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5.9. SR 01-14-2002Public Safe(y/ Ci(y Hall Project l iver MEMORANDUM Item 5.9. TO: FROM: DATE: SUBJECT: Mayor and City Council Pat Klaers ~ January l4,2001 Public Safety Facility- City Hall Remodeling and Expansion The construction of a new public safety facility and the remodeling and expansion of city hall continues to move forward. The public safety facility is planned to be constructed across the parking lot (west) of the existing city hall - police building. It is proposed that this facility will include police, a satellite fire station and an emergency operations center (EOC). The remodeling and expansion of city hall, along with the construction of the utilities building would be staged so that this work would begin as the public safety facility is nearing completion. Overall, from start to finish, it is estimated that we will be under construction for about twenty-two months from mid 2002 to early-mid 2004. There is a lot to "get your arms around" regarding these new municipal facilities. Most of the public safety building issues are directly related to funding and decisions on the scope of the public safety project will need to be made soon. The purpose of this memo/report is mainly to help explain some of the public safety facility issues. A separate narrative will be offered on most of the following topics: 1. Bonding Dollars Versus Construction Dollars with a Lease/Purchase Plan. (Why is 7.5 Million Dollars in Bonds Really only 6.5 Million Dollars for Construction?) 2. Property Tax Impact of an 8, 7, and 6 Million Dollar Lease/Purchase Program. 3. Public Safety Building and Budget Options...From an 7.3 Million Dollar Building to a 5.3 Million Dollar Building. 4. Public Information on the Public Safety Facility. 5. The Municipal Utilities Addition to City Hall. 6. City Hall Remodeling and Expansion...The Total Cost and Funding Sources. 7. Timetable for the Projects and Dates for Key Decisions. 8. How to Plan and Finance 2013 Building Expansion Needs. Public Safe(y/Ci(y Hall Project If a narrative is not offered on one of the above issues, then a verbal update will be provided to the Council on January 14, 2002. Staffwould like some feedback from the Council on "what is in and what is out" of the public safety building. Gary Tushie, Tushie-Montgomery Architects (TMA) will be at this meeting to discuss the status of the project. The next City Council project update is scheduled for January 28, 2002, and at that time we will have a draft floor plan of the public safety facility to present. Also on January 28, the Council will be asked to approve: 1) the contract for architectural service with TMA for the project, 2) direct TMA to proceed with design development and construction documents, and 3) hire the Construction Management firm for the project. MEMORANDUM TO: FROM: DATE: SUBJECT: Mayor and City Council Lori Johnson, Finance Director ~'~ January 14, 2002 I. Bonding Dollars Versus Construction Dollars 2. Tax Impacts Attached is information on financing the public safety building project. The information provides a comparison of lease revenue and general obligation bonds as well as tax impacts for six bond issues, three different amounts for both lease revenue and general obligation. In an earlier memo the main differences between the two types of bonds were discussed. I have again provided a summary of the differences in the General Comparison of Bond Options on the attached sheet. One of the items discussed recently is the requirement for a debt service reserve for lease revenue bonds. This reserve is required because the structure of lease revenue bonds is that the payments are subject to annual appropriation by the leasing authority. In other words, the City must annually appropriate funds to pay the lease (debt) on the bonds. This is not the case for general obligation bonds because they require an annual levy. Therefore, the reserve serves as a safety net for the bondholders in the very unlikely event that the City would not appropriate funds for the lease. The reserve is the City's money that is held by the paying agent. It earns interest during the life of the bond, and this interest is used to reduce the annual debt payments. At maturity, the reserve may be used to make the final year's debt payments or the reserve may be returned to the City. The tax analysis attached shows tax impacts on residential homestead and commercial/industrial properties for six, seven, and eight million dollar bond issues. The tax impacts are different for the two types of bonds because a lease revenue levy is based on tax capacity and a general obligation levy is based on market value. Also, because of the debt service reserve requirement for a lease revenue bond, the issue size for a lease revenue bond will be higher than a general obligation bond to yield the same net proceeds available for construction. General Comparison of Bond Options Lease Revenue General Obligation IVoter approval required? I No I Yes I ITax levy allowed? Tax based on - Yes Tax Capacity Yes Market Value Debt payments subject to annual appropriation? Debt service reserve required? Yes Yes - I year annual debt service No Issue size Capitalized Interest (1) Issuance Costs Debt Service Reserve (2) Proceeds available Project fund interest earnings Total available for project Items Specific to This Issue Lease Revenue $ 6,000,000 General Obligation $ 6,OOO,OOO 160,742 157,811 155,000 130,000 511,885 - 5,172,373 5,712,189 57,627 62,811 $ 5,230,000 $ 5,775,000 Notes: (1) Capitalized interest is required for both issues because tax revenue will not be collected until July 2003. The capitalized interest will be used to meet debt payments until tax revenue is available. (2) The Debt Service Reserve is the City's money held in reserve to meet bond payments in the unlikely case that the City did not appropriate funds for the lease payment. Interest earnings on this reserve are used to reduce annual debt payments. The reserve may be used to make the final debt payment so a tax levy is not required in the final year. 1/11/02 d Public Safe(y/Ci(y Hall Project Public Safety Building and Budget Options...From a 7.3 Million Dollar Facility Down to a 5.3 Million Dollar Facility As noted in the material from the Finance Director, regardless if the bond issue is 8 million or 6 million dollars, there is about 1 million dollars less available for the actual project when considering capitalized interest, issuance costs, and the requirement for a one year payment reserve. Construction costs of 7.3 million dollars equals a total project (or bonding) cost of about 8.35 million dollars. The construction cost includes FFE and consulting fees. For 7.3 million dollars the city would get a $32,600 sq ft police station, which includes a partial second level and a partial basement level, an EOC in the basement, a geothermal heating/cooling system, and a fire station that includes 3,000 sq ft of office space and 4,500 sq ft of fire truck garage space. Possible cuts from this 7.3 million dollar construction proposal (in priority ranking) are as follows: Delete one-half police garage spaces (8 spaces) Build the 4,500 sq ft second level as a shell for future expansion Delete gun range equipment and build only the shell Delete the 4,500 sq ft second level shell Delete gun range shell Delete energy considerations (extra dollars for geothermal system) Delete apparatus garage from fire department -$100,000 -$225,000 -$215,000 -$450,000 -$160,000 -$200,000 -$70O,000 All of the above building deletions will get the city to a 5.25 million dollar construction project, which equals approximately a 6 million dollar bond proposal. I think that it is somewhat easy to remove the garage spaces and to build the second level as a shell for a savings of approximately $325,000. After these two adjustments, the cuts get more difficult and the most emotional one to consider relates to the gun range. If the gun range equipment was deleted and added to the above cuts, then we are looking at a construction project of 6.76 million dollars and a bond amount of 7.76 million dollars. It seems to make sense to keep the second level - at least as a shell to be finished when needed and funds are available - as this should address the police office space need until 2023. Also, I am in support of the fire truck garage being included in this project for a number of reasons, including the fact that future funding for this expenditure will be difficult to identify and that the need for this facility is sooner rather than later. It doesn't make sense to complete a construction project in 2003 and then commence with an expansion for the truck garage spaces in 2005. Public Safe~y/ Ci(y Hall Project Public Information on the Public Safety Facility Following is a list of items for the Council to discuss as reasons for the city pursuing a lease/purchase program now versus waiting until a public referendum in November 2002. The public safety needs are immediate. Construction on a new facility should begin in late spring 2002. A successful bond referendum in fall 2002 would delay construction until spring-summer of 2003. The need for police space had been previously underestimated and the need has been heightened by the recent addition of the assistant city attorney department. The fire department needs are supported and documented in the Insurance Services Office (ISO) Survey Report. The ISO ranking for the city impacts insurance rates for local businesses. Moving forward now will allow the city to take advantage of the record low interest rates for bonds. Rates have never been lower and are not expected to go lower in the future. Interest rates can only go in one direction and that is higher, which will cost everyone more in the long run and make the project more expensive. Due to the state of the economy, the construction industry is very "hungry" and accordingly, it is believed that the bids for this project will be very competitive. A few years ago when the economy was strong, it was sometimes difficult to even get contractors to bid on municipal projects and in many cases municipalities "overpaid" for their projects due to the state of the construction industry and the economy. Today, the opposite situation exists and this environment may not continue into spring 2003. Moving forward now should produce a lower bid for the project than what we would see next year. Public safety is a necessity and a requirement, not a luxury. The City Council has the obligation to make the best and most timely decision regarding this public service. A November 2002 bond referendum would be successful. There is no reason to wait, as the project will only get more expensive as compared to moving forward now. (This may or may not be a reason to move forward now)...A lease/purchase program is based on net tax capacity and a bond referendum is based on market value; a lease/purchase plan will cost a homeowner less and a business owner more as compared to a successful bond referendum. (This point is neutral)...As the citywide net tax capacity or market value increases, each property owner will see their annual payment amount decrease. Public Safqyl City Hall Project Public Information on the Public Safety Facility (continued) Another issue to discuss and present to the public is why the public safety building is 6.76(+) million dollars. The discussion needs to center on the fact that this is a bare minimum for the facility and does not include any "luxuries or extras." This facility includes the following: 1. Fire truck garage/apparatus room for 6 fire trucks. 2. 3,000 sq ft of office space and meeting room space for the fire department. 3. 2,000 sq ft for the emergency operations center, which will be in the basement 4. A two level (plus a basement) 32,600 sq ft police facility, which includes: a. only 8 garage stalls for police vehicles b. gun range for fire arm training (total cost of $380,000) The only "extra" debatable with this facility is the gun range. In the long-term, it is believed that the gun range will be positive and will save in operating expenses, although it will be a long time before the saving reaches $380,000. It should be noted that this facility is planned to meet our public safety needs until the year 2023. However, sometime in the next 10 years the city will need to identify and spend about $450,000 to complete the gun range and the second level building shell (4,500 sq ft). Opportunities to present information to the public on the public safety project include: cable TV shows, city newsletter articles, StarNews articles, and the use of the city web site. Public Safe(y/Ci(y Hall Project o City Hall Remodeling and Expansion...The Total Cost and Funding Sources Funding for the City Hall remodeling and expansion, including furniture, fixture, and equipment (FFE), is scheduled to come from the government building reserve. Monies from the landfill surcharge fund this government buildings reserve. The total project is estimated at 2.8 million dollars or slightly more depending upon a basement being included in the expansion part of the project. When the project is completed in early 2004 there will be about 2.8 million dollars in the building reserve to finance the building improvements. If funds are short in 2004 to finance the entire project, then an internal loan can take place and it is likely that this loan can be repaid by the end of 2004. Revenues into this building reserve are dependent on disposal volumes at the landfill. If the volumes in 2002-03 are consistent with volumes the past few years then we should have no difficulties in funding a city hall remodeling and expansion project that is under 3 million dollars. After 2004 funds need to continue to be placed into this reserve in order to finance the 2013 expansion or to be used for other improvements to municipal buildings. At this time it looks like the finance and administration departments are moving into the former police station and that planning, building, and engineering will occupy the current administration space. A number of the garage spaces will be converted into office space but we will be retaining about five garage stalls. Also at this point, it looks like most of the offices will be "gutted" and that it will be a total renovation and remodeling project with the exception of offices along some of the external walls. TMA advises us that in most cases it is more economical to do a complete renovation than trying to retrofit and work around existing walls and structures. At this time we have just seen the first draft of the remodeled city hall office layout. Planning for this project is following the planning for the public safety project. There will be a number of revisions made before any plans are ready to be presented to the City Council for discussion. Included in the expansion part of the project is: 1) about 2,000 sq ft of shared space with the Utilities and quite possibly a basement under this shared space area for city use, and 2) about a 3,500-4,000 sq ft of addition and also a basement under this area. With the basements it is expected that the total expansion and remodeling project will be closer to 3 million dollars than 2.8 million dollars. The plans are still evoMng and it is too early to say what will be the final project will cost or look like. ELK RIVER CITY HALL COMPLEX EXPANSION ELK RIVER, MINNESOTA PROJECT SCHEDULE CRITICAL DATES JANUARY 2, 2002 T U S H I E MONTGOMERY ARCHITECTS Requires Completion ACTIVITY City, EDA, Date Utility Commission Action City Council determines size and scope of project · CC January 14, 2002 Complete Preliminary Project Design January 28, 2002 Select Construction Manager ·CC January 28, 2002 City Council authorizes TMA to proceed with design development ·CC January 28, 2002 and construction documents Utility Submit design drawings to Planning Commission for public review February, 2002 and approval Submit design drawings to City Council for public review and final · CC March, 2002 design approval Complete design development documents February 28, 2002 Complete construction documents for Public Safety April 30, 2002 Start bond proceeds for Public Safety Building · EDA May 10, 2002 Complete public bidding process and award construction contracts · EDA May 13, 2002 for Public Safety Start Construction of Public Safety Building June 1,2002 Complete construction documents for Utility Building addition August 31,2002 Complete public bidding process and award construction contracts · September 23, 2002 For Utility Building addition Utility Start construction of Utility Building addition October 7, 2002 Complete construction documents for City Hall renovation and November 20, 2002 expansion Complete public bidding process and award construction contracts · CC December 9, 2002 For City Hall work (additions) Start construction of City Hall Building additions January 6, 2003 Remove existing City Hall furniture to be renovated for Public March 28, 2003 Safety Have rental furniture for City Hall in place - existing space only March 30, 2003 Complete construction of Public Safety Building May 30, 2003 Owner move-in to Public Safety Building June 1 - 16, 2003 Start construction on renovation of existing Public Safety space June 2, 2003 Complete construction of Utility Building addition October 3, 2003 Owner move-in to Utility Building addition October 3 - 6, 2003 Purchase new furniture for City Hall space · CC October 13, 2003 Complete construction of renovated Public Safety space and new December 31,2003 addition to City Hall Owner move-in to renovated Public Safety space and new additions January 2 - 5, 2004 to City Hall Start construction on existing City Hall space January 5, 2004 Complete construction of renovated City Hall space April 5, 2004 Owner move-in to renovated City Hall space April 5 - 8, 2004 §Ul,,,~ueil]oa, eseqd UlilSeo seseqd uop, onJ),suoo . stueuJnooO uop, onJisuo0