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ST AFF REPORT
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Development Services Department
DATE: February 7, 2012
TO: Mayor and City Council
FROM: Jason Kruckeberg, Assistant City Manager/Development Services Director 5144-
Hue Quach, Administrative Services Director
Philip A. Wray, Deputy Director of Development Services/City EngineerW\\
SUBJECT: STUDY SESSION — NEW CITY HALL COST AND FINANCING UPDATE
Recommendation: Provide Direction
SUMMARY
This memo is in response to a request from the City Council to re-evaluate the
construction costs for a new City Hall based on recent economic trends. In March of
2009, we reported to the City Council a new City Hall total project cost of
$12,270,333. For numerous reasons related to the City budget and general economic
conditions, this project was not pursued at that time. Given significant changes in the
financing environment, the Council asked staff to review the 2012 construction costs for
a new City Hall and report on potential methods of financing this project.
BACKGROUND
On September 4, 2007, the City Council awarded an architectural services contract to
Steinberg Architects to proceed with schematic design of a new City Hall building to be
constructed adjacent to the City Council Chambers building. Following several study
sessions on design with the City Council, a formal presentation was made to the City
Council at the March 18, 2008 meeting at which the Council approved the preliminary
design concept and directed staff to complete the schematic design package.
On July 15, 2008, the City Council approved the schematic design and authorized
Steinberg Architects to proceed with the design development phase of the project. The
design development phase included the preparation of plans and specifications to a
level of 40% completion and an updated cost estimate. The plan was modified slightly
through this phase as the schematic design elements, elevations and renderings were
Now transformed to actual working drawings.
On March 17, 2009, the Council approved the design development package (40%
working drawings) but did not approve moving into the final design stage due to lack of
a reasonable funding source. Staff was directed to seek additional funding sources for
the building at that time, including the Federal Stimulus monies that were just then
coming on-line. When it became clear these funds would not be made available for new
bricks and mortar projects, the new City Hall project was shelved and the Council
focused on the rehabilitation of the existing City Hall building (partially due to the award
of a Stimulus grant for the rehabilitation). It was reasoned that the rehabilitation of
existing City Hall was necessary, as the existing building will be utilized with or without a
new City Hall building. Due to the significantly changed financing environment of late
2011, the Council asked staff to re-evaluate the costs of a new City Hall.
DISCUSSION
The new City Hall construction drawings were subjected to significant cost estimation
work in March of 2009. The cost breakdown was as follows and excluded architectural
costs incurred to that point:
Building Construction and Site Work $9,626,616
Owner Contingency (2%) $192,532
Architectural Fees (total $1,155,194) $646,185 (net remaining)
Geotechnical $10,000
Plan Check $20,000
Construction Management $500,000
Additional Inspection $175,000
Furnishings, Fixtures & Equipment $700,000
Building signage/wayfinding $50,000
Utility Relocations by others $100,000
Communications & Data Installation $200,000
Miscellaneous & Overhead $50,000
Total $12,270,333
We asked our cost estimate consultant to re-evaluate the construction costs based on
today's bidding and construction environment. Our consultant went through the
estimate and identified several key issues. For the purpose of a comparison, a new
construction start date was assumed at six months from the date of analysis (May
2012). In general, construction costs have increased and because the new construction
date is thirty months later than the previous one, there will be some inflated costs.
However, the price of some materials has dropped significantly, particularly steel. Our
consultant ran a quick analysis and the two factors balance each other out to within a
few thousand dollars. Therefore, it is reasonable to assume that the cost of
$12,270,333 reported in March of 2009 is still an accurate cost today. Despite this, it is
important to realize that these plans are now three years old. There may be changes in
utility needs or changes in building requirements that would need to be reflected in the
total cost. This could lead to an overall increase or decrease in cost. Also, additional
New City Hall Costs
February 7, 2012 Page 2
public plaza and signage work may be desired that could add to the overall cost. But, for
purposes of comparison, the $12,270,333 number is a good number to use.
This amount was given to our financial advisor to compare 2009 versus 2011 bond
financing. Attached as Exhibit A is a summary comparison showing Certificate of
Participation financing and General Obligation bond financing. Certificates of
Participation (COP) are a financing method that requires a pledge of a dedicated
funding source, in this case, an annual pledge of revenues from the General Fund. It
does not require voter approval. General Obligation (GO) bonds must be approved by
the voters by a 2/3 majority. The overall interest rate is better today and provides
significant savings when all other factors are similar.
In comparing the numbers from 2009 to today, using the Certificate of Participation
method, the lower interest rate would result in a savings in total debt service of $2.9
million over 30 years. General Obligation is the least expensive because the voter
approval requirement provides a stronger guarantee that bond holders will be paid as
well as providing a continuous revenue stream for the annual debt service payments.
Although General Obligation bonds were not considered in 2009, our consultant has
compared the projected 2011 Certificate of Participation method with GO Bonds. As you
can see from the table, GO Bonds would result in a further reduction of $2.8 million in
total debt service or a total of$5.7 million less overall.
The Council has recently opined that GO Bonds would likely be the only method to
move this project forward at this time due to the inability to commit General Fund dollars
for a financing. Exhibit B shows the financial obligation that Arcadia residents would
have using GO Bonds. The table provides a comparison of the costs of a $12 million
project using the 2010-2011 Assessed Value (provided to show how a rise in Assessed
Value impacts the per-home tax assessment), a $12 million project showing 2011-2012
Assessed Value, a $12 million project with 2011-2012 Assessed Value at a higher
interest rate, and a $14 Million project at a higher interest rate. As you can see, the
annual property tax assessment for a home valued at $1 million would range between
$67 and $85 per year using these various scenarios.
Several pages from the design drawings have been included for your review as Exhibit
C. These include elevations, a site plan, and floor plans.
In summary, the new City Hall Construction estimate of $12,270,333 from 2009 is still
valid due to the economic impacts on the construction industry. Financing options are
much better today than they were in 2009 due to better interest rates. Indications are
that as the economy recovers, construction costs AND interest rates will rise however,
which of course will increase the cost of the project. If the project were to be initiated in
the next 6 months, a significant overall savings would be realized over the costs that
would have been incurred if the project had gone forward in 2009. If there is a desire by
the City Council to advance the project, this is an opportune time. However, a bond
election would be required and the upcoming dates such an election could be held if
New City Hall Costs
February 7, 2012 Page 3
consolidated with another election is either June 5 or November 6, 2012. Otherwise, a
special election could be called to consider this item.
RECOMMENDATION
Provide Direction.
APPROVED:
Donald Penman, City Manager
Exhibit A: Comparison Table: Certificate of Participation vs. General Obligation Bonds
Exhibit B: General Obligation Bond Assumptions and Assessment Projections
Exhibit C: Plans and Drawings for new City Hall (dated March, 2009)
New City Hall Costs
February 7, 2012 Page 4
EXHIBIT A
NEW CITY HALL
CERTIFICATE OF PARTICIPATION vs GENERAL OBLIGATION BONDS
COMPARISON
Certificate of Participation
Mar 2009 Nov 2011
Description $12.3 Million $12.3 Million Diffrence
Proceed Proceed (2011 vs 2009)
Par Amount $ 13,865,000 * $ 13,585,000 $ (280,000)
Construction Proceeds $ 12,300,000 $ 12,300,000 $ -
Average Annual Debt $ 930,721 $ 839,717 $ (91,004)
Total Debt Service $ 28,154,296 $ 25,191,508 $ (2,962,788)
True Interest Cost(TIC) 5.326% 4.747% -0.579%
* - COP bonds par amount of$13.585 million- Issue Discount of$98,542 =$13,486,457
for total Bond proceeds.
November 2011
Certicate of Participation vs General Obligation Bonds
Nov 2011 Nov 2011
Description $12.3 Million $12.3 Million Diffrence
Proceed Proceed (COPS vs GO)
(COPs) (GOs)
Par Amount $ 13,585,000 * $ 12,175,000 $ (1,410,000)
Construction Proceeds $ 12,300,000 $ 12,300,000 $ -
Average Annual Debt $ 839,717 $ 744,779 $ (94,938)
Total Debt Service $ 25,191,508 $ 22,343,358 $ (2,848,150)
True Interest Cost (TIC) 4.747% 4.316% -0.431%
* - GO bonds par amount of$12.175 million+Net Premium of$373,706 =$12,548,706 for
total Bond proceeds. Issuance of GO bonds do not require setting a side a reserve fund
amount for debt service payment. Therefore overall debt financing is less than COPs
(Reserve Fund for 2011 COPs -$849,219).
Note: In 2009,General Obligation Bonds were not considered. Therefore, no comparison is
provided on GO bonds of 2009 versus 2011.
11/29/2011-2:42 PM COPS &_GO BOND ANALYSIS(1009 vs_2011)
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