Fresno County, Dell Partnership Yields Savings Through Leasing Rather Than Buying IT

For state and local governments, keeping their IT systems up to date at an affordable cost is often a major challenge.

For example, the San Francisco Municipal Transportation Agency (Muni) still relies on 5¼-inch floppy disks to load the software that runs its automatic train control system. That DOS-based system, installed in 1998, is five generations behind today’s technology. Furthermore, its aging loop cable system for sending data between servers and trains is fragile and has less bandwidth than an old AOL dial-up modem.

To update the entire control system, Muni plans to spend $700 million to overhaul the light rail’s control system, although full funding has not yet been secured. The current estimated completion date is 2033/2034.

Some local governments, however, have found a way to avoid technological obsolescence and staggering upfront costs. One is Fresno County, which since 2009 has leased most of its IT hardware from Dell Technologies.

The county participates in Dell’s Technology Rotation program, which the company describes as a “smart business strategy with a predictable refresh cycle enabling organizations to maintain liquidity, take advantage of current-state technology and contribute to the circular economy.”

Eric Matthews, the county’s deputy chief information officer, said the program works well for several reasons. The first is that the county utilizes internal services funds to pay for expenses like IT. In this system, the Internal Services Department doesn’t receive funding at the beginning of the fiscal year to buy equipment. Instead, it bills its customer departments for the services they use. The leasing model allows the county to have consistent costs year over year.

As an example, Matthews said the county is looking to replace its network attached storage system this next budget year after five years of service.

“The cost for that hardware is $1.6 million, cash,” he said. “We do a 60-month term, so (with the leasing costs) it will wind up being $379,000 a year or $1.89 million. But we’re really not paying more for it (by leasing) because we would have depreciated it anyway, so we would have held over $200,000 for the life of that equipment for the depreciation cost, which of course we would have passed on to our customers.

“So our department customers won’t see a difference in our prices — it’s either we lease it and they have to help pay for the financing charge, or we pay cash and we’d depreciate the equipment. So it’s actually a wash and it saves us from having to track depreciation.”

The second advantage to treating purchases as operational expenditures instead of capital expenditures is that the county would normally want to replace infrastructure hardware on a five-year cycle and input devices on a four-year cycle anyway, and that is how the leases are structured.

 “So it incentivizes you to continue that expense and just replace that equipment. You can almost look at it like a software subscription,” Matthews said. “It’s very common for organizations that don’t do leasing to hang onto equipment well past their end of life because of the huge expense it costs to replace it.”

Matthews said the county only leases things it can capitalize, so it doesn’t lease service or software. He noted that there are no accounting issues by doing it this way and that the department doesn’t circumvent its purchasing process.

“All we use it for is as a mechanism to find the project that we’re working on or the hardware that we’re buying,” he added.

Jennifer Hebert, Dell’s general manager of global public strategy and Center of Excellence, said Dell works with many local governments in California and across the nation.

“Providing customized technology suited to meet their operational needs is something we’ve been working to do and have been successful at,” she said. “We have seen a tremendous amount of growth in the number of state and local governments adopting it.

“We’re also seeing an expansion of partnerships — how we can leverage modern technology while staying within the fiscal challenges local governments are seeing right now.”

She said programs like Technology Rotation and Dell’s primary flex solution model, Apex, allow customers to focus on innovation rather than infrastructure management. She noted it also helps government agencies address the challenges of limited IT resources by offering a managed-service option, reducing the administrative and operational burden.

Dell is currently highlighting the partnership with Fresno County in an ad campaign.

Hebert added that the leasing arrangement is also environmentally friendly because 95 percent of the equipment returned to the company is refurbished and resold through the Dell Outlet. The remaining products are dismantled with their components recycled.

Matthews said other local governments should consider looking into the leasing model.

“I would recommend it. It works great for us. I think any IT department that is struggling with keeping their equipment current because of the every-five-year shock of tens of millions of dollars to buy hardware, it smooths that out,” he said.

“Maybe big counties that have a ton of money or a really huge IT presence don't need it because they have enough (resources). But we're probably the largest small county in California if that makes sense. I would say for anybody our size or smaller, this really helps.”