If you're attending ASBO International's 2017 Annual Meeting & Expo later this month in Denver, I'd love to meet up. I will be speaking on the issue of fleet replacement funding at 8:00am on Saturday, September, 23. This is a topic I regularly discuss with School Districts and officials. In fact, I penned an article on it in Student Transportation News several years ago.
It's no secret that obtaining funding to replace your aging school buses is increasingly difficult. These high dollar items are a prime target because with the stroke of a pen, or keyboard, several hundred thousand dollars in cuts can be made seemingly without impacting any programs. Establishing a sustainable and justifiable mechanism to fund replacement is more important now than it ever was.
However, the problem is that buses are usually purchased with current year cash.
Using current year cash presents two major problems.
First is the significant swings in annual funding requirements.
Asking for $1 million this year and $100,000 next year puts school boards in a very difficult position because of the second problem.
Tax revenues, the primary funding source, do not accommodate variability well. In order to create a sustainable replacement strategy, transportation managers must develop a plan that replaces vehicles in a timely manner without causing wild swings in annual funding requirements.
Plan development begins by looking at both the timing of replacements and the financing mechanism used to acquire the buses. Managing the timing of replacement requires active attention to the utilization of the fleet. Shifting buses around to even out mileage and identifying units that should be replaced early versus those that can be held over (consistent with statutory or regulatory guidance on fleet age) are two crucial items to consider. Using these principles, it is possible to develop a long term projection of expenditure requirements.
After determining how much money is needed, the next step is determining how to finance those purchases.
Many states restrict the ability of school districts to use mechanisms such as capital reserve funds. Where this type of fund is possible, it can be a highly successful mechanism to managing variability in expenditures and funding. Another alternative is leasing through manufacturers or capital markets. Historically low interest rates make this a particularly attractive option for school districts with old fleets and a need to catch up on deferred replacements quickly.
Finding a way to match expenditures and revenues isn't just a job for the finance office. Establishing a plan for both replacement and financing may just be the get out of jail card you need to avoid the inevitable outcomes of capital punishment.