Title
Adoption of Resolution Amending the Fiscal Year 2025-26 Budget to Increase Authorized Expenditures in the Fleet Internal Service Fund for Fleet Maintenance ($250,000) and Fleet Replacement ($175,000). (Public Works 601)
Body
To: Honorable Mayor and Members of the City Council
From: Adam W. Politzer, Interim City Manager
EXECUTIVE SUMMARY
Expenditures in the Fleet Internal Service Fund (ISF), specifically within the Maintenance and Replacement divisions, are exceeding projections and are not expected to sustain operations through the end of Fiscal Year (FY) 2025-26. To maintain service levels and ensure operational readiness, staff recommends increasing the Fleet Maintenance division by $200,000 and the Fleet Replacement division by $175,000.
Fleet Services manages the operation, maintenance, and replacement of the City of Alameda’s (City) vehicle and equipment fleet. Costs are allocated to departments through the Fleet ISF, which covers both actual maintenance expenses and annual contributions toward vehicle replacement based on depreciation. This structure is intended to ensure sufficient funding is available to maintain the fleet and replace vehicles at the end of their useful life.
The City’s fleet includes critical heavy-duty equipment such as fire engines, hydro-vacuum sewer cleaners, public safety boats and street sweepers. Maintaining costs for these assets are inherently variable and have increased due to aging equipment, supply chain constraints and higher parts costs. Several major repairs have already occurred this fiscal year and extended lead times for replacement vehicles, particularly fire apparatus, require continued investment in existing units.
In addition, estimated vehicle replacement costs in the adopted FY 2025-26 budget were understated. Contributing factors include higher costs for electric vehicle models, increased prices for aftermarket equipment, and continued vehicle cost inflation.
BACKGROUND
Fleet Services oversees the operation, maintenance, and replacement of the City’s vehicle and equipment fleet through the Fleet ISF. Departments are charged for actual maintenance costs and annual replacement contributions based on depreciation, ensuring the long-term fiscal sustainability of the Fleet ISF.
City Council adopted the FYr 2025-26 and FY 2026-27 operating budgets, which included an expenditure budget for the Fleet Maintenance and Fleet Replacement divisions.
DISCUSSION
Fleet Maintenance
While prior budgets included an increase in expenditures related to vehicle parts and repairs, those increases were inadvertently not incorporated into the FY 2025-26 adopted budget. Additionally, several factors have contributed to higher than anticipated maintenance costs:
• Major repairs to heavy duty equipment: including fire engines, hydro-vacuum sewer cleaners, and street sweepers
• Addition of City boat maintenance: the FY 2025-26 budget did not include maintenance for Police and Fire boats. Two significant repairs totaling over $50,000 have already occurred. Fleet budget projections will incorporate City boat maintenance going forward.
• Increased parts costs: vehicle parts have been higher than expected inflation rates
• Delays in vehicle deliveries: particularly due to lingering impacts from COVID-era production disruptions, existing vehicles are required to remain in service longer, which increases maintenance demands.
To address these factors and maintain service levels, staff recommends increasing the Fleet Maintenance division budget by $250,000. Funds for this increase will come from the Fleet ISF and the cost of actual repairs will be charged back to the departments through cost allocation in upcoming budget cycles.
Fleet Replacement
Cost estimates for replacement vehicles and associated equipment developed during the budget process for FY 2025-26 are proving to be understated due to the following:
• Electric vehicle costs: The evolving electric vehicle market has seen major vehicle manufacturers cut back and eliminate some EV models. This limits procurement options and increases cost. Electric models can also cost approximately 20% to 75% higher.
• Increased upfitting costs: Aftermarket equipment such as sirens, lighting systems, radios, and safety equipment has significantly increased in price.
• Vehicle cost inflation: Vehicle prices increased approximately 3.4% in 2025. (Bureau of Labor Statistics), exceeding budget assumptions.
• In vehicle radio replacement: Fire vehicles require replacement of aging in-vehicle radios. Coordinating radio replacement at the time of vehicle replacement is the most cost-effective approach and minimizes downtime. These costs will be incorporated into vehicle capital costs and recovered through depreciation charges going forward.
To ensure scheduled replacements can proceed as planned, staff recommends increasing the Fleet Replacement division budget by $175,000. This increase is in addition to utilizing available budget from the deferred replacement of four Fire vehicle replacements, which have been delayed pending the anticipated availability of electric models next year.
Staff will recommend adjustments to the FY 2026-27 Fleet budget as part of the FY 2026-27 mid-cycle budget.
ALTERNATIVES
• Adopt the Resolution amending the FY 2025-26 budget, as proposed.
• Do not adopt the Resolution, which would result in:
o Delays in critical repairs, leading to vehicles and equipment being out of service; and
o Inability to replace vehicles as scheduled, potentially increasing long-term costs and operational risk.
FINANCIAL IMPACT
Approval of the proposed Resolution will increase expenditures in the Fleet ISF by $425,000 in FY 2025-26, consisting of $250,000 for the Fleet Maintenance division (60141580) and $175,000 for the Fleet Replacement division (60141581).
The Fleet ISF is a cost-recovery fund, and any increase in costs will be allocated to user departments. Additional maintenance costs are recovered through cost allocation in future years, as Fleet Maintenance billing is applied on a two-year lag. Increased replacement costs will be capitalized and recovered over time through depreciation charges.
There is no impact to the General Fund in the current fiscal year as there is sufficient fund balance to cover the proposed amount. However, because the General Fund supports several departments (ex. Police, Fire and Recreation and Parks) fleet operations, those departments will experience increased future maintenance and depreciation charges through cost allocation in future years.
Staff will evaluate and incorporate necessary adjustments into the FY 2026-27 mid-cycle budget process to ensure continued sustainability of the Fleet ISF.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
This action does not constitute a "project" as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required.
CLIMATE IMPACT
The Fleet Replacement Policy is consistent with the City’s recently adopted Climate Action and Resiliency Plan and emphasizes greenhouse gas emission reductions. The revised policy includes a focus on right-sizing the City fleet, the purchase of electric vehicles when feasible, and lowering the fleet’s greenhouse gas emissions through acquisition of low emission vehicles.
RECOMMENDATION
Adopt a resolution amending the fiscal year 2025-26 Budget to increase authorized expenditures in the Fleet Internal Service Fund for Fleet Maintenance ($250,000) and Fleet Replacement ($175,000).
Respectfully submitted,
Erin Smith, Public Works Director
By,
Carlo Balboni, Fleet Supervisor
Financial Impact section reviewed,
Ross McCarthy, Finance Director