Placentia City Council
AGENDA REPORT
TO: CITY COUNCIL
VIA: CITY ADMINISTRATOR
FROM: DEPUTY CITY ADMINISTRATOR / PUBLIC SERVICES & INFRASTRUCTURE DATE: JULY 11, 2023
SUBJECT: STUDY SESSION: PLACENTIA PUBLIC SAFETY CENTER UPDATE AND
FUNDING OPTIONS
FISCAL
IMPACT: EXPENSE: $9.7 to $10.7 MILLION BOND DEPENDING ON SELECTED FINANCING STRUCTURE ($20.6 Million Project Total)
REVENUE: LEASE REVENUE BOND, RESERVES, MOTOROLA FINANCING SUMMARY:
On March 1, 2022, the City Council selected a preferred project alternative for the proposed Placentia Public Safety Center and directed Staff to complete the architectural and engineering design for the project. Staff returned to the City Council on September 6, 2022, with a proposed financing structure to pay for the project, estimated at the time to be $11.4 million. The bids received for all project phases and expenses exceeded the initial cost estimate and as a result Staff has identified two (2) new potential financing structures for the City Council's consideration.
Both options involve bond financing for a portion of the project cost as well as Motorola financing, which the City already pays for. Staff recommends the City Council select Option 1 as it provides for the largest long-term General Fund cost savings to the City. Should the City Council approve this option, Staff will return to the City Council on July 25, 2023, with the construction contract for Phase 2 of the project which entails construction of the main building and a lease revenue bond financing package for the Council's consideration and approval to authorize a bond sale.
RECOMMENDATION:
It is recommended that the City Council take the following actions:
1. Receive and file the presentation; and
2. Select Option 1 as the preferred financing structure option for a not -to -exceed total bond issue proceed of $10 million and a maximum interest rate of 5.5%; and
3. Should the City Council elect to construct the balance of the facility, direct Staff and the Bond Financing Team to structure Lease Revenue Bonds to finance a portion of the project cost; and
3.a.
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4. Direct Staff to return to the City Council with the Phase 2 construction contract for its consideration and approval and bond documents to authorize the bond sale.
STRATEGIC PLANNING STATEMENT
This agenda item conforms to Strategic Planning Goal and Objective 5.4, Construct the Placentia Public Safety Center.
DISCUSSION:
On March 1, 2022, the City Council selected a final preferred project that entails the construction of a two-story, 18,805 square foot building with a ground -level indoor shooting range and an engineered prefabricated Butler Building to house property and evidence collected by the Placentia Police Department. In addition, a new emergency communications center will be constructed on the second floor of the building. The building will also include a training/conference and emergency operations center, staff office space, and outdoor storage units for City departments. The original project cost was estimated to be $11,417,165. The cost is now estimated at $21,616,963 based upon bids received for construction, upfitting and IT equipment.
This cost estimate includes a 15% contingency to cover any change order work for Phase 11 construction as well as the Butler Building and tenant improvements, IT equipment purchases and moving costs. On September 6, 2022, the City Council selected a preferred project financing package and directed Staff to complete the final architectural and engineering documents and proceed with the project. The project has been split into separate project phases to allow the construction of the property and evidence engineered Butler Building to proceed ahead of the main building as the City's lease for its current property and evidence storage facility expires on December 31, 2023. Since the bids received for both project phases along with other project related expenses exceeded initial cost estimates, Staff is presenting a new project financing package based upon all final bids/costs received.
Project Value Engineering, Cost Controls and Procurement Process As part of the design process, the design team sought out options to reduce project costs without having to reduce the size of the building or eliminate amenities. The single largest cost savings achieved was using a steel engineered Butler Building for the evidence and property storage component of the facility. Using this type of prefabricated building saved approximately $1.7 million dollars as opposed to constructing the building using traditional methods and materials. Additionally, the City opted to purchase the Butler Building and shooting range equipment direct from the manufacturers via Statewide leveraged procurement agreements which saved on contractor mark up costs and allowed these long lead items to be placed into production sooner.
The full cost for all the 911 communication radios, equipment and related information technology equipment was not fully available at the time the project financing package was first presented to the City Council. There were extensive delays in obtaining the necessary information from both Motorola and the California Office of Emergency Management (CaIOES) and once received, the costs far exceeded initial estimates. Some of these costs would be incurred by the City regardless of whether it was going to build a new emergency communications center since the City's existing
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system is overdue for the 911 Next Gen Upgrade. Increasing the number of dispatch consoles also increased the City's costs as the grant funding available from CaIOES does not cover the extra equipment being utilized in the new build. Additionally, after consulting the City's auditors, Staff determined that funds generated by the sale of a residential property to the City's Affordable Housing Authority from the General Fund cannot be used at this time to help fund the cost of this project without going through a formal escrow process. Additional funds from the City's reserves will be needed to cover this amount until that formal process can be completed, and the reserve fund reimbursed.
The lease on the City's current property and evidence storage facility expires on December 31, 2023, and the City has negotiated a 3 -month extension through March 31, 2024. Given this deadline to vacate the building and transition into a new facility, the project has been broken down into phases. In addition, contractors were prequalified prior to submitting bids to ensure that only qualified contractors experienced in building critical facilities submitted bids on this project. Each project phase was bid twice for various reasons but that also served to ensure that the City maximized value and to fully test the marketplace to the greatest extent possible. In all instances, the bid spreads across the various phases were tight, indicating that the contracting community generally viewed the cost of the work the same way. Some contractors lowered their bids on the second attempt while others raised their prices. In other instances, contractors opted not to participate in a second round of bidding. Through this analysis Staff has determined that the bid results are indicative of true market pricing in this current high inflationary environment.
Project Financing Elements
The financing package outlines various sources of funding which include delaying the construction the construction portion of the HVAC/solar retrofit and new roof project for City Hall and the Police Station and using those project funds instead towards the public safety building. This project would have been delayed regardless as the City is undertaking a separate but coordinated project to renovate areas of City Hall and the Police Station to create new offices, workspaces as well as construct new employee restrooms and amenities. Preliminary architectural and engineering design work for the City Hall/Police Station Modernization Project is set to begin soon and the construction drawings for the new and improved spaces will need to be closely coordinated with the HVAC design and construction documents.
The cost of the 911/dispatch, radios, and related IT equipment needed for the project has grown considerably since the start of project design process. Therefore, in an attempt to offset costs, the City submitted and tentatively secured a project funding earmark from Congresswoman Steele's Office in the amount of $2.6 million to cover the cost of this much needed equipment. While Congresswoman Steele has submitted and sponsored the City's project for funding, this earmark is still subject to final Congressional approval. It is important to note that while the City's earmark request has advanced to a stage wherein prior years funding requests were ultimately approved, there is still no guarantee that the Federal government will fund this request. Therefore, should the City not be successful in securing these funds, additional unrestricted fund balance reserves are anticipated to be allocated toward the project.
In addition, Asset Forfeiture funds are proposed to be allocated towards this project which is an allowable use for those funds. The City has been allocated a total of $1,147,178 in Asset Forfeiture
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Funds and Staff and the Police Chief propose to allocate a total of $1 million towards this project.
Lastly, the City has been allocated a total of $250,000 from the California Office of Emergency Management Services to use towards the cost of the Next Gen 911 dispatch upgrade costs. This City will need to front -load these costs and obtain reimbursement from the State once the project is complete.
Public safety radios and dispatch communication equipment is considered critical infrastructure needed to provide essential services. The equipment typically has a 10 -year lifespan as Motorola is continually upgrading and improving its technology and routinely stops supporting older technology. Given the large capital expense for this equipment, Motorola allows agencies to finance those purchases, typically over a 10 -year span. The City is currently financing Motorola equipment at an annual cost of $167,470. The proposed new 911 communications center will be utilizing Motorola equipment and the City is able to finance the purchase of this radio equipment as well for 10 years at an annual cost of $151,622. This portion of the project -related technology costs would essentially be an extension of existing General Fund annual operating costs with a slight reduction in annual operating costs.
Staff has identified two (2) new potential financing structures for the City Council's consideration.
Both options include a combination of reserve funds, capital project funds, asset forfeiture, and funds from a legal settlement to provide a down payment towards the cost of the project while issuing a lease revenue bond to cover the balance of the project cost. Staff's goal has been to utilize reserves or cash on hand to pay for as much of the project as possible while minimizing the amount of debt needed to complete the project.
Option 1
Source of Funds Total
Unrestricted Fund Balance Reserves $3,000,000
FY 2022-23 CIP Budget
Unrestricted Fund Balance Reserves $1,000,000
FY 2023-24 CIP Budget
Federal Earmark OR Unrestricted Fund $2,600,000
Balance Reserve
Delay City Hall/PD HVAC Project (CIP Fund) $2,650,000
Asset Forfeiture $1,000,000
Legal Settlement $630,000
CaIOES Grant Next Gen 911 Upgrade $250,000
Total Down Payment (City Funds) $11,130,000
Motorola Financing (Dispatch radio
equipment) $1,197,159
Total Construction Fund Bond Amount
$9,289,804
Total Project Budget $21,616,963
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Option 2
Source of Funds Total
Unrestricted Fund Balance Reserves $3,000,000
FY 2022-23 CIP Budget
Unrestricted Fund Balance Reserves $0
FY 2023-24 CIP Budget
Federal Earmark OR Unrestricted Fund
Balance Reserves $2,600,000
Delay City Hall/PD HVAC Project (CIP Fund) $2,650,000
Asset Forfeiture $1,000,000
Legal Settlement $630,000
CaIOES Grant Next Gen 911 Upgrade $250,000
Total Down Payment (City Funds) $10,130,000
Motorola Financing (Dispatch radio
equipment) $1,197,159
Grand Total Construction Fund Bond
Amount $10,289,804
Grand Total Project Budget $21,616,963
ALTERNATIVE OPTIONS
Staff has identified two (2) alternative options the City Council could consider in lieu of Staff's recommendation. The two options along with pros and cons for each are noted below:
Alternative 1
The City Council can elect to not move forward with the construction of the main building and shooting range. The City has sufficient funding to complete the property and evidence storage facility along with the necessary interior tenant improvements without issuing bond debt. The pros to this alternative are that is saves the City a considerable amount of money both in terms of reducing the amount of cash funding needed from the City's reserves as well as eliminating bond and interest debt payments the City will incur over 30 years.
The cons to this alternative include the loss of a potential Federal earmark totaling $2.6 million for the planned 911 Next Gen upgrade. The City still needs to upgrade its 911 system and costs will be incurred to do so regardless of if it builds a new center or keeps the existing one in service.
Additionally, eliminating the shooting range will result in lost revenue from surrounding police agencies who are hoping to utilize Placentia's range for training purposes, as well as impact City law enforcement operations and overtime costs associated with sending police personnel offsite for routine range qualifications. Lastly, eliminating the main building from the project will result in the loss of much needed office space for expanded City operations and personnel.
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Alternative 2
The City Council can elect to delay moving forward with construction of the main building and shooting range to next year or the year after in the hopes of rebidding the project under more favorable construction cost conditions. The pro to this approach is that the City could potentially secure bid pricing that yields a project cost savings. The con to this approach is that the City would lose a potential Federal earmark of $2.6 million for the radio and IT costs associated with a new communications center as outlined above in Alternative 1. In addition, it is unknown where interest rates for the bond market may land 1-2 years from now and if they trend higher than current rates higher borrowing costs will offset any potential decrease in construction costs.
Additionally, it is unlikely that construction costs will decrease in a meaningful way over the next 1-2 years. In reviewing construction cost analyses and indices produced by Swinerton and Currie & Brown, experts are forecasting construction cost increases to slow or flatten in some areas and continue to increase albeit at a slower pace than the past two years in other areas. In their Q2 2023 report, Currie & Brown report that while steel costs appear to be normalizing, they remain 50% higher than pre-COVID costs, and continued shortages in skilled labor, particularly mechanical and electrical will continue to keep construction costs high. The U.S. construction market is still robust and supporting numerous mega projects such as airports, stadiums, manufacturing, and infrastructure projects. The Inflation Reduction Act and the Infrastructure Investment Act are both directing more than $2 trillion dollars of new Federal spending on infrastructure projects which will help to keep construction costs elevated. Based upon this data, it is unlikely that short of a deep national recession, construction costs will come down to a meaningful level to offset any potential increases in borrowing costs and thereby not result in a significant overall project cost savings to the City.
FISCAL IMPACT:
The total cost to finance a portion of the project amount depends on the financing structure selected which ranges from $9.7 million to $10.7 million as noted in the table below:
Estimated Total Estimated Total Principal
Construction Estimated Bond Issue Average and Interest (30 Option Fund Gap Costs of Proceeds Annual Debt years)
Issuance* Service
1 $9,289,804 $447,848 $9,737,652 $581,342 $17,690,872
2 $10,289,804 $467,873 $10,757,677 $641,221 $19,546,647 *Includes underwriting, legal, consulting fees, and municipal bond insurance and reserve policy premiums.
Staff recommends Option 1 for a not -to -exceed total bond issue of $10 million at a not -to -exceed interest rate of 5.5%.
City Council Agenda
July 11, 2023
Prepared/ y:) n`,
Luis Estevez \\,
Deputy City Administrator
Reviewed and approved:
Damien R. Arrula
City Administrator
Attachment:
Powerpoint Presentation
Reviewed and approved:
Jennifer Lampman
Director of Finance