Given the choice, most transit agencies and municipalities prefer to update their aging bus fleets with “greener” buses that cost less to operate and are cleaner, quieter and better for the environment.
Transit agencies and municipalities are under pressure to increase ridership while also containing fuel costs and reducing emissions. They can achieve these goals by replacing outdated equipment with buses that are substantially less expensive to operate over the life of the vehicle based on lower fuel costs and reduced maintenance requirements.
Shrinking budgets, however, mean many agencies and municipalities haven’t kept up with their purchasing. The option to finance buses using green technology, however, can bridge that gap and provide a host of cost-cutting benefits.
In mass transit, the majority of agencies and municipalities buy their buses with federal funds, which cover about 80 percent of the cost of acquiring buses. The challenge comes in making up the additional funds needed to cover the total cost of the bus.
Fortunately, some green bus technology companies offer financing as part of the sales process.
Transit Landscape Shifting
The U.S. transit market is, in many ways, a tale of two systems. The vast majority of transit systems operate fleets of traditional, less-energy efficient diesel buses, which have historically been funded with the 80 percent Federal Transit Administration grants.
But there are also more transit systems selecting electric buses over diesel buses so they can keep power generation in state, which in turn provides benefits including the income tax of the power generation employees, the power generation tax, and any new construction benefits.
Battery electric buses, for example, impact the communities they serve differently than traditional buses, including allowing bus routes to expand off main routes and into residential settings because the greener buses operate more quietly.
Financing to Address Fiscal Uncertainty
If a bus manufacturer doesn't offer a finance option, other options are available. A good place to start is by talking with a bank about an equipment financing solution. Financing can be a viable option for agencies to meet their needs in times of fiscal uncertainty and an example of the innovative public/private partnership encouraged by the FTA.
“Manufacturers who use financing are basically removing the capital outlay barrier for municipalities that want to update their fleets with more life-cycle cost-effective options,” said Don Phillips, vice president of sales for Key Equipment Finance. “By spreading the purchase cost over time, municipalities can realize the significant cost savings and operational benefits of the more energy-efficient buses.”
This is possible because monthly payments are covered by the same cash flow that otherwise would have gone to pay for diesel bus fuel and maintenance, Phillips says. As an added benefit, transit agencies and municipalities can bundle their bus purchases with the associated costs of installing charging stations and bringing in power.
Questions to Ask
Before going down the budgetary road to purchase new buses, transit agencies and municipalities should consider these questions from the Equipment Leasing & Finance Association.
- How will the transportation equipment be used?
- Does the financing partner understand the municipal and transit markets and how the transaction will help the municipality or transit agency operate better?
- What is the total recurring payment and are there any other costs that will be incurred before terms end?
- What happens if the agency or municipality wants to change the terms and end the financing early?
- What are the obligations for the equipment (such as insurance, taxes and maintenance) during the financing term?
Equipment Financing Considerations
No matter how limited the funds of your municipality or transit agency, simplified processing and budget control can co-exist. Here are more reasons to consider the equipment financing option:
- Up to 100 percent financing: Since financing often does not require a down payment, it is equivalent to 100 percent financing. This means you can conserve the capital that would have been used for a down payment and reinvest it in your operation.
- Improved cash forecasting: With equipment financing, you can accurately forecast the cash requirements for the equipment since you know the amount and number of payments required.
- Flexibility: With growth and changing needs, you may be able to upgrade your equipment at any point during the financing term.
- Streamlined processes: Equipment financing allows you to respond quickly to changing equipment needs with minimal documentation and red tape.
When faced with replacing outdated buses and upgrading fleets, transit agencies and municipalities should explore their equipment financing solutions. Doing so can bridge budget gaps and speed progress toward more energy-efficient, cost-effective and environmentally smart transportation, which benefits everyone.
Stacey Hartmann is a Colorado-based writer.