TO: Honorable City Council
FROM: City Manager
SUBJECT: A Resolution of the City Council of the City of Commerce, California, Approving Lease of two (2) 2024 MCI Buses from Key Government Finance, Inc.
MEETING DATE: May 14, 2024
RECOMMENDATION
A Resolution of the City Council of the City of Commerce, California, Approving the Lease for two (2) 2024 MCI Buses from Key Government Finance, Inc.
BACKGROUND
The City's existing over-the-road buses are primarily used to transport passengers (i.e., seniors, park and recreation program participants, and dignitaries) on various excursion trips throughout the year. Bus numbers 304 & 305 were purchased in 2007 and have exceeded their useful life. The useful life span for large over-the-road coaches is 12 years or 500,000 miles, per FTA Circular 5010.1D. Due to the age of the buses referenced below, they have become less reliable and much more expensive to maintain.
Unit MileageYearLicenseMakeDescriptionVIN30416305820071067207MCIExcursion 56 Pass2M93JMPA27W06390730515915320071067208MCIExcursion 56 Pass2M93JMPA27W063908As a result, the City needs new excursion buses. It should be noted that the City's previous purchase for its over-the-road MCI buses was through the Key Government Finance, Inc. lease-to-own program.
SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT (SCAQMD) RULE 1196 This rule requires public fleets of heavy-duty vehicles operating in the South Coast Air Quality Management (District) to acquire alternative-fuel heavy-duty vehicles when procuring or leasing them to reduce air toxic and criteria pollutant emissions. This rule applies to all government agencies located in the District, including federal, state, regional, county, and city government departments and agencies, and any special districts such as water, air, sanitation, transit, and school districts, with 15 or more heavy-duty vehicles.
Provisions of the above rule shall not apply to the following:
A) Paratransit vehicles.
B) Buses that provide long-distance service (out-of-district) are generally equipped with luggage compartments, restrooms, and overhead storage. (C) There may be no more than ten evaluation/test vehicles per fleet provided by or operated exclusively by the vehicle manufacturer for testing or evaluation. (D) School buses as defined in the California Vehicle Code. (E) Buses not used for public transportation, such as employee transportation or transportation of prisoners. (F) Signed contract agreements as of this rule's adoption date for purchasing or leasing new transit vehicles or urban buses. This exemption does not apply to executing options to purchase transit vehicles following this rule's adoption date.
SOUTH COAST AQMD (RULE 1196 WAIVER)
The City staff researched the possibility of purchasing excursion buses with electric or CNG fuel types. However, due to the limited luggage capacity caused by the electric battery packs and CNG vessel storage containers, the City has no other option but to stick with the diesel MCI buses to continue their transportation services. Based on the factors mentioned above, the City received a waiver from SCAQMD to purchase clean diesel MCI buses (Exemption B)
ANALYSIS
Per the Master Tax Exempt Lease/Purchase Agreement, the City shall enter a seven (7) year lease-to-purchase agreement with Key Government Financing, Inc. The proposed lease-to-purchase financing structure will allow the City to buy the buses over some time through the operating side of the City's budget while preserving the City's CIP budget for other immediate needs.
FISCAL IMPACT
A complete breakdown of the estimated lease payments is as follows:
Payment No.
Due Date
Rental Payment
Principal
Interest
Termination
Amount
1 1-Dec-24
$126,530.00
$126,530.00
$0.00
$1,435,478.12
2 1-Jun-25
$126,530.00
102,989.45
36,340.55
1,055,704.58
3 1-Dec-25
$126,530.00
87,844.75
51,485.25
969,239.59
4 1-Jun-26
$126,530.00
89,453.92
49,876.08
891,256.60
5 1-Dec-26
$126,530.00
91,097.68
48,232.32
802,767.58
6 1-Jun-27
$126,530.00
91,776.78
46,553.22
723,193.03
7 1-Dec-27
$126,530.00
94,491.99
44,838.01
634,669.43
8 1-Jun-28
$126,530.00
96,244.07
43,085.93
551,425.35
9 1-Dec-28
$126,530.00
98,033.82
41,296.18
466,391.53
10 1-Jun-29
$126,530.00
99,862.06
39,467.94
379,529.47
11 1-Dec-29
$126,530.00
101,729.60
37,600.40
290,799.88
12 1-Jun-30
$126,530.00
103,637.29
35,692.71
200,162.59
13 1-Dec-31
$126,530.00
106,585.99
34,744.01
107,576.60
14 1-Jun-31
$126,530.00
107,576.60
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The annual cost is approximately $253,060 during the term of the Lease. If the City Council decides to move forward with the purchase of the aforementioned busses, the funding will be incorporated as part of the FY 2024-25 Capital Improvement Program budget.
The above lease payment structure will enable the City to purchase newer, more efficient buses without incurring a large upfront ($1,435,478.12) capital expenditure. The City will own the buses at the end of the lease term. There is no upfront cost associated with the proposed Lease, and the agreement shall commence upon receipt of the first bi-annual lease payment of $126,530.00 at an interest rate of approximately 4.3%. The buses shall be covered by the manufacturer (Motor Coach Industries) with a standard warranty for the first three years, and the City is responsible for routine maintenance and insurance.
Motor Coach Industries (MCI) referred Key Government Financing, Inc. to the City. The City has purchased six over-the-road coaches directly from MCI over the past thirty-eight years. It has been satisfied with its customer service, equipment reliability, and proven reputation in the transportation industry for standing behind its product. MCI highly recommends Key Government Financing, Inc. to their customers for leasing purposes. For over 50 years, Key Government Financing, Inc. has helped Cities of all sizes acquire equipment to increase efficiencies and enhance overall profitability. Key Government Financing, Inc. is part of Key Bank, headquartered in Cleveland, Ohio.
Key Government Financing, Inc. is a leading provider of capital lease financing for public agencies and municipalities. Some of their references are the City of Union City (Contact: Gayle Okada), the City of Corona (Contact: Mike Enriquez), the City of San Marcos (Contact: Laura Rocha), and the City of Concord (Contact: Doug Elloway). Staff contacted the references above and received positive responses.
RELATIONSHIP TO STRATEGIC GOALS
Guiding Principle #4: Support and evaluate community services, programs, and events that promote healthy and quality lifestyles for our residents. The new MCI over-the-road buses will allow residents to participate in various excursion-related trips and activities actively.
Recommended and Approved by: Claude McFerguson, Director of Transportation Fiscal review by: Vilko Domic, Assistant City Manager
Approved as to form: Noel Tapia
Respectfully submitted: Ernie Hernandez
CITY OF COMMERCE
AGENDA REPORT
Item No.