New federal emission standards, an aging fleet of motor graders and an expected increase in the number of gravel county roads is prompting Hall County supervisors to consider going into $1 million of debt -- for equipment.

"I'd hate to go into debt for $1 million," said Bud Jeffries, Hall County Board of Supervisors chairman. "I don't know that we've ever done that."

"Not for equipment," budget consultant Brad Fegley said.


Hall County has restricted its debt to real estate -- and more specifically to the construction of the Hall County Jail that was built with a $22 million voter-approved bond.

Real estate is seen as an appreciating asset, whereas equipment values depreciate.

However, an alignment of several factors has brought forth a new debt question -- whether the county should debt finance five new motor graders for $1 million paid out over the next five years.

Taking the deal could actually get Hall County five motor graders for the price of four, said Hall County Public Works Director Casey Sherlock.

The issue was prompted by new federal Tier 4 emission regulations that go into effect Jan. 1, 2011.

"Equipment manufacturers are expecting up to a 15 percent price increase to offset their costs for development and production of Tier 4 compliant diesel engines on each machine that is produced and sold after Jan. 1, 2011," Sherlock wrote in a letter to the board. "This has prompted hundreds of counties, cities and private contractors across the nation to get ahead of the price increase and purchase equipment now."

Coupled with that federal change is Hall County's aging fleet of motor graders.

There are three 1990 models, a 1994 model and a 1995 model that are past, at or near recommended replacement, said Supervisor Dan Wagoner, who is part of the county's Public Works Committee.

The 1990 models have been in service for 15,000, 17,000 and 20,000 hours. Sherlock said graders are typically replaced at 12,000 to 15,000 hours of service.

The county has 14 motor graders overall, but is expected to have increased use of those graders or need more graders overall due to the number of asphalt roads that are being returned to gravel amid budget shortfalls that prevent repaving, Wagoner said.

"I definitely feel that outright purchase is the best way to go when buying equipment," Sherlock said.

However, he's recommending in favor of the debt plan because he has calculated a nearly $400,000 savings over the five-year financing.

The county board opened bids for five new motor graders on July 20, but has taken no action yet.

Only one bid came in due to the county's requirement that vendors offer a guaranteed repurchase price of each new unit. Murphy Tractor in Grand Island and Titan Machinery in Lincoln declined to submit a bid under those guidelines.

Nebraska Machinery in Doniphan was the lone bidder. It offered five new 2010 Caterpillar 140M models for $214,884 apiece. The guaranteed repurchase is $115,000.

Total cost for five is just more than $1 million, but Cat is also offering a $25,000 parts credit, $190,300 for the trade-in of the county's five old graders and 3.55 percent or 3.6 percent interest for paying over four years or five years, respectively.

Paying over four years, beginning in November 2011, requires a $243,000 annual payment. Paying over five years requires a $200,000 annual payment.

Sherlock said that calculates to $1 million now to buy five graders, or spending $1.3 million to buy the graders one year at a time after the price rises to an estimated $275,000 when the new emission pricing kicks in.

Buying now is a $235,000 cost savings right off the top, he said.

Trading in the old models also ensures the highest trade-in value, Sherlock said, and it saves the average annual repair cost for the five old graders of $3,000 per year.

"I calculate a total savings to Hall County of $329,428 prior to removing interest lost by financing," Sherlock said. "In any case, the difference between cost savings and interest lost will be more than the cost of one motor grader."

He also likes the $25,000 parts credit offered by Nebraska Machinery and a "free five-year, 7,500-hour, bumper-to-bumper warranty," which Sherlock has valued at $15,000 per grader. Those two incentives together have a value of $100,000, he said.

"With shortfalls in money, I know that decisions about things like this are very important and should not be taken lightly," Sherlock said. "I consider every opportunity to save nearly half a million dollars a very good choice and this is the main reason for our (Sherlock and his committee) decision to bring this to the Hall County Board of Supervisors."

Jeffries said he's not sure the grader prices are going to escalate as predicted. He's also concerned about having five graders in the fleet that are all the same vintage and is worried about tying up $200,000 a year for each of the next five years.

That is the full annual amount the county typically spends on equipment, he said. If something else breaks down, he's not sure the county could cover that as well.

Supervisor Scott Arnold was bothered by having just a single bid to make this kind of decision. The bid is good for 30 days after the July 20 opening.

Supervisors Pam Lancaster and Gary Quandt both expressed concern about the stableness of the county's revenues. They worry the county may not be able to afford $200,000 a year.

"You have some tough decisions in the next three weeks," Fegley told the supervisors.

They are to continue to motor grader discussion during a 9 a.m. special budget meeting Wednesday when Sherlock presents his proposed 2010-2011 budget.

http://www.theindependent.com/articles/2010/08/01/news/local/12123963.txt


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