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INFORMAL REPORT TO CITY COUNCIL MEMBERS
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To the Mayor and Members of the City Council
February 22, 2005
Page 1 of 2
SUBJECT: Proposed Internal Financing of Technology Equipment
Purchases
The IT Solutions Department is responsible for the coordination of the City's computer equipment
replacement program. Over the last seven years, the City has used external vendors to finance the
program. This Informal Report outlines a proposed, more cost effective financing strategy. If the City
shifts from using an external vendor Fair Market Value process to using the City's Equipment Note
Program for financing, the savings to the City is projected to be in excess of $100,000 per year. Based
on this projection it is recommended that the financing method for computer equipment replacement be
revised. The recommendation for Equipment Note financing is contingent upon the continuation of the
current scheduled replacement cycle.
The City began leasing computers in 1998, as a way to replace a large inventory of aging technology
equipment. As a result, the City entered into master lease agreements with Dell Financial Services
(DFS) and IBM Credit Corporation (ICC) and later with Dell Government Leasing (DGL). By 2000,
the City inventory included 3100 computers and servers and over 200 printers on lease agreements.
Currently, the City has replaced most individual computers twice. Invoice payments made to the three
leasing vendors in 2002 and 2003 were approximately $4.6 and $4.8 million, respectively.
In FY 2003 -04, Finance and IT Solutions Department staff began exploring the City's Equipment Note
Program as a cost reduction alternative to leasing technology equipment. The financial advisors for the
City indicated that the City's Equipment Note could legally be used to finance computer equipment. In
2004, six M &Cs for standalone technology procurement projects were approved by the City Council.
The projects included: 1. High Speed and Volume Printers for IT Solutions, 2. Network Switches for IT
Solutions, 3. Network Security Software for IT Solutions, 4. Network Hardware and Firewall Software
for the Library Project, 5. Data Storage /Tape Backup Hardware for Municipal Court, and 6. Virus
Software for IT Solutions. For each project, City Equipment Notes were used. The IT Solutions
Department is now ready to implement Phase II of this financing strategy for routine technology
replacement purchases.
The following provides a cost comparison of the fair market value (FMV) lease to Equipment Notes for
financing. The comparison below is for the procurement of 800 desktops, 200 notebooks, 80 GIS
workstations and 50 printers, which represent a typical year.
FMV City Financed
Description 3 Year Cost 3 Year Cost
Desktops, Notebooks $3,296,000 $2,950,000
GIS, Printers (1130 devices)
The chart indicates significant savings over a three year time period for the procurement of a typical
year for equipment replacement. By using the City's internal financing method rather than an external
vendor's FMV lease rate, the City could save $346,000 over the three -year financing period.
ISSUED BY THE CITY MANAGER
FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8664
To the Mayor and Members of the City Council February 22, 2005
Page 2 of 2
SUBJECT: Proposed Internal Financing of Technology Equipment
Purchases
In conjunction with this program the IT Solutions Department will establish an acceptable disposal
process, which meets environmental regulations, since the City will own the computers (under the
current lease finance program, the lease vendor is responsible for disposal). Once established, the effort
to manage the disposal process will not be any more labor intensive than the current effort to ensure
that leased devices are returned to the leasing vendor in proper condition.
The success of the Equipment Note financing strategy is contingent upon continuing to refresh
technology equipment in a timely manner. By leasing, most computers have been replaced on a three -
year cycle. Technology will continue to evolve, and as a result, each computer should continue to be
replaced on this regular established cycle.
In summary, business needs and opportunities can continue to be achieved based on scheduled
replacement of computer related equipment each year and there can be substantial savings to
technology procurement if the City finances the purchases through Equipment Notes. Even though the
change in financing will be transparent to customer departments, IT Solutions expects to deliver a better
level of customer service managing the new City financed leasing process. Unless there are any
01 objections staff will bring forward an M &C for City Council's consideration on March 1, 2005. Should
you have any questions regarding this matter please contact Pete Anderson, CIO at 392 -8781 or
Richard Zavala, Acting ACM at 392 -6222.
Charles R. Boswell
City Manager
ISSUED BY THE CITY MANAGER
FORT WORTH, TEXAS