HomeMy WebLinkAboutPurchasing Ordinance Acquisition of Equipment, Supplies and y
Council/AgencyMeeting Held: a-a�-16
9
Deferred/Continued to:
)�(Tproved ❑ Conditionally Approved ❑ Denied City Clerk's SignahWe
Council Meeting Date: 2/5/96 Department ID Number: AS96-002
CITY OF HUNTINGTON BEACH
REQUEST FOR COUNCIL ACTION
SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCI MBERS
SUBMITTED BY: MICHAEL T. UBERUAGA, City Administra
PREPARED BY: Robert J. Franz, Deputy City Administrat
SUBJECT: Amend the Purchasing Ordinance regarding the acq siton of Affir sy46 7--o
equipment. Di-�C 33Z2 "
=statement Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(
Statement of Issue: The current procedures result in a -duplication of effort/approval
regarding the acquisition of equipment through lease-purchase.
Recommended Action: Approve Ordinance 3 3 a.Z ammending Huntington
Beach Municipal Code (HBMC) Section 3.02.050 and 3.02.060 to authorize the Chief of
Administrative Services to enter.into lease-purchase agreements.
Analysis: In the past, the question has arisen as to whether Section 3.02.050 of the
(HBMC), which specifically authorizes the issuance ,of purchase orders, also authorizes
lease-purchase agreements for the acquisition of equipment. Section 3.02.050 is
ambiguous in this regard. It only refers to purchase orders, and does not explicitly state that
the Chief of Administrative Services may issue them. Consequently, while the City Charter
authorization permitting the "acquisition" of property is sufficiently broad to include lease-
purchase agreements, the Purchasing Ordinance is not. Therefore, it is recommended that
the HBMC be amended to expressly grant this authorization.
Under the proposed ordinance, the annual budget must include the following information in
order for staff to be authorized to enter into a lease purchase agreement: -
(i) The equipment must be identified as a lease pruchase item of equipment;
(ii) The useful life of the equipment must be stated;
(iii) The lease term must be stated;
(iv) The annual lease payment (approx); and
(v) The interest rate (approx)
PROOF OF PUBLICATION
STATE OF CALIFORNIA)
SS.
County of Orange )
I am a Citizen of the United States and a
resident of the County aforesaid; I am
over the age of eighteen years, and not a
party to or interested in the below -
entitled matter. I am a principal clerk of PUBLIC NOTICE
LEGAL NOTICE
ORDINACE NO.3322
the HUNTINGTON BEACH INDEPENDENT, a "AN ORDINANCE
"AN ORDINANCE OF J
THE CITY OF
newspaper of general circulation, printed I HUNTINGTON BEACH
AMENDING SECTIONS
and published in the City of Huntington t 3/02.050AND
3.02.060 OF THE
Beach, County of Orange, State of HUNTINGTON BEACH
California, and that attached Notice Is a MUNICIPAL CODE I•I REGARDING THE
ACQUISITION OF
. true and complete copy as was printed SUPPLIES,SERVICES
and published in the Huntington Beach AND EQUIPMENT �
SYNOPSIS
and Fountain Valley Issues of said Ordinance Hu 3.3on
amends the Huntington f
Beach'Municipal Code by
newspaper to wit the issue(s) of: amending Sections
3.02.050 and 3.02.060 to I
authorize the Chief of Ad.
ministrative Services to
enter.Into contracts and'
issue purchase orders for
the purchase of supplies,'l
services and equipment
March 7, 1996 under certain circum-,
stances; and upon ap-;
proval of the City Attorney,;
to enter into contracts to
lease equipment under cer-
tain circumstances. )
This Ordinance shall take
effect thirty days .after its
I declare; under penalty of perjury, that pass FULL TEXT_OF THE
the foregoing is true and correct. ORDINANCE IS AVAIL-
ABLE IN THE CITY
CLERK'S OFFICE
ADOPTED by:the City-
Council of the City of Hun-
Executed on tington Beach at.a regular 1
March 7 ' � 996 meeting held Monday,Feb-'
ruaat Costa Mesa, California. lowng oil call to the fol-
Iowln roll call vote:
AYES: Councilmen-
bars: Harman, Bauer;
Sullivan, Leipzig, Det-
11off,Green,Garofalo
NOES: .Councllmem-
bars:None
ABSENT: Council..y
members:None
CITY OF HUN• I
TINGTON BEACH,
CONNIE BROCKWAY,
Signature CITY CLERK
Published Huntington
Beach-Fountain Valley in-
dependent March 7,1996:
031-131 i
Fr. B. INDEPENDENT
PUBLISH DATE: 3-7-96
LEGAL NOTICE
ORDINANCE NO 3322
"AN ORDINANCE OF THE CITY OF HUNTINGTON BEACH AMENDING SECTIONS 3/02.050 AND
3.02.060 OF THE HUNTINGTON BEACH MUNICIPAL CODE REGARDING THE ACQUISITION OF
SUPPLIES, SERVICES AND EQUIPMENT"
SYNOPSIS
Ordinance No. 3322 amends the Huntington Beach Municipal Code by amending Sections 3.02.050 and
3.02.060 to authorize the Chief of Administrative Services to enter into contracts and issue purchase
orders for the purchase of supplies, services and equipment under certain circumstances; and upon
approval of the City Attorney, to enter into contracts to lease equipment under certain circumstances.
This Ordinance shall take effect thirty days after its passage.
THE FULL TEXT OF THE ORDINANCE IS AVAILABLE IN THE CITY CLERK'S OFFICE
ADOPTED by the City Council of the City of Huntington Beach at a regular meeting held Monday,
February 26, 1996, by the following roll call vote:
AYES: Councilmembers: Harman, Bauer, Sullivan, Leipzig, Dettloff, Green
Garofalo
NOES: Councilmembers: None
ABSENT: Councilmembers: None
CITY OF HUNTINGTON BEACH
CONNIE BROCKWAY
CITY CLERK
G/synopsis
2/2'7/96
REQUEST FOR COUNCIL ACTI(M
MEETING DATE: 2/5/96 DEPARTMENT ID NUMBER: AS96-002
Attachment(s):
City Clerk's
Page Number
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Legal Opinion
Ordinance No.
33 a �
Legislative Draft
0016457.01 -2- 01/09/96 11:07 AM
yr
ORDINANCE NO. 3322
AN ORDINANCE OF THE CITY OF HUNTINGTON BEACH
AMENDING SECTIONS 3.02.050 AND 3.02.060 OF THE
HUNTINGTON BEACH MUNICIPAL CODE
REGARDING THE ACQUISITION OF SUPPLIES, SERVICES
AND EQUIPMENT
The City Council of the City of Huntington Beach does ordain as follows:
Section 1. Section 3.02.050 and 3.02.060 of the Huntington Beach Municipal Code
are hereby amended to read as follows:
"3.02.050 Purchase of Supplies Equipment and Services. The Chief of
Administrative Services may enter into contracts and issue purchase order for the purchase
of supplies, services and equipment in the following circumstances:
(a) Budgeted Purchases. There exists an unencumbered appropriation in the
fund account against which the purchase is to be charged; or
(b) Petty Cash. The purchase, reimbursement or allowance does not exceed
five hundred dollars ($500.00), in which case the purchase may be directed
to the finance division for payment or reimbursement by petty cash.
"3.02.060 Equipment Leases. Upon approval of the City Attorney, the Chief of
Administrative Services may enter into contracts to lease equipment in the following
circumstances:
(a) Budgeted Leases. There exists an unencumbered appropriation in the
fund account for the amount of the lease payments for the current fiscal
year.
1
SFG:Ord:Amd3.02
(b) The annual budget for the fiscal year in which the lease is or was entered
into provides that:
(i) The equipment may be leased;
(ii) The useful life of the equipment;
(iii) The lease term;
(iv) The annual lease payment; and
(v) The interest rate."
Section 2. The ordinance shall take effect thirty days after its passage.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 26th- day ofFeb.ruary, 199 6
Mayor
ATTEST: APPROVED AS TO FORM:
Gida�Ktl �_
City Clerk City Attorne
Cry- /2,
REVIEWED AND APPROVED: INITIATED AND APPROVED:
City Administrator Deputy City Administrator
Administrative Services
2
SFG:Ord:Amd3.02
Ord. No. 3322
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, CONNIE BROCKWAY, the duly elected, qualified City Clerk of the
City of Huntington Beach, and ex-offtcio Clerk of the City Council of said City, do
hereby certify that the whole number of members of the City Council of the City of
Huntington Beach is seven; that the foregoing ordinance was read to said City Council
at a regular meeting thereof held on the 5th of February. 1996, and was again read to
said City Council at a regular meeting thereof held on the 26th of February, 1996, and
was passed and adopted by the affirmative vote of at least a majority of all the members
of said City Council.
AYES: Councilmembers:
Harman, Leipzig, Bauer, Sullivan, Dettloff, Green, Garofalo
NOES: None
ABSENT: None
I,Connie Brockway CITY CLERK of the City of
Huntington Beach and ex-officio Clerk of the City Council,
do hereby certify that a synopsis of this ordinance has been
published in the Independent on Ci
,19
In accordance with the City Charter of said City City Clerk and ex-officio Clerk
Connie Brockway City Clerk of the City Council of the City
Deputy City Clerk of Huntington Beach, California
G/ordinanc/ordbkpg
3/5/96
LEGISLATIVE DRAFT
3.02.050 Purchase Ofdefs of Supplies, Equipment and Services. D�•�e-e
supplies, sefviees and equipment shall be fnade epAy by pur-ehase er-der, exeept�hat the Chief e
+ o ee fift., a„llars iecm may be a:.-eete 7 to the Tina ee division for-p ent
LV VAVVVLI fifty uVIICLIJ `WJVJZfIn
feinibuf:sement by petty eash.
The Chief of Administrative Services may enter into
contracts and issue purchase order for the purchase of supplies, services. and
equipment in the following circumstances:
(a) Budgeted Purchases. There exists an unencumbered
appropriation in the fund account against which the purchase is
to be charged; or
(b) Petty Cash. The purchase, reimbursement or allowance does not
exceed five hundred dollars ($500.00), in which case the purchase
may be directed to the finance division for payment or
reimbursement by petty cash.
3.02.060 Equipment Leases. The Chief e f ^aministr- tive
Ser-viees shail net issue any pur-ehase order-fbr- supplies, ser-vie ent unless there exists
Upon approval of the City Attorney, the Chief of Administrative Services
may enter into contracts to lease equipment in the following circumstances:
(a) Budgeted Leases. There exists an unencumbered appropriation
in the fund account for the amount of the lease payments for the
current fiscal year.
(b) The annual budget for the fiscal year in which the lease is or was
entered into provides that:
(i) The equipment may be leased;
(ii) The useful life of the equipment;
(iii) The lease term;
(iv) The annual lease payment; and
(v) The interest rate."
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G:Legdraft:Amd3.02\l 2/29/9 5
CITY OF HUNTINGTON BEACH
INTER-DEPARTMENT COMMUNICATION
HUNTINGTON BEACH
TO: Robert Franz, Director of Administrative Services
Richard Amadril, Purchasing/Central Services Manager
FROM: Gail Hutton, City Attorney
DATE: December 28, 1995
SUBJECT: Acquisition of equipment through lease-purchase
RLS 95-747
You have requested that we prepare an ordinance and/or a resolution authorizing
the Director of Administrative Services to enter into lease-purchase agreements for
acquisition of equipment, based upon City Council approval of the funding for the
lease in the annual budget. Attached is an ordinance amending the Municipal
Code to authorize the Director to enter into such lease-purchases. The legal basis
for this amendment is as follows:
I. Legal Authority for Lease-Purchases, and the Debt Limitation of the
California Constitution.
Article XVI, Section 18 of the California Constitution prohibits any city from
incurring indebtedness exceeding the income and revenue for that year, without the
consent of two-thirds of the voters. However, although lease-purchases are an
obligation exceeding one year, the courts generally do not treat them as debt.
Rather, the legal authority for entering into lease-purchases is that the city is
exercising its authority to acquire or dispose of property, rather than its authority
to incur debt. Under a long line of cases, known as the Offner-Dean Rule',
equipment leases may be entered into under the following circumstances:
1. Lease payments may only be paid in those periods in which the
beneficial use of the leased property is available to the city.
2. Acceleration of rental payments is not permitted.
'City of Los Angeles v. Offner, 19 CAM 483 (1942);Dean v. Kuchel, 35 Ca1.2d 444 (1950).
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G:SF:Leases
3. The obligation to pay rent may be from any lawfully available funds of
the City; the City may be obligated to place in its annual budget the
rent that is due and payable during the fiscal year.
4. The terms and conditions of the lease must be similar to the terms
contained in comparable commercial equipment leases.
5. The lease terms should not extend beyond the anticipated useful life of
the equipment.
6. Some commentators suggest that the lease payments should
approximate the fair market rental value of the equipment, although
there is case law supporting lease payments in excess of fair market
value. (Lagiss v. County of Contra Costa, 223 Cal.App. 2d 77 (1963);
Ruane v. City of San Diego, 267 Cal.App.2d 548 (1968).
II. Charter Authority for Acquisition of Supplies, Services and Equipment.
Section 613(a) of the City Charter authorizes the City Council to adopt an ordinance or
resolution providing that the City Administrator or other City officers may bind the City for the
"acquisition" of equipment, materials, supplies, labor, services, or other items included within the
budget approved by the City Council, and may impose a monetary limit upon such authority.
Pursuant to that authority, the Council adopted the Purchasing Ordinance, found at Section 3.02
et seq. of the Municipal Code, which authorizes the Chief of Administrative Services to issue
purchase orders for supplies, services and equipment.
In the past, the question has arisen as to whether Section 3.02.050, which specifically
authorizes the issuance of purchase orders, also authorizes lease-purchase agreements for the
acquisition of equipment. Section 3.02.050 is ambiguous in this regard. It only refers to purchase
orders, and does not even explicitly state that the Chief of Administrative Services may issue
them. Consequently, while the Charter authorization permitting the"acquisition" of property is
sufficiently broad to include lease-purchase agreements, the Purchasing Ordinance is not.
Therefore, it is recommended that the Code be amended to expressly grant this authorization.
z The dictionary definition of"acquisition" means merely to "gain possession of." Black's Law
Dictionary states that"acquisition" does not require that title pass. Consequently a lease is a form
of acquisition.
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b
III. Summary of Proposed Ordinance.
The attached Ordinance would amend two sections of the Municipal Code, Sections
3.02.050 and 3.02.060, to expressly grant purchasing and leasing authority. Section 3.02.050
would be amended to expressly state that the Chief of Administrative Services may enter into
contracts and issue purchase orders for the purchase of supplies, services and equipment, subject
to the requirement that the unencumbered appropriation in the current fiscal year budget exceed
the amount of the proposed purchase. The section also retains the existing provision that
purchases and reimbursements of less than $500.00 may be made from petty cash.
Section 3.02.060 would now provide that equipment leases may be entered into by the Chief of
Administrative Services. However, in order to implement this authority, the City Council must
specifically authorize the terms and conditions of the lease as part of the annual budget.
Currently, the typical budget only refers to the amount of the lease payment in the current fiscal
year. However, in order to execute a lease-purchase based upon the approved budget, the budget
must authorize expressly that: (i) equipment may be leased, (ii)the useful life of the equipment to
be leased, (iii)the proposed lease term, (iv)the annual lease payments, and (v) the interest rate.
It is important that the City Council understand that there are consequences in subsequent years
when they authorize a lease-purchase in year one,. For example, if the lease-purchase is for a
$250,000.00 fire truck, it is inadequate if the budget merely identifies a $50,000.00 annual
payment for the fire truck. This does not disclose the fact that there will be an additional six years
of future payments for the fire truck, and if an appropriation is not made in any one year, the city
will lose its collateral (i.e., the fire truck)to the leasing company. Consequently, the ordinance
amendment requires a complete disclosure of the term of the lease-purchase. Once that disclosure
is made in the budget and approved by the City Council, the Chief of Administrative Services may
enter into the lease-purchase agreement.
IV. City Attorney Approval.
Please note that the Ordinance provides expressly that the City Attorney must approve the
form of the lease-purchase agreement. For example, leasing companies will frequently include
language in their proposed agreements that the City warrants that the lease-purchase is a tax
exempt obligation. We are unwilling to make this type of warranty, as it puts the City at risk that
if the IRS investigates the transaction and disallows the tax exemption, the City would be liable
for the amount of the taxes. There may be other provisions in any particular leasing company's
form lease that also may be objectionable. Consequently, each lease must be approved by the City
Attorney's office.
Gail Hutton
City Attorney
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