchase
Financing?
Q: What is the lease term for the various types of equipment?
A: The lease term is determined by the normal life of the equipment.
Q: Who furnishes maintenance, operating expenses, insurance and other expenses relative
to the operation of the equipment?
A: The Lessee.
Q: What is the penalty for returning equipment at the end of the fiscal year but prior to
the end of the lease term?
A: If the lessee non -appropriates funds for the next fiscal period, the lessee will lose all equity in
the equipment.
Q: What happens to the equipment if the governmental unit keeps it for the entire lease
term?
A: The governmental unit can purchase the equipment for $1.00.
5
Q: May the governmental unit turn the equipment in before the end of the fiscal year?
A: No. However, in the case of a casualty loss, the damaged equipment will be removed from
service and a settlement made with the Lessee's insurance carrier.
Q: What is the fiscal responsibility of the governmental unit if the equipment is rendered
inoperable through a casualty loss prior to the end of the lease term period?
A: The governmental unit's insurance carrier would settle the claim with the lessor. Any net
proceeds in excess of the current purchase option would be remitted to the governmental
unit. In the event the governmental unit elected to self -insure for casualty loss, they would
be responsible for the concluding purchase option price.
Q: If a number of different types of equipment with different lease periods are ordered,
will the interest rate be the same for all units?
A: No, the interest rate generally will vary depending on the lease term and the amount financed.
Q: What are some of the advantages of municipal lease/purchasing financing?
• Little or no down payment is required
• No security deposit is required
• No mileage restriction
• Terms can vary with the useful life of the equipment.
• Equipment can be obtained without large appropriations of funds
• Equity in the equipment accrues with each periodic payment
• Long-term financing can be acquired without creating a long-term debt obligation in
the budget.
III. Bidding Lease/Purchase Funding
A. What information Is Necessary To Obtain A Lease/Purchase Financing Proposal?
Once the governmental unit has agreed to use lease/purchase financing or you desire to
request a financing proposal, you should obtain the following information:
• Lessee
--Name
--Address (city, state, zip)
--Contact name, title, telephone number
--Fiscal year end
Bid Request
--Type of bid request:
• oral
• written request for proposal (RFP)
• information only
-Bid closing date
--Term (number of years)
--Payment frequency (monthly, quarterly, semiannually, annually)
--Total to be funded
--Down payment or first year's budget
• Equipment
--Type of equipment
--Quantity
--Manufacturer
--Delivery date
--Cost
--Essential use of equipment
IV. After Submitting a bid...
A. Requirements Of Dealer After Winning a Bid:
When you have been awarded a bid under the Ford Credit Municipal Finance Program,
you must notify us immediately so that we can begin the credit review and
documentation of the transaction. If more than one option the lessee desires and if the
transaction will be closed immediately or upon delivery of the equipment.
B. What is Required For the Credit Review?
Even if the lessee is rated by Moody's or Standard & Poor's, additional date may be
needed. In most cases, financial statements for the past three fiscal years and a copy of
the current year's budget will be required. The actual credit approval will not be made
until after the bid is awarded, so immediate notification of an award is important.
For further information, contact:
Ford Credit Municipal Financing
P.O. Box 1739
Dearborn, MI 48121-1739
Phone: (800) 241-4199
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