Background

Providing motor vehicle transportation support to state employees on official business accounts for over $57 million of the Texas budget. The State of Texas owns more than 25,000 vehicles that are maintained and repaired by 167 shops statewide. Numerous agencies own less than five vehicles while several agencies, institutions of higher education and mental health and mental retardation facilities maintain large fleets (including cars, passenger vans, pickup and heavy duty trucks and station wagons).

Due to the findings in the 1986 review of state agency services, the Fleet Management Division of the State Purchasing and General Services Commission (SPGSC) was created and authorized by statute to:

"... establish a vehicle reporting system to assist each state agency in the management of its vehicle fleet. The office shall develop computerized data retrieval systems to implement the reporting system and shall maintain a complete inventory of agency vehicles by class of vehicles. The office shall determine the average cost of operations of the various classes of vehicles. The office shall have the authority to take all steps necessary to encourage and facilitate the conversion of and use of motor vehicles which are capable of using alternative fuels, especially compressed natural gas. The office of vehicle maintenance may establish centralized fueling stations throughout the state, may operate regional conversion and repair facilities, and may provide all services and support necessary to expedite the utilization of compressed gas or other alternative fuels by state agencies and school districts."[1]

However, implementation of this statute has been slow and ineffective. Many state agencies with large numbers of vehicles continue to maintain decentralized operations which are inefficient and costly. While total agency fleet costs are still not collectively available to permit an in-depth evaluation of costs, total state expenditures are available.

An initial review of vehicle fleet expenditures indicates that some agencies with large fleets of vehicles have almost no expense for vehicle rentals.[2] Many of these vehicles are available for use nearly 100 percent of the time. It is inefficient to maintain idle vehicles for agency convenience. A centralized vehicle fleet could allow the state to achieve greater utilization of vehicles by providing access to those agencies that must routinely rent vehicles. According to a survey of agencies by State Purchasing and General Services Commission, 153 state agencies owned 25,881 vehicles. A breakdown follows:

Type of Vehicle Total

Pickups 7,861

Trucks 5,572

Sedans 5,178

Vans 2,433

Wagons 1,566

Buses 372

Motorcycles 154

Ambulances 62

Other Vehicles 2,683[3]

Total 25,881

The top ten state agencies owning vehicles is noted in Table 1. These ten agencies owned 71 percent of the states vehicles in fiscal year 1989. They accounted for 83 percent of new vehicles purchased, 51 percent of the repair shops and 64 percent of the state's mechanics.

Table 1

Top Ten Agencies Owning Vehicles

Fiscal Year 1989

New Vehicles Number of

Total Purchased Repair Number of

Agency Vehicles FY 1989 Facilities Mechanics

Department of Highways and Public Transportation 10,385 1,207 26 200

Department of Public Safety 2,438 599 1 23

Parks & Wildlife Department 1,698 279 1 4

Texas Department of Corrections (Prior to TDCJ) 952 251 29 41

Agriculture Experiment Station 714 35 14 4

University of Texas at Austin 646 14 3 14

Texas A&M University 496 50 3 14

Texas Forest Service 401 35 7 15

Texas Tech University 337 12 1 6

Railroad Commission 331 80 0 0

Total 18,398 2,562 85 321

Source: State Purchasing and General Services Commission.

Vehicle Maintenance. There are 167 state repair facilities statewide. Of those 167 sites, 69 are owned and maintained by three agencies, including Agriculture Experiment Stations with 14, the Department of Criminal Justice with 29, and the State Department of Highways and Public Transportation with 26. Seventy-eight agencies own and maintain at least one repair facility. In addition, SPGSC provides repair services for state agency vehicles.

An assessment of the federal government General Services Administration's (GSA) Vehicle Fleet suggested privatization of repair facilities was a noteworthy consideration. The repair of vehicles in the federal government was privatized and automated to insure the availability of a tracking system to assess the status of vehicles in service. A repair history for each car includes the name of the mechanic that repaired the vehicle and is used to insure that repairs are not done twice or that faulty repairs are returned for additional repairs under warranty. This procedure saves considerable money that previously was wasted on duplicate or unnecessary repairs.

Privatization of federal vehicle maintenance eliminated overhead and repair expenses. Federal agencies now pay only for direct labor time in accordance with industry standards. Because of these cost savings achieved, GSA offers cars to agencies for just $13 per day and 30 cents per mile. GSA can also rent a sedan at a rate of $127 per month and 13 cents per mile. GSA officials are of the opinion that this is probably as lean and efficient as the agency can get and it is probably the best run vehicle shop in the United States.[4]

By privatizing their maintenance system, the federal government no longer budgets for facilities, equipment, depreciation, rent, lost employee time, etc. This is now all done by the private sector. They keep a vendor file on auto repair shops in each of the five states within the southwest region. Those shops are not under contract, but act as open market service providers. In addition to costs previously mentioned, the federal government no longer owns the property in which the repair facilities were once housed. The land, property and equipment were all sold to achieve a completely privatized maintenance operation.

Although the federal system is appealing as a potential model for Texas, there are constraints that warrant some agencies retaining specialty equipment to maintain their vehicle fleet. Thus, 100 percent privatization may not be feasible for the state at this time. Future review of the privatized operations should assess the viability of privatizing repair of other special functions such as heavy equipment and pursuit vehicles.

Procurement Process. The current procurement process is decentralized among the agencies that own vehicles. There are no state standards by type of vehicle to be purchased, including options, such as air conditioning, radios and so on. In addition, there are no state standards on disposition of vehicles. Decentralization keeps the state from achieving a better economy of scale on vehicle purchases and sales.

Although SPGSC's repair service keeps vehicles running, it appears that some vehicles are being maintained well past their useful life. For example, during a visit to the SPGSC repair shop, a 1977 station wagon was being repaired. Vehicles older than ten years have higher repair and maintenance costs and the state receives almost nothing for the vehicle when sold. Older vehicles are also not cost effective to maintain. The federal government replaces their vehicles every three years based on research that determined it was not cost effective to keep vehicles beyond three years. The state should reconsider how long to keep vehicles.

Fuel. Potential savings can be realized in the cost of fuel in the State of Texas. One issue is the use of a state contract for fuel. Texas uses a "contract plus" agreement for fuel purchases. The state is locked into a price for a year and misses advantages of price reductions for the duration of the contract period. Since fuel fluctuates so drastically, it would be to the advantage of the state to use a month-to-month agreement with the vendor with the best price at the time or totally eliminate the practice of maintaining fuel. Upon assessing the benefits of month-to-month contracts, the Vehicle Fleet Manager should determine if the state should continue to maintain fuel supplies or purchase retail fuel.

Maintaining fuel contracts may not be a wise procurement procedure for the state. It is extremely costly to set up a system to maintain fuel contracts considering the state must still buy gas for approximately the same price. Since gasoline prices vary greatly, long-term contracts for fuel are often risky ventures.

In some cases, maintaining a fuel station may not be cost efficient. For example, the Capitol Complex fuel station on 15th Street may need to have extensive work done underground to correct an environmental problem. The tanks are old and starting to corrode under the ground and the state will have to repair the tank. In some instances, it costs more to repair a tank than it does to build one. By maintaining large supplies of fuel, the state must assume greater environmental risks as well.

For purchase of fuel, the federal government produces a credit card for use with each vehicle. Because the federal tax is deducted from purchases prior to payment, the card allows employees to pay less than normal retail gasoline prices at retail outlets. The federal government assumes that the market will set the price of gasoline and that additional overhead costs are unnecessary. In addition, only self service pumps may be used to pump regular unleaded gasoline. Neither premium unleaded gasoline nor full service can be purchased (full service can be purchased if the driver is disabled.)

Other States. Other states have efficient state motor pools that have achieved a high rate of use of vehicles. The Oklahoma and California motor pools are two of the better centralized vehicle fleets according to Performance Review research.

Oklahoma: The State of Oklahoma operates a central pool of 550 vehicles of the state's 8,100 total vehicles. The state made a one-time appropriation (in 1968) for vehicles and set the pool up as a cost center, whereby agencies are billed for use of vehicles. While some agencies maintain their own vehicles if needed on a constant basis, the state's central General Services Division purchases all vehicles. As legislatively mandated, if an agency does not use the Division's services for rental car or purchase, the agency has to pay for the service out of their budget.

The General Services Division generally disposes of vehicles after 48 months or 70,000 miles. This allows most repairs to be made under warranty, keeping maintenance costs down.[5]

California: The California General Services Department is responsible for approximately 5,000 passenger sedans and light trucks. This is about one-quarter of the state's fleet. The vehicles are dispatched from seven different sites. Strict utilization guidelines have brought down costs since pools were organized. The vehicles are driven at least 1,000 miles per month and at least 70 percent of the time. Agencies are required to report utilization levels. If vehicles are underutilized, they must be rotated or transferred in, a "use it or lose it" scheme.

The Department also has a sophisticated inspection function. Specialists approve all repairs over $200 to insure that repairs are necessary and done correctly. They also perform safety checks every 12,000 miles. Vehicles are operated for over 100,000 miles or seven years.

The Department has been set up to recover costs as a revolving fund with rates established on an annual basis. They estimate that their costs are about 50 percent of the cost to rent from private companies. To recover the costs, the agencies pay a daily rate plus mileage. On monthly vehicles, the rate includes mileage. Some preventive maintenance is done in-house and more complex jobs, such as engine work, are done by private repair centers.[6]

Recommended Policy

The state should consolidate its vehicle fleet. By centralizing the state's vehicle fleet in the Capital Complex and on a regional basis, State Purchasing and General Services Commission can provide vehicles to agencies as a rental car service by day, week, or month. In addition to this service, efforts should be coordinated with the State Travel Management Program to contract with rental car agencies in the event that SPGSC does not have enough cars available on heavy traffic days. SPGSC should not keep enough vehicles to cover peak periods. The Commission should be required to maintain minimum utilization rates in order to justify the vehicles on hand. Furthermore, the Commission should sell excess vehicles to eliminate overhead. By selling excess vehicles, the state will save on vehicle insurance coverage as well. SPGSC estimates that, in the capital complex alone, a motor pool could probably reduce the state's fleet by 25 to 50 percent. (Approximately 30 percent of the state's vehicles are located in Austin.)

Some state vehicles are currently provided to employees as employee benefits. Those vehicles are rarely, if ever, used during normal daily activities. Those vehicles should no longer be provided to employees, unless a justification can be made that documents over 75 percent utilization on a daily basis. At one agency, over 300 vehicles have been assigned to employees with little need for a daily use vehicle. A majority of those vehicles are assigned to supervisory and management personnel.

The Commission should also consider purchasing vans to be used as shuttles, thereby saving on trips to Houston, San Antonio, Dallas and other high traffic routes easily accessible by motor vehicle. Several agencies have previously inquired about renting vans from SPGSC to transport a group of persons to meetings out of town. The van option could be used when five or more persons are going to the same destination, since it is cheaper than flying either Aircraft Pooling Board or commercial planes.

The State Purchasing and General Services Commission should be mandated to purchase all vehicles for the state to save through volume discounts. Further, the Commission should be required to establish vehicle option standards. With centralized purchasing, the state has greater leverage in negotiating better rates for purchases of vehicles. For example, if each agency purchases their own vehicles, the discount is not as great as if the state purchases 3,000 vehicles through one central source. In fiscal year 1990, the state expended nearly $12 million for passenger cars and $32 million for other types of motor vehicles.

To ensure that agencies receive the best discount possible, SPGSC should purchase vehicles twice a year (for example, in January and in June). This will allow agencies to request types of vehicles needed from SPGSC in a timely manner (at least 90 days prior to the purchase date).

In addition, the Commission should develop standardized state specifications for vehicles. Often, vehicles are not standard and the state ends up with hundreds of types of vehicles. For each type of vehicle, the state must also stock parts for that particular model. However, agencies in need of special cars, such as the Department of Public Safety's pursuit vehicles, would be required to provide unique specifications to the Commission for those designated purchases. There are some vehicles that are unique to agencies, such as heavy machinery vehicles for Highway Department that should not be included in a consolidated vehicles fleet.

The Commission also should negotiate state discounts for vehicle insurance. Currently, some state agencies pay over $200 more per vehicle for annual insurance premiums. By negotiating state insurance rates, the state can achieve additional savings on vehicle insurance.

The state should standardize vehicle disposition to ensure that the state receives the highest return on investments. Some agencies may keep older vehicles to maintain a cost conscious image. This practice costs the state more in maintenance costs in the long run. In fiscal year 1989, the maintenance budget for state agencies was $32,470,748. The State Purchasing and General Services Commission should develop state standards regarding mileage and/or numbers of years a vehicle should be kept. A reasonable turnover time for vehicles is about 75,000 miles or three to four years. With shorter vehicle turnover, a greater percentage of vehicles may still be under warranty, realizing additional savings. Furthermore, the selling price on the used vehicles will increase if the mileage driven and the years owned are kept within a reasonable amount. With potential savings of five percent on other vehicle-related expenditures, the state could save an additional $877,000 annually in repair costs alone.

The state should privatize most vehicle repairs. By privatizing vehicle repairs, the state can eliminate many of the 167 repair shops currently owned by the state. If specialty agency repair shops remained intact (Department of Highways and Public Transportation, Department of Public Safety and Department of Criminal Justice) in addition to the SPGSC repair shops for the capital complex, the state could eliminate 111 repair shops that employ 238 mechanics. These shops cost the state $17,544,771 in fiscal year 1989, operating at an average of $158,061. By privatizing the repair shops, the state can save on overhead costs.

The state should eliminate annual fuels contracts. The state should contract month-to-month with vendors for the best price on fuel or consider purchasing only retail fuel. According to SPGSC calculations, the difference between the highest and lowest price bid on a given day is 4.65 percent. For an annual purchase of $21 million of fuel (approximately equal to the consumption by the state), this represents a potential savings of $975,500 if the savings is equal to 4.65 percent. We recommend state contracts with the lowest bidder each month. Since fuel prices can fluctuate drastically, it would be to the advantage of the state to use month-to-month agreements with vendors for the best price at the time, or else eliminate the practice of maintaining fuel supplies. Upon assessing the benefits of month-to-month contracts, the Vehicle Fleet Manager should determine if the state should continue to maintain fuel supplies or purchase retail fuel.

Currently, the state is unnecessarily paying additional fees for retail gasoline. For example, some gas stations charge extra for use of credit cards. The state should use credit cards only at stations that do not penalize the customer for using them. The state purchases sufficient quantities of gasoline from these companies to not have to pay the service charge. In some cases the state pays up to four cents per gallon more per purchase. If 10 percent of the state's fuel is purchased under these circumstances, the state could save $84,000 through the elimination of the service fee.

The state should require the use of self-service pumps with regular unleaded gasoline only. Purchases of premium unleaded gasoline should not be allowed and only full service gasoline purchases should be made if the driver is disabled.

Implications

Advantages of consolidating the state's vehicle fleet include savings on vehicle procurement costs, on vehicle repair and maintenance costs, and on vehicle insurance costs. In addition, standard disposition procedures for fleet vehicles can save on repair costs and increase the return on investment through increased resale revenues. Consolidation of the state's vehicle fleet will also allow the state to increase the utilization rate of vehicles. For agencies preferring to purchase their own vehicles they will have to plan in advance and make reservations for vehicles as they are needed for additional work.

Fiscal Implications

The state can save approximately $5.9 million annually by consolidating the state's vehicle fleet and by privatizing most vehicle repairs. The breakdown of savings is as follows:

Savings

Fiscal to the General Savings Change in

Year Revenue Fund to All Funds FTEs

1992 $ 4,078,000 $ 5,910,000 -228

1993 4,078,000 5,910,000 -228

1994 4,078,000 5,910,000 -228

1995 4,078,000 5,910,000 -228

1996 4,078,000 5,910,000 -228

The estimate is based on the following factors:

* Eliminate 238 mechanics (plus 25 percent benefits) at an average cost of $17,000; total savings = $5,057,500.

* Eliminate 111 facilities, including equipment. The average repair facility budget per each shop, excluding DPS, TDCJ and SDHPT, is $158,061; total costs = $17,544,771.

Realizing a five percent savings on vehicle repairs (less overhead associated with in-house service delivery), the state's expenditures for the 111 agencies will be $16,667,532. Thus, the net savings for the facilities will be $877,239 annually. A potential savings of five percent is based on savings realized by other states. A breakdown of factors that contribute to potential savings includes:

1. Savings on purchase and maintenance of fuel

2. Savings on repair costs with shorter turnover of vehicles

3. Savings on higher return on investment with shorter turnover of vehicles

4. Savings on insurance premiums with negotiated discounts

5. Savings on elimination of excess vehicles commonly used as benefits

* Savings on vehicles through the elimination of five percent of consolidated fleet (assuming a five percent savings on 25 percent of vehicles); average of 3,250 vehicles purchased annually @ $8,000 per vehicle x 25 percent (to be consolidated) x 5 percent = total savings of $325,000 annually.

Total Savings = $6,259,739

Additional Expenditures:

* Additional administration for central fleet (10 persons @ $35,000 = $350,000).

Total Expenditures = $350,000

In addition to increased service delivery and improved utilization of state resources, the state could conservatively save approximately $5.9 million annually by consolidating the vehicles fleet and by privatizing the repair of most vehicles. This estimate is based on a consolidation of only 25 percent of the state's vehicles. Also, this estimate does not include the potential proceeds gained from the sale or utilization of facilities no longer needed upon privatizing vehicle repairs.

Endnotes