TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Report on Town Operations Center
DATE: February 28, 2005
At the January 13 Planning Session, the Council asked what would be the outcome if we were to delay some or all of the Town Operations Center project. This report provides information on the current status of the Town Operations Center project, and provides the Council with information about the possible benefits and costs of delaying some or all of the project.
We have examined two scenarios, one that considers continuing with the Transit portion of the project and delaying the Public Works/Housing portion and one that would delay both the Transit and Public Works/Housing elements.
We have carefully considered the various costs and benefits of delaying the project and believe that it is in the Town’s best interests to continue. We recommend adoption of Resolution A.
This report includes three major sections, one that discusses the project as it is currently designed, one that considers delaying the Public Works portion, and one that analyzes delaying the entire project.
The Public Works and Transportation Departments are located on the Horace Williams Tract, on land leased from the University of North Carolina. The lease expires on December 31, 2006. We have previously been informed by the University that the lease would not be renewed, although we have made no recent inquiry.
In December 2002, the Council approved a contract with Corley Redfoot Zack for the development of a site analysis, needs assessment, concept plan and preliminary cost projection.
On June 9, 2003, the Council agreed to finance the Public Works portion of the project through the use of Certificates of Participation.
On October 27, 2003, the Council approved a concept plan and preliminary budget for the project. On November 24, 2003, the Council approved a budget ordinance for both the Transportation and Public Works/Housing components of the project.
On April 14, 2004, the Council approved a Special Use Permit for the Operations Center.
The first construction on the site began in October 2004, including site clearing, grading and stormwater and erosion control work. This work continues.
The project’s designers and Town staff have been working on developing and refining the project’s design since the Council approved the Special Use Permit. We also have identified grant funding commitments from State and Federal agencies for most of the Transit center cost.
During this process, we have been guided by the values of sustainable development, environmental sensitivity and fiscal prudence.
The first construction contract is now underway. Clearing and grubbing is finished and grading is about 70% completed. Erosion control measures have been installed and preliminary stormwater controls have been constructed. This phase of the work is scheduled to be completed in late March or early April. The contract is for $1,029,083.
The next phase of work will be the construction of off-site improvements, including utility installations and road improvements. These will include the installation of water and sanitary sewer lines, construction of a sewage pump station, improvements to Millhouse Road and limited improvements to Eubanks Road and the intersection of Eubanks Road and NC 86. We are scheduled to seek bids on this phase of work in March.
In addition, the designers and staff have been working on the detailed plans for the main building contract, which we hope to put out to bid in April. This phase of work would include construction of all of the buildings and site improvements. All work now is scheduled to be completed by the end of December 2006.
A final contract would be let for the demolition of the existing Public Works and Transit sites on Municipal Drive in late 2006.
As of January 31, 2005, we have expended $3.1 million on the project, including about $1.6 million on the Transit portion and $1.5 million on the Public Works/Housing portion. The bulk of the expenditures have been for design-related services and land. We have outstanding encumbrances totaling $3.2 million, including about $1.2 million for the Transit portion and about $2 million for the Public Works/Housing portion. The encumbrances are primarily for additional design services, completion of the grading contract, and public art.
PRESENT PROGAM AND COST ESTIMATE
The Transit portion of the Operations Center includes one major building, fueling facility and wash facility, plus related site improvements, including parking for the bus fleet and employees and the public. The main building is 51,590 square feet and will include the maintenance facility, administrative offices and operations center. The latter includes an area for the dispatching function as well as assembly and break areas for drivers. Support facilities include rest rooms and locker rooms, training room and meeting areas. There will also be a public art component of the project.
The budget for the Transit area is $19 million, which includes the cost of construction, design, furnishings, telephone and data systems (shared with Public Works), public art, demolition of the existing Transit facility and contingency. Actual cost of the project will not be known until bids are opened.
We have been able to assemble commitments for $19.38 million of funding for the Transit portion of the project. This amount includes $7.3 million of State Moving Ahead funds, against which we are already drawing. In order to acquire these funds, the Town entered into an agreement with the State Department of Transportation, in which we committed to complete the work by March 31, 2007.
We have a commitment for another $982,000 in a federal “earmark”, or appropriation from the Federal Transit Administration budget, through the efforts of Representative David Price. We anticipate signing an agreement with FTA in the near future that would obligate us to expend the funds within the next three years, which is typical for FTA allocations. This amount includes a local match of $123,000, which would be funded from the Transportation Department’s Capital Reserve.
We have a commitment for $6.9 million from a reallocation of Transportation Improvement Program funds originally programmed for Homestead Road improvements, of which $5.5 million would come from federal funds and $690,000 would come from State matching funds and $690,000 from a local match. The local match would be funded from the Transportation Department’s capital reserve budget. This agreement was negotiated with our partners in the Durham regional Metropolitan Planning Organization.
There is also $2,700,000 committed through the TIP from the Surface Transportation Program Direct Allocation (Transit Allocation), which includes a $270,000 State match and a $270,000 local match, again funded from the Transit capital reserve.
The STP funding is programmed over a three-year period, through fiscal year 2006. It and the Moving Ahead funding represent significant effort on the part of the Council and our elected representatives in State and Federal offices.
We believe we will be able to coordinate the expenditures for the Transit portion of the project so as to avoid borrowing. We will be able to draw funds directly and/or time reimbursements from grants so as to maintain predictable cash flow without having to advance significant sums that would otherwise necessitate borrowing.
The Public Works/Housing portion of the Operations Center includes three major buildings. One building will house Public Works Administration, the Emergency Operations Center and some areas shared with Transit. It will also include an Information Technology area to provide data, communications and building monitoring and security system services to the entire compound. A second building will include the Field Operations, Landscape, Solid Waste Services and Building Maintenance Divisions of the Public Works Department plus the Maintenance Division of the Housing Department. The third main building will be the Public Works Fleet Maintenance building. The buildings will include offices, storage areas, workshops, meeting space, locker rooms, and rest rooms. These buildings will total 70,720 square feet. There will also be a fueling facility, a vehicle washing facility, storage buildings for equipment and supplies and parking for vehicles, equipment, employees and visitors. There will be a public art component of the project.
The budget for the Public Works/Housing portion of the project totals $24.6 million, which includes the cost of construction, design, furnishings, telephone and data systems (shared with Transit), public art, demolition of the existing Transit facility and contingency. We note that the actual cost of the project will depend on bids.
Funding for Public Works/Housing
The Public Works portion of the Town Operations Center is to be funded through proceeds from the sale of certificates of participation (COPS). The debt service cost for this financing would be about $1,750,000 in the first year (2005-06), depending on actual interest rates.
We have obtained agreement from the federal Department of Housing and Urban Development representative for our housing program that HUD will reimburse the Town for costs associated with the Housing Department portion of the project. This funding assumes continued federal appropriation of funding for the housing program, and thus includes some uncertainty in the future. This contribution would total $1,238,000. To date, we have allocations of $167,640 from the Housing capital budget. The balance of the Housing portion of the project would be financed through the major borrowing and reimbursed to the Town through annual contributions from the Housing budget.
Effect on Next Year’s Tax Rate
We have used $540,000 as a current estimate of the amount generated by one cent on the property tax rate. Next year’s debt service for the Town Operations Center would require additional revenue equivalent to 3.24 cents on the tax rate.
DELAYING THE PUBLIC WORKS/HOUSING ELEMENT OF THE PR0JECT
There are potential costs and benefits associated with delaying completion of the Town Operations Center, in whole or part. We have considered the costs and benefits of two scenarios, one that assumes delaying the Public Works/Housing portion of the project and one that assumes delaying the entire project.
If the Town were to not build the Public Works facility at all, then there would be the savings associated with not paying for the approximately $25 million of financed cost of the project. The associated interest expense could be about $13 million over the 20 years of the debt service, depending on the actual amount financed and the interest rate used. If the Council wishes to delay construction of the Public Works/Housing component of the project for a short period, for example one to three years, savings would result from avoiding debt payments over that period. Based on present cost estimates, the annual debt payments in year one would be $1.75 million; in year two $2.225 million; and, in year three, $2.5 million.
The actual “bottom line” for a financial analysis of not completing the project requires comparing savings related to avoided debt service with additional costs associated with terminating the project (see Cost discussion, below).
We would also save the cost of moving the employees and furnishings, supplies, etc. to the new facility. We believe we have accounted for that cost in our overall project cost estimates, but that is a figure we will not know with certainty until it is confirmed by bid.
A benefit related to delaying the project would be the absence of any interruption or disruption in services associated with the move itself. While we believe we can continue to provide most services without major interruption, it is possible that there may be short periods during the actual move when it will be difficult to not have some loss of some services.
Other benefits attendant to delaying the project include operational efficiencies associated with the present location of the major departments. Public Works operates major programs that involve routing of vehicles and employees to provide services. There are garbage and other solid waste collection routes, leaf collection routes, snow and ice treatment, mowing and other Public Works services that are provided through ordered routing. The Municipal Drive site provides a more central location for provision of these services throughout the Town.
It also provides a closer destination for some of the Town vehicles that obtain fuel there.
If we were to stop construction on the site, we would have to find funds to cover costs that have already been incurred or obligated, plus costs related to the need to stabilize and secure the site, and some that would result from conditions of the Special Use Permit.
Expenditures to date on the Public Works/Housing site have totaled about $1.5 million. These are primarily design-related costs and some costs associated with land purchases. We have incurred expense related to the ongoing grading contract for work completed that has not been billed.
We have estimated the additional costs associated with terminating the project as soon as possible after March 1. Additional costs would include additional work by the grading contractor to develop the site to the point that it would drain properly and not erode, including replacing top soil and seeding the exposed acreage (that property that is already at least partially graded). This work, along with some associated engineering services would total about $1.2 million, which includes work completed to date but not yet billed by the grading contractor.
Site Work: We would need to complete drainage improvements that would allow us to properly manage stormwater on the site. We would need to landscape the property according to the stipulations for buffers in the Special Use Permit and would need to secure the site by fencing it to prevent dumping and illegal recreational uses (dirt bikes and off-road vehicles). A service road would need to be constructed to permit regular maintenance of the landscape and the drainage facilities. We would also need to replant some of the wooded areas to replace some of the trees removed from the site as required by the Town’s normal regulations. These costs would total about $610,000.
Change in Program: In addition, there would be costs incurred on the Transit site that are now planned to be part of the Public Works site. Information technology and site utility controls were planned to be centralized on the Public Works portion of the site. These same utility hubs can be designed into the Transit building, but there would be additional design costs of about $50,000 and the possible loss of planned program space. We would also need to redesign and modify the placement of the site utilities to permit future connections to the Public Works/Housing area. This additional expense is estimated to be about $300,000.
Off-Site Improvements: We would have to complete all of the off-site improvements, currently budgeted at about $2,300,000 for the project, both to provide full services in the case of utilities and to fulfill the stipulations of the Special Use Permit. These improvements include the completion of water and sanitary sewer lines and reconstruction of Millhouse Road and some improvements on Eubanks Road and to the intersection of NC 86 and Eubanks Road.
We have agreement with our State and Federal grantors to share in the cost of the off-site improvements. The Transit project would pay for half of these improvements in the current plan. We believe that, if the Public Works/Housing project were delayed, the grantors would agree to the planned 50% share of costs. We believe we would have to pay for the other half from other Town sources, though, as originally proposed. We believe that the grantors, who have already agreed to split these costs would not be willing to pay for all improvements in the case of a project that would eventually be built for other than Transit purposes. The General Fund share of these improvements is estimated to be $1,158,000.
Direct Cost Summary: The total of the identified additional General Fund costs is about $4.8 million. We would also have the $19 million Transit project cost as an overall obligation, but would be able to use the State and Federal funds committed to the project as now planned.
Other Costs: There would be other elements of cost associated with delaying the project. If we were to simply delay the work for some period of time, and restart it later, we might have to bear higher financing costs if interest rates were to rise in the interim. Given the recent rapid inflation of construction materials (19% last year), we can be certain of paying higher costs for construction in the future.
Another cost-related issue is the loss of economies of scale for contractors bidding the job(s). The Transit project alone would be substantial for the Town, but the combined project would be potentially more attractive to larger construction companies who might not be as attracted to a project of less than half the cost. Some of the benefits of a single contractor constructing the entire site at once include paying only once for mobilization and staging, and economies for the contractor in managing the site and the flow of people, equipment and supplies to and from the area.
We believe there are other matters that the Council may need to consider with respect to the progress of the project. One significant matter is the lease under which we are now occupying the Public Works and Transportation Department sites. The lease expires on December 31, 2006, at which time we are to have vacated the premises and removed our property. To date, we have not received any indication that the University would be willing to extend the term of the lease. We believe that a short extension might be possible, but an indefinite deferral seems unlikely to be granted.
One of the reasons for termination of the Town’s lease is the University’s commitment to clean up the hazardous waste site adjacent to the Town’s Public Works and Transit facilities. As we understand it, the University has proposed to conduct the cleanup only after the Town has vacated the premises. The University could have relatively unrestricted access to the hazardous waste site if Transit moves and Public Works stays on Municipal Drive. The other landfills are on the property adjacent the Public Works development.
Another issue the Council may wish to consider is the impact on the neighbors. There would be substantial work involved with constructing the Transit site, and then later considerable disruption associated with the Public Works/Housing site when it was built. Although we believe we have done a good job of managing the work to date, we recognize that there has been some disruption for neighbors (construction traffic and noise). Delaying the project would provide a degree of uncertainty for the nearby residents in terms of not knowing when or if we would begin the project again.
Limitations of the Current Site
Another issue concerns the limitations of the existing site. Even if we were not facing the end of our lease, we believe we would need to consider relocating to a larger site. The present site has severe limitations, in terms of size, condition of facilities and unmet needs.
The size issue has been most acutely felt in the growth of the Transit system, but also in the slower but continued growth in Public Works. Employee parking now exceeds the capacity of existing lots and results in parking on grassed areas and along the access roads. There are few good alternatives for our employees in these two departments, given their irregular working hours, and the distance most live from work. Vehicular parking has grown to the point that we have filled the lot’s capacity. There are also no identified opportunities to add parking, given the existing permits that apply to the site. We have reached the limits of our impervious surface and floor area for the site, which would preclude us from adding either surface parking or new building space.
We also have exhausted office and storage space at Public Works; restrooms, locker areas, break rooms for employees and meeting space are inadequate.
A significant issue for the site is the lack of water quality measures to mitigate stormwater runoff. We are required under the National Pollution Discharge Elimination System regulations to address stormwater runoff from public works and transit facilities. This is a federal regulation. We have opted not to address the need for a permit for the facilities in anticipation of the move to the Operations Center. If we were not to move, we would have to acquire the engineering services to obtain the permit and make the associated improvements to effect the appropriate mitigation measures. We believe the cost of engineering and construction of improvements would exceed $100,000.
The buildings at the Public Works site include three metal buildings that are about 30 years old. They are showing signs of deterioration, including roof problems, and along with one newer building have heating systems that need upgrading. Public Works has an aging telephone system that has grown beyond capacity and no longer fully meets the needs of the department.
The Housing Department Maintenance Division is currently quartered in a former housing unit on Craig Street. This space lacks adequate storage space and work areas.
We believe that delaying the project would have a negative effect on employee morale. For the reasons noted above, the new Operations Center is much anticipated by the employees of Public Works, Housing and Transportation. This anticipation has been heightened, we believe, by the highly interactive process we have followed in the design of the project. Almost every employee of the affected departments has been involved in reviewing designs and providing ideas as to how to make a better Center. We believe this has produced a sense of partnership and ownership in the project, which would result in a sense of loss if it is not completed.
Impact on Tax Rate
We believe the costs associated with delaying the Public Works/Housing portion of the project could total about $4.8 million. We note that the $4.8 million are costs that require additional revenue or budget reductions in this upcoming year; there is no way we know to amortize the costs over more than one year. The cost of first year’s debt service related to the Town Operations Center would be about $1.75 million. The net difference would be a revenue requirement of $3.07 million, or a tax rate equivalent of 5.7 cents.
DELAYING THE ENTIRE PROJECT
The second scenario we considered would include delaying the entire project. Benefits and costs are similar to the previous scenario, with some exceptions.
We believe the possible benefits of this option are similar to those identified for the option earlier considered. If the Town were to not build the Public Works facility at all, then there would be the savings associated with not paying for the approximately $25 million of financed cost of the project. These savings would be the same under this scenario, as all of the borrowing costs are associated with Public Works/Housing; there are no borrowing costs associated with the Transit facility.
The associated interest expense could be about $13 million over the 20 years of the debt service, depending on the actual amount financed and the interest rate used. If the Council wishes to delay construction of the Public Works/Housing component of the project for a short period, for example one to three years, savings would result from avoiding debt payments over that period. Based on present cost estimates, the annual debt payments in year one would be $1.75 million; in year two $2.225 million; and, in year three, $2.5 million.
We would also save the local match for the Transit grants, which we calculate to be about $2.1 million. Some of these funds have been accumulated in the Transit Capital Reserve, with the rest programmed over the next several years.
The same benefits apply in this case in terms of saving moving expenses and in avoiding possible interruptions in services. The actual avoided cost would be similar in this instance, as 90% of expenses related to the project, including moving expenses, would be paid by the State and Federal grantors.
There are efficiencies in operations for Public Works and Transit in being located more centrally. The various services that the Departments provide could be provided quicker and probably marginally cheaper from the current site. Transit routing would be somewhat easier given a more central location from which to dispatch the buses.
The fueling efficiencies would apply in this case as well, for Public Works and other users.
The Housing Department’s Maintenance Division could provide more timely service to the residents from their current location, but we believe that benefit may be offset by the problems associated with inadequate storage and general space constraints they now have.
Costs To Date: We have expended $3,124,000 through January 2005. Included are design and engineering costs related to site acquisition and analysis, property acquisition, preliminary design and the subsequent design steps in developing the plans and specifications. Of this amount, about $1.6 million is for the Transit portion of the project. Some of this expenditure has been for design, some for land and related costs. We have been reimbursed about $620,000 of this amount from Federal and State grants. Additional invoices against these grants are in process.
We believe that if we were to discontinue the project, we would not be able to charge the grants for the land purchase and related expenses. We are unsure if we would have to reimburse them for the design work. If that were the case, the Town would need to fund the reimbursement, which would make either the General Fund or the Transit Reserve vulnerable for the entire $1.6 million expended on Transit. The latter would require agreement on the part of our System partners if the Council would want them to participate in the cost.
The remaining $1.5 million has been funded from the General Fund fund balance in anticipation of repayment by the financing of the Public Works/Housing portion of the project. We would need to generate revenue in that amount to restore the fund balance.
Additional Costs: Among the costs we would likely incur in order to terminate the work at an acceptable point would be additional work by the grading contractor to develop the site to the point that it would drain properly and not erode, including replacing top soil and seeding the exposed acreage. This work, along with associated engineering services would total about $1.9 million, which includes work completed to date but not yet billed by the grading contractor.
Site Work: We would need to complete drainage improvements, provide regulatory buffers, secure the site, build a service road replace some trees in order to be provide for a site that complies with Town regulations and would allow us to maintain the property. The total cost of these improvements is estimated to be about $976,000.
Loss of Grants: The funding we have assembled for the Transit portion of the Operations Center represents significant effort on the part of the Council and our elected State and Federal representatives. We believe delaying the project would make the commitments vulnerable to reallocations or rescissions from either the State or Federal governments or both. It is unclear if the same efforts would be successful in the future in securing the same level of funding.
Other Costs: Delaying the project would create uncertainty with respect to interest rates and inflation. We believe we would face higher construction costs in the future, which would erode the value of the project.
Among the issues for the Council to consider with this option are:
Limitations of the Current Site
The problems with the existing site are the same with this scenario as for that previously considered, with the additional factor that the Transportation Department’s recent growth has caused the site to become increasingly inadequate. We have already noted employee parking issues. The growth in the Transit fleet has been such that the existing parking area is now at capacity, with additional growth anticipated in the near future.
The need for an NPDES permit remains, with additional expense likely due to the additional maintenance facility that must be accommodated under the mitigation measures of the regulations.
The building maintenance issues remain, plus The Transit Operations area also has a failing heating and air conditioning system and a leaking roof.
Morale issues with delaying Public Works and Housing would extend to the Town’s largest department as well.
Impact on Tax Rate
We believe the additional cost associated with delaying the entire project could be about $6 million (assuming we are required to reimburse the Federal government for design costs). The savings associated with delaying the project next year would be about $1.75 million in debt service. We believe that the $6 million would be a cash requirement of the General Fund that could not be financed, due to there not being a project asset to secure a loan. The net difference for the General Fund would thus be an additional requirement of $4.25 million, or about 7.8 cents on the tax rate.
CONCLUSION AND RECOMMENDATION
We believe there are some operational efficiencies that could be obtained by delaying the construction of the Town Operations Center. We do not believe that there would be financial savings for the Town from delaying the project, at least for next fiscal year. Rather, it appears that the combination of previous and obligated expenditures would create a net increase in the revenue requirements for the Town compared to proceeding with the project, which could translate into additional pressure on the tax rate.
If the Council decides to delay the project, we will have to work with our designers and others to develop a plan to halt the work and to stabilize the site. We would provide a report to the Council at a future meeting with the results of that planning.
We recommend that the Council adopt Resolution A, which would authorize the work to continue, including seeking bids on the next phases of the project. Resolution B would delay the Public Works portion of the project and Resolution C would delay the entire project.
A RESOLUTION AUTHORIZING THE TOWN MANAGER TO CONTINUE WITH THE WORK NECESSARY TO PREPARE AND ADVERTISE BIDS FOR WORK ASSOCIATED WITH THE TOWN OPERATIONS CENTER PROJECT (2005-02-28/R-9a)
WHEREAS, the Council of the Town of Chapel Hill has previously authorized work related to the design and construction of the Town Operations Center; and
WHEREAS, the Council has considered costs and benefits of delaying parts or all of the project; and
WHEREAS, the Council has concluded that the costs of delaying the project exceed the possible benefits;
NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Town Manager is authorized to continue working with the appropriate design consultants and others to produce plans and specifications for the project and to advertise and receive bids for future phases of work.
This the 28th day of February, 2005.
A RESOLUTION DELAYING FURTHER WORK ON THE PUBLIC WORKS/HOUSING PORTION OF THE TOWN OPERATIONS CENTER PROJECT (2005-02-28/R-9b)
WHEREAS, the Council of the Town of Chapel Hill has considered the costs and benefits of delaying a portion of the Town Operations Center project that would house the Town’s Public Works Department and Housing Department Maintenance Division; and
WHEREAS, the Council has concluded that the benefits of delaying the work would exceed the costs;
NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Town Manager is directed to halt the work on the Public Works/Housing portion of the project and to report to the Council on the steps to be taken and costs associated with said delay. This report is to be provided by the Manager at an upcoming Town Council meeting.
This the 28th day of February, 2005.
A RESOLUTION DELAYING FURTHER WORK ON THE TOWN OPERATIONS CENTER PROJECT (2005-02-28/R-9c)
WHEREAS, the Council of the Town of Chapel Hill has considered the costs and benefits of delaying the Town Operations Center project; and
WHEREAS, the Council has concluded that the benefits of delaying the project exceed the costs;
NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Town Manager is directed to halt the work on the project and to report to the Council on the steps to be taken and costs associated with said delay. This report is to be provided by the Manager at an upcoming Town Council meeting.
This the 28th day of February, 2005.