Petaluma to buy 22 vehicles with loan

Petaluma is tapping the financial reserves of its Ellis Creek Water Recycling Facility to fund millions of dollars in badly needed replacements for public safety vehicles.

The $3 million loan from the wastewater plant will allow the city to replace a host of firefighting and law enforcement vehicles over a period of about five years, said City Manager John Brown. The need to replace the aging fleet has been an ongoing concern for the city, adding to the expenses that have loomed large after the recent financial crisis.

“Public safety emergency vehicles are in critical need of replacement,” said Bill Mushallo, the city’s finance director, during a presentation to the Petaluma City Council in May.

Petaluma has made “very little” contributions to its vehicle replacement fund in recent years, Mushallo said, while much of its fleet has continued to decline. While the city was able to put $500,000 into the fund this year, that money was still dwarfed by the need that had accumulated over time.

The money will replace a total of 22 vehicles – two ambulances, one ladder truck, one fire engine, 15 police patrol vehicles, two police motorcycles and one police investigation vehicle.

“Most of those pieces of equipment are well beyond their shelf life. We hear countless stories of the fire department having to go to backup ambulances, over, and over, and over again,” said Petaluma City Councilman Gabe Kearney.

The eight-year loan will be at an interest rate of 1.25 percent – cheaper than the city could get from an outside lender, and a better return than Ellis Creek could get by parking that cash in the city’s pooled low-risk investment account, Mushallo said. The city estimated that it could borrow at between 2.5 and 3 percent for an outside commercial vehicle loan, and that the plant would earn 0.9 percent in the pooled account.

The wastewater plant, which is operated as a revenue-generating enterprise and accounted for somewhat separately from the core of the city’s operations, has more than $30 million in reserves.

In order to comply with state law, the Petaluma Public Financing Authority – a public entity where the city council serves as the board – will be the borrower. The authority will lease the vehicles back to the city.

Kearney described the strategy of borrowing internally as a prudent financial step.

“The fact that staff were able to come up with a way to fund this in a way that is financially responsible for the city and will save us money, I support it,” he said.

Petaluma used $300,000 from its general fund and $200,000 from its tax on hotel room stays to put money into the vehicle replacement fund for the budget year that went into effect July 1.

(Contact Eric Gneckow at eric.gneckow@arguscourier.com. On Twitter @Eric_Reports.)