City to Dip into Reserve Fund to Buy New Fire Truck

Despite a trend of stagnant revenues, the City of Smithville will dip into its reserve fund to purchase a new fire truck.
By a 3-2 vote, the Smithville Board of Aldermen Monday evening voted to spend $751,575 over a two-year period to purchase a new Pierce Impel PUC Rescue Pumper, a combination fire engine/rescue vehicle to replace the fire department’s oldest truck, a 1992 model, and a 20-year old rescue and service truck. The new vehicle will also come equipped with five air packs and other tools and equipment.
Voting for the new truck were Aldermen Jason Murphy, Gayla Hendrix, and Shawn Jacobs and voting no were Aldermen Josh Miller and Danny Washer. Although not opposed to the fire truck itself, Miller and Washer are concerned about the timing of the purchase given that the city has budgeted a lot of spending projects recently which may negatively impact the city’s surplus reserve fund.
While the city has the money to pay for it now from the surplus, the aldermen voted to spread the payments out over two years through a lease purchase financing plan offered by the manufacturer. The first payment is not due for a year and it will be up to a year before the truck is available for the city to take delivery of it.
Janice Plemmons-Jackson, the city’s financial advisor reminded the mayor and aldermen that city revenues over the last ten years have been largely stagnant while spending has increased and that large projects can have a negative impact on the city’s surplus reserves.
“In 2008 we collected $2.9 million. It has pretty much stayed at $2.7 million to $2.9 million over that time up to the highest year which was in 2016 at $3.2 million but then we budgeted $3.1 million. There has not been a lot of change in revenue. This is regular tax dollars, sales tax, property tax, etc. I backed out grants because when you get those big airport grants it distorts your revenue. We have a flat revenue stream,” said Jackson.
Because of already budgeted spending, the city could end the fiscal year in June with a large deficit, which would have to be funded from the surplus.
“In 2017’s budget we budgeted about an $880,000 deficit or loss this year. Most years we have a surplus. The years that the fire department does their big things is when we go into the deficit. This current fiscal year we’re budgeting at a huge deficit but that is a combination of things. We’re doing the sanitation truck and garbage cans. We’re doing a lot of paving in the city. We’re doing that bridge reconstruction that the state is making us do (Holmes Creek Bridge over Fall Creek) which originally we thought the city’s part would be $60,000 to $100,000 but the cost has gone way up and Hunter (Hendrixson) tells me the city’s part is going to be $200,000. We also put in $100,000 for a rescue vehicle in the fire department. If we take the additional money needed to buy this truck and put it in this year’s fiscal budget you have another $621,000,” said Jackson. (Payment will now actually be spread out over two years).
“Normally you try to balance your budget by either using some surplus that you have accumulated some of those other years or raising tax rates. At the end of the year 2015, we were at $4 million in fund balance (surplus reserves) in the general fund. In 2016 that surplus put it up to $4.6 million. If we do everything we’ve budgeted for this year we’re going back to $3.7 million (surplus) and if we added the whole cost of the fire truck in this year’s budget we would be down to $3 million (surplus). So we’re going from $4 million to $3 million very quickly but we know what that cost is. Where we have overspent is usually a capital project of some kind but the biggest things that we ever do have been related to fire,” said Jackson.
Jackson questioned why the city was not advertising for bids for this truck. “Should we not be advertising for quotes, bids or something on this and get some numbers from more than one place because if we’re spending that much money its typically that you want to look and make sure you’ve got the right equipment but the best price,” she asked?
Chief Charlie Parker said through the city’s affiliation with the HGAC program, the truck is being recommended at a good price.
Chief Parker recommended that the city plan for future expense by establishing a replacement schedule for city fire trucks and other equipment. “Of course (fire truck) is the big capital expense but we also have equipment, fire hose, air packs, and the turnout gear that goes with it which also have to be replaced after their service dates. You could end up $30,000 or $40,000 in that if you do it (replace) all at one time too. They all have set life cycles. The NFBA (National Fire Protection Association) recommendation is that first line trucks be replaced within 15 years of manufacture and 20 years for reserve trucks. We’re currently at 25 years on ours. We could probably run 20 to 25 years on what we’ve got because we’re a smaller department but once it hits the 25 year mark it is considered an antique and that really makes me nervous as chief being responsible for the lives of my men and women to put them in an antique vehicle. There is an ongoing expense. If we could put some money back each year and budget for it because we need some kind of replacement schedule for these things. Everything we have is expensive” he said.
“I don’t see how anybody could vote against you (fire department) having the equipment that you need. That’s a given. In a lot of cases it could be life or death and the same with the police department. You need what you need. I guess the timing bothers me because there has been so much spent this year. I am not against the fire truck. I am just thinking about the timing,” said Alderman Miller.
“How long before we would have to raise taxes to pay for all this,” asked Alderman Washer?
“That is always your ace in the back pocket to keep you from going broke. Somewhere I had something going down to a fund balance of about $3 million depending upon how frequently you spend for these big things. Other years we did have some surplus when we weren’t buying fire equipment. If we’re looking at $750,000 to a million dollars every time we buy one (fire truck) and that’s every five to seven years then the other years really need to be good (financially) or tight. I don’t know that I can give you a number. But we’re good for probably five to ten years ( before tax increase) but that is a guestimate,” said Jackson.
Aldermen Gayla Hendrix and Jason Murphy had initially favored a five year financing plan to pay for the new fire truck with payments spread out over a longer period of time. But Jackson recommended going with the two year plan to save interest payments.
“I looked at what are you paying in interest. What are you earning in interest. My recommendation would be don’t do five years. I would do two years. The lease is set up such that you don’t make a payment on the front end. You make a payment a year after you sign the contract. In January 2018 you would make your first payment which is in next year’s budget, $377,000. In January, 2019 you would make a payment, which is the following year’s budget but then you would be done and would no longer have that cost in your budget. When you take the amortization of those payments the interest rate on those two payments is not even three tenths of a percent. It comes out to 0.268% interest so the money we keep in our bank account that year and the next year we are currently earning a half percent on our checking account. We’ll earn more than we are paying in interest so it would be like we didn’t really pay interest on it at all. If we do the five year payments it comes out to 1.758% interest so you’re paying 1.2 or 1.3% more interest than what we were earning if we kept the money. For five years you would pay $40,087 of interest. For the two years you pay $3,000 of interest and you earn $5,600. The other one, you come out net of $28,000 compared to making $2,600,” said Jackson.
Once a new fire truck is in the fleet, the city plans to sell the 1992 truck along with the rescue truck and service truck.
The fire department has three fire trucks, a 1992 and 2001 model along with a 2012 ladder truck.