Item 3: Discuss and Approve Non-Unanimous IGR Positions

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Jenifer Willer Jenifer Willer PWE 3/19/2009 Yes YesVIII. B Oppose Comments: There does appear to be some ambiguity on what the agency has to accept or has the option to accept. ContactRespondentDept Updated Priority Policy Poli Numb Recommendation Paul Klope PWE 3/19/2009 Pri 3 Yes YesVIII. B Oppose Comments: This bill changes the existing language to require public agencies accept surety bonds in lieu of cash retainage. This change could have significant impact to the City by increasing the cost to administer contracts, and potentially lead to situations where contractors don’t complete work on projects. Since the surety bond is an insurance policy and has no monetary value and since the City already requires a surety bond called a performance bond and a second surety bond called a payment bond, the surety bond for retainage is of little value to the City because it provides staff with little leverage to “encourage” contractors to perform. Retainage, with monetary value, is a tried and tested method to motivate contractor's to complete infrastructure projects in a timely manner, because the public agency is allowed to hold the 5% retainage until the contractor completes all the work. Surety bonds covering performance and payment are necessary insurance policies for the public agencies to have in case of contractor default, but do little to directly motivate the contractor, because the insurance companies that provide the surety bonds do little to encourage contractors to perform unless threatened with legal action by the public agency. There are many situations where the amount of work left to do on a contract is small and it is very unlikely that the City would chose to go to the expense of legal action against a surety company to get that work completed. With the retainage as actual dollars or with a monetary value that the City can readily cash into dollars, the City rarely has to go after a surety company, because the contractors know that the City will use their retainage to complete the work if they don’t. If Section 1(b) of this bill were modified to drop the requirement that the public agency accept surety bonds, then I would recommend the City support the modified bill. The bill also adds a few more financial instruments to the list public agencies must accept in lieu of retainage. The new additions are CD's, savings accounts, corporation bonds, and GO bonds. These additions are acceptable. ContactRespondentDept Updated Priority Policy Poli Numb Recommendation Peggy Keppler Peggy Keppler PWE 3/20/2009 Oppose Comments: I agree with and defer to Paul's comments. ContactRespondentDept Updated Priority Policy Poli Numb Recommendation Twylla Miller Twylla Miller CS-FIN 3/20/2009 Yes YesVIII. B Oppose Comments: Oppose as written: HB 2955 Section 1 (6) includes additional financial instruments acceptable in lieu of retainage - particularly troublesome is (f) Corporation Bonds rated A or better by recognized rating service. Bonds are more risky due to credit risk and interest rate risk. ORS 294.035 sets approved instruments for investment of surplus funds of political subdivisions of the state. Under this ORS, the City is not allowed to invest in corporate bonds for time periods longer than 18 months and only those with ratings of Aa or better, unless the corporation has its headquarters in Oregon...then the rating is allowed to be A or better. This statue recognizes the risk level of such bonds. It is not prudent for the City to accept financial instruments in lieu of retainage that the City is unable to invest in under current ORS/City investment policy. If the following language were added to the bill, finance staff could support the bill: Bonds and securities deposited or acquired in lieu of retainage must be an authorized investment under both ORS 294.035 and the jurisdiction's investment policy. 14