Decorah Council Tables Enterprise Fleet Lease Decision Amid Questions Over Long-Term Costs

We're here to cover the moments that matter. Help us keep showing up. DECORAH — The Decorah City Council delayed a decision Tuesday on a proposal to lease five city vehicles through Enterprise Fleet Management after several council members questioned whether the arrangement would produce the long-term savings projected by the company and whether the city had adequately compared leasing with purchasing vehicles outright. The council voted to table a resolution authorizing the lease agreements until its next meeting, giving city staff and council members additional time to examine the proposal and seek a "more direct financial comparison." The decision follows the council's 6-1 vote in early July to approve a master lease agreement with Enterprise Fleet Management. The proposal grew out of an effort to address the age and maintenance needs of Decorah's municipal vehicle fleet. Under the plan presented to the council, five existing vehicles would be addressed through the Enterprise program. Three would be sold, one would be transferred to the airport, another airport vehicle would be sold and one would be retained for use by the city's building official. City Manager Travis Goedken said the city has increasingly faced difficulty budgeting for vehicle replacements, particularly when large, one-time purchases compete with other needs. The Enterprise arrangement would instead spread vehicle costs into recurring payments and include access to the company's vehicle procurement and fleet management services. The proposal calls for five-year leases. Enterprise representative Ethan Horras told the council the leases were structured around an estimated 10,000 miles per vehicle per year, or 50,000 miles over five years. The agreements are open-ended, however, and Horras said the city would not face a mileage penalty if a vehicle exceeded that amount. Higher mileage or greater wear could instead affect the vehicle's expected resale value at the end of the lease. The proposal also includes a separate maintenance agreement for the duration of the leases. Horras said the maintenance program would cover routine and other covered maintenance, including oil changes and tire rotations, but would not cover new tires or new brakes. The company said it could facilitate brake and tire work through its maintenance network, with those costs billed separately. The council's central concern was how the proposed lease payments compared with the cost of buying and maintaining vehicles over a longer period. Horras explained that lease payments are calculated using the acquisition price of a vehicle and an estimated resale value at the end of five years. The anticipated resale value is deducted from the acquisition cost in determining the lease obligation. Horras said Enterprise's model also uses assumptions about municipal vehicle use, including commercial rather than retail treatment and expected wear and tear. He described the resale projections as conservative and said the calculations incorporated a portion of the estimated resale value into the city's analysis. Council Member Emily Neal questioned whether the information presented to the council established that leasing would be the less expensive option. Neal said the city's current practice of keeping vehicles for 15 years or longer is not sustainable, citing the age of some vehicles, frequent repairs and the staff time required to address maintenance. She questioned, however, whether the Enterprise proposal compared the actual cost of leasing with the cost the city would incur if it purchased the same vehicles, financed them independently and kept them for a longer service life. Neal also questioned whether the lease arrangement could eventually lead the city into a cycle of continually returning vehicles and leasing new ones. Horras said Enterprise's value proposition is based not simply on maintenance savings but on operating newer vehicles, taking advantage of manufacturer incentives and selling vehicles while they still have meaningful resale value. He said the strategy is intended to reduce the city's total cost of ownership over time. Enterprise representatives cited projected savings of about $140,000 over 10 years under the company's model while emphasizing that the results depend on the city following the fleet plan. Horras also said Enterprise makes money through the financing component of the leases and management fees associated with vehicle acquisition. The company's maintenance program is another source of revenue, he said. Council Member Steve Zittergruen questioned the interest rate built into the lease calculations. An Enterprise representative said the rate was based on the three-year Treasury bill rate plus 200 to 300 basis points. The lease payment also includes Enterprise's management costs, while maintenance is charged separately. Zittergruen clarified that maintenance would be a separate charge. Horras confirmed that was the case. "So three-year T-bill, plus three? Great," Zittergruen said. He cautioned the rest of the council, "T-bills have been getting worse and worse." Council Member Brent Parker reiterated a question he had asked during the council's previous meeting with Enterprise: whether a nearby government entity had used Enterprise and later backed away from or ended the program. At the first meeting, Horras had been unable to say whether that had occurred. This time, he told Parker that, "to his knowledge and in his tenure" with Enterprise, he was not aware of a government entity that had ended the program in recent history. Horras said such situations had occurred on the commercial side. He also said Enterprise structures its programs "as conservative as possible" and in the client's best interest, and that leaving the program is a "seamless process." Council members also discussed whether five vehicles was an appropriate number with which to begin the program. Goedken said the proposal would cover vehicles otherwise expected to be replaced over the next two years, giving the city an opportunity to monitor the results before adding more leases. The council had previously raised questions about the lease agreements, including the city's ability to purchase vehicles at the end of the lease term. According to Goedken, updated language in the agreements has addressed some of those concerns. After further debate, Zittergruen moved to table the resolution until the next council meeting, with Parker seconding the motion. The motion passed unanimously. Stay in the know! Sign up for our free newsletter.