From the November 4, 2008 issue of School Transportation Director. Copyrighted material. May not be reused or republished without permission.

Evaluating the Cost Impact of New Seatbelt Regulations

The recent changes to the FMVSS No. 222 will have an impact on transportation operations across the country. The move from two to three point seatbelts is likely to result in increased costs and may result in a loss of capacity even in small buses.

An additional concern is that this requirement comes at a time when the credit markets have tightened to the point where it is becoming difficult for even public entities to get funding. Establishing a capital replacement program can help you develop a plan to deal with new regulations and a highly volatile financial environment.

Basics of capital planning

Projecting future capital costs requires three key pieces of information: an initial cost estimate, a projected inflation rate and an expected term. Once you have decided on these items it becomes a relatively simple multiplication problem to determine both when a vehicle will need to be purchased and approximately how much it will cost. The tables below provide a simple example for a five bus fleet.

Setting up a spreadsheet to perform this analysis allows you to quickly evaluate what the impact would be if the implementation costs associated with seatbelts change or if the inflationary costs increase. This setup also allows you to both project the costs in any given year and evaluate alternative financing options that may make it easier to purchase the vehicles you need when you need them.

Financing the expected costs

Understanding that funding is not financing is a critical distinction that allows you to evaluate how you can possibly purchase all of the vehicles you need. In a public sector environment there are three primary financing mechanisms that are typically considered:

Cash: This is the most typical approach to acquiring vehicles because it is simple to administer and generally the cheapest approach. However, this approach is the most susceptible to reductions in tax revenues and does not address issues of volatility in the annual requirements.

Reserve funds: This approach is similar to establishing a long-term savings account for purchasing buses. This helps prevent replacements from being deferred when appropriation requirements are less than expenditure needs. However, managing the fund balance so that it is not susceptible to “raiding” is a key consideration.

Leasing: Many school districts have an aversion to leasing because of a perception that all debt is bad. However, leasing is generally simple to administer and probably the most effective financing approach to addressing an old fleet. However, these benefits must be balanced against the likely increase in long-term costs associated with leasing.

Capital planning is a difficult task because so many of the variables are unknown and long term. However, by understanding what the requirements are likely to be and evaluating the different options available, without dismissing any out of hand, it is possible to put your school district and your transportation operation in a position to address new regulatory requirements and a changing economy.

This article was submitted by Tim Ammon of Management Partnership Services, Inc. MPS works with school districts across North America, including more than 150 school districts in the United States and the Province of Ontario. The company website is www.school-bus-consulting.com. Tim can be reached at  tammon @mpsconsultant.com