Short-term leasing deals win long-term savings for grounds crew.
The Overland Park, Kan., Parks and Recreation Department has begun leasing most of its turf equipment to simplify upgrades and maintenance. As a result of the leasing arrangement, the city retired itsof mowers and trimmers and replacement parts stock, and eliminated three vehicle maintenance staff positions.
The city's fleet of grounds maintenance equipment includes a variety of mowers, aerators and top dressers to maintain the grounds for the city parks, arboretum, petting zoo and three golf courses. Traditionally, the department owned all of its turf maintenance equipment and replaced a few pieces each year, usually with new models from the same manufacturer to reduce the amount of training for maintenance technicians and to simplify the replacement parts stock. “When we would bid [for] two mowers, we wouldn't get very competitive prices, because it was a disadvantage to the city to replace a mower with a different type that would require additional training, additional parts, etc., so you were really kind of locked in,” says Sandy Queen, manager of the golf division and equipmentmanager for the parks department.
Because of the department's frequent equipment replacement schedule, Queen began considering leasing in 2003. By leasing, he would not have to worry about liquidating equipment at the end of its use, would not have to seek city council approval for each new equipment purchase and could budget for annual equipment needs accurately over several years.
In March 2004, the department began leasing 60 pieces of turf maintenance equipment from Bloomington, Minn.-based Toro through Toro Equipment Finance. The leasing agreement accounts for close to 90 percent of the department's $2 million turf maintenance equipment fleet and excludes only large equipment, such as tractors, which the city already owned and can be used longer than mowers and other small equipment. “It allowed us to bid all of our equipment at one time, making it a true competitive bidding process,” Queen says.
In addition to supplying the equipment, the manufacturer also finances and provides regular maintenance for the equipment, eliminating the need for city mechanics on staff. When the equipment is serviced weekly, it is taken off site, so supervisors do not need to worry about oil spills or other environment hazards of vehicle maintenance. “We don't store large quantities of oil or anything that triggers us as a small generator of hazardous material,” Queen says. “From a regulatory standpoint, that's very advantageous.”
The department signed a three-year lease contract and pays $270,000 annually for the equipment and maintenance. The contract guarantees the value of the equipment at the end of the lease, which eliminates questions Queen had with previously owned equipment. “We couldn't control residual value of equipment by purchasing it,” Queen says. “At the end of its fair market life — the four or five years on our replacement schedule — the residual value was significantly below what we felt the market should be. By putting this in a lease package, they own it at the end. The company has to predict in the front what the residual value is, so you get a guaranteed residual value through the leasing process.”
By eliminating three mechanic positions, the department is saving $120,000 annually, and it no longer spends $25,000 annually for its replacement parts stock. “The leasing became a financing mechanism and a process that allows us to acquire the equipment and dispose of it in a clean and neat way with a guarantee of the residual value. If you bought it outright, you wouldn't have that same option,” Queen says. “So far, it has been one of the best financial moves and productivity moves that we've done.”
Jon Fales is a principal in Kingsport, Tenn.-based The Alta Group.