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HomeMy WebLinkAbout09-02-2014 C7 Lease Financing for Computers and CopiersCity of San Luis Obispo, Council Agenda Report, Meeting Date, Item Number FROM: Wayne Padilla, Finance Director SUBJECT: APPROVE LEASE FINANCING PROPOSAL FOR COMPUTER AND COPIER ACQUISITIONS AND RELATED DOCUMENTS RECOMMENDATION 1. Approve the lease documents provided by Bank of the West to establish a line of credit to provide short term lease financing for the acquisition of computer equipment, copiers and other select items that may be designated and approved by the City Council. 2. Approve the lease purchase of 17 copiers from MORE Office Equipment of San Luis Obispo in the amount of $102,304 and the amendment of the General Fund budget to reflect leasing transaction. 3. Approve the financing of the copiers using the credit line provided by Bank of the West. 4. Approve the use of the Bank of the West credit line for the future financing of Mobile Data Computers and related network equipment subject to the Council’s future approval of the acquisition of said equipment. 5. Direct staff to return in the future with any requests to borrow additional amounts from the credit line 6. Approve the resolution confirming the results of these approvals. DISCUSSION Background The City Council approved the lease purchase acquisition of mobile data computers for the Police and Fire Departments to replace their aging mobile equipment and related network components as part of the 2013-15 Financial Plan’s Capital Improvement Program. The Financial Plan includes the cost of financing this equipment over a four year term since the initial acquisition cost was estimated to be $693,000. A separate report will be brought before the City Council requesting authorization to actually acquire this equipment from the selected vendors using the lease financing provided by Bank of the West. As called for in the City’s financial policies, staff considered the City’s future computer technology and office equipment needs and the benefits of using lease financing instead of continuing to pay for these purchases with the annual appropriations provided for that purpose. Taken into consideration was the need to have access to a limited amount of financing that can be used on select purchases to ensure that future equipment replacements occur as they are scheduled instead of when replacement funds become available. This will help ensure that the computer network’s high level of reliability is maintained. At the same time, staff has been evaluating the need to replace office copiers, some of which have become unreliable and 9/2/14 C7 C7-1 AWARD OF CONTRACT FOR BOND AND DISCLOSURE COUNSEL SERVICES Page 2 expensive to maintain. In addition, departments are calling for the replacement of their inkjet printers due to the high cost of toner cartridges and frequent maintenance demands. Moving to a more capable network of high output copiers will also allow the city to process in-house a larger number of print jobs that are currently being sent to outside print shops. Currently, the Financial Plan provides enough funding to allow the replacement of up to 2 copiers per year. There are currently 20 copiers in use while the city-wide need is for 17 copiers. The city obtained a quote from MORE Office Solutions of San Luis Obispo based on pricing extended to the city through the terms contained in the cooperative purchasing agreement crafted by the Shasta Unified School District. The City’s Financial Advisor, Public Financial Management, issued a Request for Proposal (RFP) to obtain lease financing proposals from qualified financial institutions. The terms spelled out in the RFP call for:  A lease financing credit line of up to $1.5 million that can be accessed over a period of 5 years  No fees or charges for any amount not used  No prepayment penalties  The financing can be accessed as the City sees fit and different periods can be set for each individual draw against the credit line Three responses to the RFP were received. These came from PNC, Bank of the West and California First National Bank. The offer presented by Bank of the West provided the best interest rates while most closely matching the terms sought by the City including the requirement to provide one credit qualification process that covers the term of the credit line’s existence and specifically providing a 4 year term option. PFM has recommended their proposal for consideration by the City Council. The terms of the Bank of the West proposal are shown below:  A lease financing credit line of up to $1.5 million that can be accessed over a period of 2 years  No fees or charges for any amount not used  The financing can be accessed as the City sees fit and different lease periods can be set for each individual draw against the credit line  The maximum period that the city can maintain the lease financing credit line for the purpose of paying off the balance is 10 years from the date of the credit line opening  Prepayment fee of 1% of the outstanding balance for the first two years of a lease term, then 0% after  Varying rates of interest for each repayment term selected by the city. Current rates for the terms shown below are: o 3 years 1.3% o 4 years 1.5% o 5 years 1.7% C7-2 AWARD OF CONTRACT FOR BOND AND DISCLOSURE COUNSEL SERVICES Page 3 Rates are fixed at the start of each lease term. The rates shown are indexed to an Interest Rate Swap Index and may be different as each new lease is initiated during the next two years. Two years from the lease’s inception, the City may request an extension of the term to access the credit facility for an additional year. Next Steps if Recommendation Approved 1. The copiers will be ordered within the next week. 2. Staff will return with the request to acquire the Mobile Data Computers and network equipment at a later date 3. The City Council will separately approve any other future use of the lease financing provided under this agreement. FISCAL IMPACT The purchase price of the Mobile Data Computers is $717,000 of which $688,500 is proposed to be financed and the purchase price of the copiers is $102,304. If the financing proposal is approved, the annual cost for the lease financing of the Mobile Data Computers over a 4 year term at 1.5% would be approximately $177,700 which is less than the estimated financing cost contained in the 2013-15 Financial Plan. The annual cost of financing the copiers over a 5 year term at 1.7% is $21,390. This amount would be paid out of the Debt Service Fund and supported by a transfer out of the General Fund. This will result in no additional cost to the General Fund since the amount needed to fund the annual debt service can be provided from the existing copier replacement and a portion of the copier service accounts as shown below. The replacement of the existing copiers and phase out of the desk top laser jet copiers will reduce the City’s annual copier service costs, allowing the proposed reduction shown below to occur with no negative impact resulting from the budget change. Staff expects that the remaining amount in the copier service account will be more than ample to cover the annual service costs and will be monitoring copier services costs to see how much lower they will be after these changes take effect compared to the amount left to be spent in the copier service account. To reflect the copier lease transaction, the Information Technology Fund budget needs to be amended as follows: Lease Proceeds Revenue $102,304.00 Copier Acquisition Cost $102,034.00 The Debt Service Fund budget would be amended as shown here: Revised Budget Change Budget Copier Replacement$16,800($16,800)$0 Copier Service $21,100($4,590)$16,510 Transfer for Lease $0 $21,390$21,390 C7-3 AWARD OF CONTRACT FOR BOND AND DISCLOSURE COUNSEL SERVICES Page 4 Transfer in from General Fund $21,390 Lease Payment Expense $21,390 ALTERNATIVE Do not approve the financing documents. This option is not recommended since the terms offered by Bank of the West are considerably better than those offered by the other lenders who responded to the RFP and the acquisition of the Mobile Data computers is contingent upon their being financed due to their high cost. Do not approve the lease of copiers. The city can continue to replace its copiers at the rate of 2 every year. This will prevent the replacement of inkjet printers which are more costly to operate and also limit staff’s ability to print material in-house and avoid paying outside vendors to create printed material. ATTACHMENTS 1. Resolution 2. Financing documents from Bank of the West (2 sets – 1 for each purchase) 3. Proposals received from PNC and California First National Bank 4. Copier purchase proposal from More Office Solutions t:\council agenda reports\2014\2014-09-02\mdc financing C7-4 C7-5 C7-6 C7-7 C7-8 C7-9 C7-10 C7-11 C7-12 C7-13 C7-14 C7-15 C7-16 C7-17 C7-18 C7-19 C7-20 C7-21 C7-22 C7-23 C7-24 C7-25 C7-26 C7-27 C7-28 C7-29 C7-30 C7-31 C7-32 C7-33 C7-34 C7-35 C7-36 C7-37 C7-38 C7-39 C7-40 C7-41 C7-42 C7-43 C7-44 C7-45 C7-46 C7-47 C7-48 C7-49 C7-50 C7-51