City staff reviewed internal service funds, fleet operations, the vehicle and equipment replacement fund (VERF), and the city's self‑insurance arrangement at the July 19 budget work session, explaining how staffing shortages, aging vehicles and contract choices affect costs.

Why this matters: Fleet and internal service charges appear in department budgets across the organization. Choices about when to outsource repairs, when to invest in replacement vehicles and how much to hold in insurance reserves affect multiple funds and operating costs.

Fleet staff said the city maintains about 1,400 assets across three shops and an inventory of roughly $850,000 in parts. Fleet currently has 37 authorized positions and 30 filled, with seven vacancies focused on mechanics and support roles; staff said those vacancies increase outsourcing because if mechanics are not available for in‑house repairs the city must send work out to vendors. The presentation noted that fleet outsourcing exceeded $1 million before COVID and that more than $1.5 million in some subsequent years does not necessarily indicate a dramatic outsourcing increase but instead reflects specific repair needs, the age of equipment and occasional specialized services (for example, boiler work, transmissions, or heavy‑body repairs).

Staff described the VERF, established in FY23, as a way to spread vehicle replacement costs over time: departments pay into the fund on a predictable schedule so the fund can accumulate cash and finance vehicle purchases without single‑year spikes. The capital improvement sales tax and other funds still pay for high‑cost, one‑off capital vehicles such as fire trucks; VERF is intended for routine vehicle replacement. Councilmembers asked whether major purchases should be out of the replacement fund or managed by individual departments; staff explained VERF provides predictability and reduces the chance vehicle purchases get mixed with general‑fund operating items.

On self‑insurance and employee benefits, staff said the city operates a self‑insured plan, and the employee benefit fund includes medical, dental and claims expenses. Recent work resolving contract/provider issues with MU Health and Anthem provided some near‑term relief; staff built a 10% placeholder for medical cost increases into the FY26 budget as a conservative assumption and noted a higher cash reserve target is kept for claims and stop‑loss exposure. Council members asked how internal charges to departments are determined; staff explained charges are based on historical claims and exposure and noted they are temporarily reducing transfers into self‑insurance to draw down excess cash toward target levels.

Ending: Staff said they will monitor fleet staffing and the outsourcing budget, consider adjustments to internal charge rates if positions are filled, and report to council on progress and any recommended rate changes for internal services before final budget adoption.