MBAX 6431 Week 8 Fire Station Capital Request Example

Replacing Fire Station 4 at Ashford Falls: A Capital Request That States the Need First, Turns a $20 Million Bond Into an Annual Claim on the General Fund and Names the Project It Displaces

Student Name

Walden University

MBAX 6431: Finance & Budgeting for the Public Sector

Instructor Name

Month Day, Year

Replacing Fire Station 4 at Ashford Falls: A Capital Request That States the Need First, Turns a $20 Million Bond Into an Annual Claim on the General Fund and Names the Project It Displaces

The Request

The fire department of Ashford Falls, the composite city used throughout this course, requests inclusion in next year's capital improvement plan of a replacement for Fire Station 4, at an illustrative total cost of $20 million, financed by general obligation bonds over 20 years. Construction would begin in the second quarter of next year and the new station would open about eighteen months later. All figures are illustrative.

Need Before Price

Station 4 was built in 1968 to house two engines. Today's apparatus does not fit it well. The department's newest pumper, purchased three years ago, clears the bay doors by about four inches, and the ladder truck that should be stationed there to cover the eastern neighborhoods is housed instead at Station 2, three miles away, because Station 4 cannot accommodate it. The city's facility condition assessment rates the building as poor: the roof is past its service life, the heating system has failed twice in two winters and the living quarters have no separate facilities for crews of different genders, which the department's staffing now requires. The building also lacks a decontamination area to keep crews' exposure to combustion residue out of living spaces, now considered standard in station design (National Fire Protection Association, 2021).

Response coverage is the second part of the need. The eastern district served by Station 4 has grown by about 3,000 housing units over the past decade. Department records show that the share of calls in that district reached within the department's response-time goal has fallen over the same period, partly because the ladder truck responds from Station 2. A new station on a city-owned site half a mile east, closer to the new development, would house both an engine and the ladder truck. The department's analysis, using its own call data, projects a meaningful improvement in coverage of the eastern district.

Borrowing as an Annual Claim

The request does not treat bond proceeds as free money. A $20 million general obligation bond repaid over 20 years at an assumed interest rate of 4 percent requires level annual debt service of about $1.47 million, roughly $29 million over the life of the bonds. That payment is a fixed claim on the general fund for two decades, joining the labor agreements and pension contributions the expenditure review identified as spending the council cannot easily move. At today's budget size it would raise debt service from about $20 million to about $21.5 million, or from 6.7 percent to roughly 7.1 percent of general fund spending, still within the city's policy limit of 10 percent (Mikesell, 2018).

Table 1

Annual Cost of the Request, Illustrative

Composite city; figures illustrative.

Operating Costs After Opening Day

The new building is larger than the old one, so utilities and routine maintenance will cost more, an estimated $85,000 a year net of the savings from closing the old station. Staffing does not change: the engine company moves from the old Station 4, and the ladder company moves from Station 2, so no new positions are needed. Capital requests often understate operating costs (Rubin, 2020), so the department has included these figures in its five-year operating projection rather than leaving them for later budgets to discover.

The Project It Displaces

The capital improvement plan has a limit on new borrowing each year, set by the debt policy and the forecast. Adding Station 4 next year means another project must wait. The request proposes deferring the public works salt storage building, scheduled for next year at $4 million, by one year. The current salt shed is in fair condition and can serve one more winter with minor repairs, while Station 4's problems affect response times now. The trade is stated openly so the committee can weigh it rather than assume borrowing capacity is unlimited. If the committee prefers to keep the salt building on schedule, the alternative is to delay Station 4 by a year, which would leave the ladder truck at Station 2 and the eastern district's coverage where it is for another full year.

Alternatives Considered

Renovating the existing station was considered and rejected: the site is too small to add a bay for the ladder truck, and renovation would require relocating crews for a year at a temporary site. Leasing a commercial building was also considered, but no suitable site in the eastern district is available, and leasing would cost more over 20 years than borrowing.

Recommendation

The finance committee should include the Station 4 replacement in next year's capital improvement plan, authorize the bond issue, and defer the salt storage building by one year. The department will report construction progress quarterly.

References

Mikesell, J. L. (2018). Fiscal administration: Analysis and applications for the public sector (10th ed.). Cengage Learning.

National Fire Protection Association. (2021). NFPA 1500: Standard on fire department occupational safety, health, and wellness program (2021 ed.). NFPA.

Rubin, I. S. (2020). The politics of public budgeting: Getting and spending, borrowing and balancing (9th ed.). CQ Press.