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AEO=Executive Order
AEP=Executive Policy
AP=Administrative Policy
PR=Public Rule

Equipment Rental and Revolving Funds Fund Balance Policy

Document Code No.: FES 11-1 (AEP)
Department/Issuing Agency: Department of Transportation/Fleet Administration Division
Effective Date: March 12, 1999
Approved: /s/ Ron Sims
Type of Action: New

Signed document (PDF, 2.04 MB)

This policy was superseded by FES 11-1-1 (AEP) on March 1, 2010.

1.0 SUBJECT TITLE: Equipment Rental and Revolving Funds Fund Balance Policy

1.1 EFFECTIVE DATE: Upon Approval

1.2 TYPE OF ACTION: New

1.3KEY WORDS: (1) Fund Balance; (2) Fund Balance Reserved for Parts, Supplies and/or Materials Inventories; (3) Fund Balance Reserved for Equipment Replacement; (4) Fund Balance Reserved for Capital Replacement and Improvement; and (5) Rental Rates.

2.0 PURPOSE~ To formalize a policy consistent with applicable statutes on the level and components of Fund Balance and to outline the formula to be used in determining rental rates so as to assure compliance with the desired Fund Balance level.

1.1 To maintain user rental rate stability.

1.2 To assist King County in maintaining its credit rating.

1.3 To provide funds for timely and efficient replacement of materials, vehicles and equipment, and systems and equipment not rented out by the fund.

3.0 ORGANIZATIONS AFFECTED: Applicable to the Public Works Equipment Rental and Revolving Fund (Fund 557) and to the Motor Pool Equipment Rental and Revolving Fund (Fund 558) and other equipment rental and revolving funds that may be established and managed by Fleet Administration in the future.

4.0 REFERENCES:

4.1 Revised Code of Washington, Chapter 36.33A, "Equipment Rental and Revolving Fund"

4.2 King County Financial Policy for Non-Current Expense Fund Balances, adopted by King County Council Motion No. 5888, January 3, 1984

4.3 Motor Pool Special Study, Report No. 97-9, Presented to the King County Council by the Office of the Auditor, dated November 17, 1997

4.4 Budgeting Accounting Reporting System (BARS) Manual, Office of State Auditor, Volume 1, Part 3, Chapter 7

4.5 Miller Comprehensive Governmental GAAP Guide, 1997, author Larry P. Bailey, Harcourt Brace & Company

4.6 State Auditors Accounting Manual, Introduction and Determination of Rental Rate, Chapter 10, Section I, Pages 1-8.

4.7 GASB Codification of Governmental Accounting and Financial Reporting Standards. Section 1300.104.

5.0 DEFINITIONS:

5.1 "Fund Balance" means the difference between the total current assets and total current liabilities

of the fund. It represents the balance of all financial resources available for current

appropriation and expenditure after all revenues and expenditures have been accounted for at

the end of a given period. The Fund Balance shall contain three components:

5.1.1. "Fund Balance Reserved for Parts, Supplies and/or Materials Inventories" means

the amount set aside and available for the replacement of parts, supplies and/or

materials in the Supplies Inventory asset account.

5.1.2. "Fund Balance Reserved for Capital Replacement and Improvement" means the amount set aside and available for specifically planned capital improvements and replacements of existing systems and equipment not rented out by the fund, such as automotive test equipment, shop hoists, car wash facility, steam cleaner facility, etc.

5.1.3. "Fund Balance Reserved for Equipment Replacement" means the amount set aside and available for the replacement of vehicles and equipment in the Fixed Assets account.

5.2 "Rental Rate" means the amount charged to the using agency for the use of Equipment Rental and Revolving Fund vehicles or equipment. The rentals may be charged on an hourly, daily or monthly into the fund, consistent with RCW 36.33. Rental Rates provide for maintenance and operating costs, overhead costs, depreciation and replacement surcharge, and non-operating revenues and other adjustments.

5.2.1 "Maintenance and Operating Costs" mean the current costs of keeping the vehicle or piece of equipment in operation. It includes, but is not limited to, the costs of gasoline or diesel, oil, tires and tubes, batteries, and all other parts and labor expended in order to maintain and operate the fleet.

5.2.2 "Overhead Costs" mean the current cost expended for providing general management, administrative activities, insurance, rent, utilities, support services in managing the fleet and County wide central service charges.

5.2.3 "Depreciation" means the portion of the original purchase price of the vehicle or piece of equipment expensed during its economic life.

5.2.4 "Replacement Surcharge" means the additional amount charged in order to accumulate the arithmetic difference in the anticipated cost of the replacement equipment over the original purchase cost of the equipment currently in service during the remaining lift of the current vehicle or piece of equipment.

5.2.5 ''Non-operating Revenues" means the amount credited against the rental rate to reflect other revenues earned by the fund. The primary sources of non-operating revenues are interest income and proceeds from the sale of surplus vehicles and equipment.

5.2.6 "Other Adjustments" are amounts added to or credited to the rental rate to cover deficiencies or surpluses in the prior year's operations.

6.0 POLICIES:

6.1 The Fund Balance Reserved for the Equipment Replacement account shall reflect all amounts accumulated for depreciation and replacement surcharge components in the rental rate. This amount shall be no less than 10% and may not be more than 20% of the estimated replacement costs of all equipment in the fund at any given year during the fleet replacement cycle. Any amounts, which cause this designated fund balance to exceed the 20% threshold at any given year during the replacement cycle, maybe returned proportionately to the contributing funds.

6.2 The Fund Balance Reserved for Parts, Supplies and/or Materials Inventories shall equal the amount in the asset account, Supplies Inventories.

6.3 The Fund Balance Reserved for Capital Replacement and Improvement shall be three percent of estimated annual revenues. Such amounts may be designated for planned capital improvements and purchase or replacement of systems or fixed assets not rented out by the fund.

6.4 Monies collected for future equipment replacement shall remain in the Equipment Rental and Revolving Fund until expended for such replacement, or may be reimbursed to contributing funds consistent with section 6.1.

6.5 Rental rates shall cover all costs of maintenance and repair, material and supplies consumed in operating and maintaining equipment, administrative and central services overhead and the future replacement thereof. "

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7.0 PROCEDURES:

7.1 Fleet Administration Division of the Department of Transportation shall develop rental rates as a part of the Executive budget process.

7.1.1 The operating and maintenance costs shall be determined by using the most recent cost information available for the preceding twelve months. For vehicles or pieces of equipment with no cost history, Fleet Administration shall develop an estimate using whatever indices or comparable data is available.

7.1.2 The depreciation cost component of the rental rate shall be computed by Fleet Administration using historical experience as to asset life. Depreciation will be calculated using the straight-line method, unless another method is determined mutually by Fleet Administration and the user agency to be more appropriate. Depreciation will be calculated starting the first full month that the vehicle is in service.

7.1.3 The replacement surcharge cost component of the rental rate shall be computed by subtracting the purchase price of the vehicle or piece of equipment currently in service from the anticipated cost of the replacement piece of equipment if it were to be replaced in the current period, divided by the anticipated economic life of the asset, in periods.

7.1.4 The other component of the rental rate computation shall be determined by estimating the anticipated proceeds from all sources of income other than rental revenues. Factors to be used in estimating other income include, but are not limited to, economic climate and historical experience.

7.2 Fleet Administration Division shall develop annually a financial plan covering the fleet replacement of the fund. The plan shall ensure that the appropriate level for each component of the fund balance is met.

7.2.1 Fleet Administration shall designate from the total fund balance reflected on the financial plan the Fund Balance Reserved for Parts, Supplies and/or Materials Inventories which shall be computed to equal the amount in the asset account Inventory of Supplies, and as such will be estimated in the financial plan to be equal to the level of supplies inventory on hand at the end of the previous year, plus or minus adjustments for known changes in the operation affecting the level of supplies inventory.

7.2.2 Fleet Administration shall designate from the total fund balance reflected on the financial plan the Fund Balance Reserved for Capital Replacement and Improvement, which shall be computed to be three percent of estimated annual revenues.

7.2.3 Fleet Administration shall designate the fund balance remaining after implementing item 7.2.1 and item 7.2.2 as the Fund Balance Reserved for Equipment Replacement. This amount shall be no less than 10% and may not be more than 20% of the estimated replacement cost of all equipment in the fund at any given year during the fleet replacement cycle. Any amount which causes the designated fund balance to exceed the 20% threshold at any given year during the replacement cycle may be returned proportionately to the contributing funds.