HomeMy WebLinkAbout4.11 Internal Service Fund!
CITY OF DUBLIN
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AGENDA STATEMENT
CITY COUNCIL MEETING DATE: April 14, 1986
SUBJECT . Establishment of Internal Service Fund - Equipment
Replacement
EXHIBITS ATTACHED . None
RECOMMENDATION Authorize establishment of Internal Service Fund to be
included in the 1986-87 Budget
FINANCIAL STATEMENT: See below
DESCRIPTION . As the City has grown and circumstances have changed,
the City has purchased various large capital equipment items. These items
have included word processing equipment, a computer, copy machines and
police vehicles. Under the City's present budgeting system, funds are
budgeted for the purchase of these large items in the year each item is
purchased. This method of budgeting results in a distorted picture of the
City's annual operating cost in that the total cost of the equipment is
shown in one year, while the useful life of the equipment may be several
years.
In order to show the true year-to-year cost of operation, it is recommended
that an Internal Service Fund be established to account for the operation
and replacement of motorized and major office equipment.
The Internal Service Fund will operate very similarly to a private business.
Service charges are established for each piece of equipment covering the
cost of operating the equipment, as well as the cost of replacing the
equipment when it has reached the end of its useful life. Departments are
charged the above costs, based on the usage, on a regular basis, with the
service charges being adjusted annually for inflation. At the end of the
useful life of the equipment, the Internal Service Fund would have
sufficient funds reserved to replace the equipment. A hypothetical example
of how the Internal Service Fund would handle a City vehicle purchased at a
price of $10,000 with a useful life of 75,000 miles is shown below:
Annual Cost Cost/mile *
l..Cost to replace vehicle $12,000 '- 75,000 miles $ 4,000 $.13
2. Insurance $1,200 '- 30,000 miles $ 1,200 $.04
3. Operating Expenses (maintenance, gas, oil,
repairs} $6,000 ; 30,000 miles $ 6,000 $ .20
Total Charges to Department $11,200 $ .37
* Adjusted annually for inflation
The Internal Service Fund would pay directly for the vehicle purchase and
all costs related to the vehicle. The Department would be charged
$.37/mile for each mile it drove the vehicle. As shown above, $.13 of the
$.37 would be paid to the Internal Service Fund and held in reserve for
future replacement of the vehicle. The remaining $.24 would be used to
reimburse the Internal Service Fund for other costs incurred by the Fund
which are attributable to operating the vehicle.
The major benefits for the establishment of an Internal Service Fund are:
l. Annual operating costs are more accurately reflected because the cost of
major capitai equipment is allocated over time based on actual usage.
2. An equipment replacement reserve will be established which will provide
for the future replacement of major capital equipment which has reached
the end of its useful life. This avoids a major money outlay when
large equipment is replaced.
Recommendation
It is Staff's recommendation that the City Council authorize Staff to
establish an Internal Service Fund which will be included in the Fiscal Year
1986-87 Budget.
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