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HomeMy WebLinkAboutItem A - Civic Center Update EUGENE CITY COUNCIL AGENDA ITEM SUMMARY Work Session: Civic Center Update Meeting Date: April 28, 2004 Agenda Item Number: A Department: Central Services Staff Contact: Glen Svendsen www. cl. eugene, or. us Contact Telephone Number: 682-5008 AGENDA ITEM SUMMARY The purpose of this work session is to update the council on the Mayor's Civic Facilities Visioning Committee and provide additional information on financing plan options, borrowing methods and construction methods. BACKGROUND Council Action History The council has worked on projects included in a downtown space plan for more than three years. Most recently, on February 25, 2004, the council held an informational work session on the Civic Center Design Charrette and the Mayor's Civic Center Visioning Committee. The full City Council action history is included as Attachment A. Policy Issues This work session is informational and the council is not asked for policy direction at this time. Council Goals This project could fall under the council goal of having a safe community. Financial and/or Resource Considerations A financing plan for a comprehensive civic center project is currently being developed. Attachment B includes some of the items that are being considered for the plan. The inclusion of some of those items would mean that a portion of the funds will be restricted to particular kinds of expenses, such as Lane County Road Fund dollars that could only be used to help with transportation improvements. In addition, members of the council asked about the potential for using alternate borrowing methods for major construction projects from time to time. A summary of available borrowing methods is included as Attachment C. Although there are a number of potential funding sources for the project, it is very likely that a significant portion of the project will require General Obligation Bond approval by the voters. The main advantage of GO Bonds is that they come with a revenue source in the form of property taxes. All of the other borrowing methods listed in Attachment C require that there be an existing revenue L:\CMO\2004 Council Agendas\M040428\S040428A. doc source available to make the debt service or lease payments. To the extent that there are existing revenues that might be used for this project, the City could include another borrowing method in the financing plan, but it is unlikely that there will be sufficient existing revenues to fund the project entirely without issuance of some amount of General Obligation Bonds. Other Background Information The Mayor's Civic Center Visioning Committee has met three times over the past few months. Minutes and materials from their meetings have been forwarded to the council. There is one additional meeting scheduled in May, with the committee's recommendations to come to the council in a report on June 16. The council has also expressed interest in alternate project delivery methods. The principle form of project delivery used historically by the City of Eugene has been the traditional design/bid/build sequence. This method has normally been used as it provides the highest level of accountability between the design entity and the construction contractor, and the highest level of budget and quality control by the owner. In order to achieve these benefits, the design/bid/build approach requires active management and staff expertise on the part of the owner. The Facility Management Division maintains a staff of seven full-time project managers with backgrounds in architecture, landscape and interior architecture, and civil engineering. Other forms of project delivery are being increasingly used by governmental entities, and the City has used several of these in recent years. This includes a design/build project for construction of the Pearl Street Garage and the Bethel Skate Park, a construction manager/owner's representative project with the Airport Terminal Expansion project, the Construction Manager/General Contractor method used for the current Roosevelt Police Facility project, and a modification of a traditional design/bid/build project called "Partnering" on the downtown Library. A public/private partnership, which can be incorporated with a number of types of construction management, was used for construction of Broadway Place. A more complete description of these alternate project delivery methods, and their strengths and weaknesses from the owner's perspective, is included in Attachment D. Timing Recommendations on implementing the vision for a new civic center will be presented to the council on June 16. The council would need to take final action on a bond measure resolution no later than August 27, 2004 (or prior to summer break), to place a funding measure on the November 2004 general election ballot. OPTIONS None; this is an informational work session only. STAFF RECOMMENDATION None; this is an informational work session only. SUGGESTED MOTION None; this is an informational work session only. L:\CMO\2004 Council Agendas\M040428\S040428A. doc ATTACHMENTS A. Council Action History on Downtown Space Plan B. Civic Center/Police Building Financing Plan Options C. Borrowing Methods Summary D. Construction Methods Summary FOR MORE INFORMATION Staff Contact: Glen Svendsen, Facility Management Division Manager Telephone: 682-5008 Staff E-Mail: glen.1, svendsen~ci, eugene, or.us Staff Contact: Sue Cutsogeorge, Financial Analysis Manager Telephone: 682-5589 Staff E-Mail: sue.1, cutsogeorge~ci, eugene, or.us L:\CMO\2004 Council Agendas\M040428\S040428A. doc ATTACHMENT A Council Action History on Downtown Space Plan On April 11,2001, Council was presented with the concept of developing a long-range plan for replacing downtown office space. The plan included both potential short-term and long-term actions. Council directed staff to research a variety of ways to procure City buildings, including design/build, and report back to the Council before the planning phase begins for the next new City building. On April 25, 2001, Council was offered several potential short-term actions to create a safer, more efficient environment for staff currently located in City Hall. Council directed the City Manager to (i) develop programming, space needs and site requirements for relocating certain police functions; (ii) develop a long-term master plan for future use of the property in Roosevelt Yards by the Police and Public Works Departments and a financial plan for implementation, including consideration of redevelopment options for more efficient land use; (iii) dedicate the proceeds from the sale of four surplus properties to the Facility Replacement Reserve; and (iv) identify and recommend an appropriate downtown site for purchase for Fire Station #1, with a report back to Council with final site selection prior to purchase. On May 16, 2001, the Council directed the City Manager to develop a financial strategy and implementation plan for replacing City Hall and other downtown City office space with new buildings. The Council's direction included: consideration of possible joint development with other agencies; consolidation; locations along 8th Avenue from Oak Street to the river as well as possible sites for joint development with other agencies; and, potential for use of some of the warehouse and historic structures east of Mill for some City functions. The 2001-2002 Council Goals includes an action priority to "Develop a strategy and imple- mentation plan for City downtown office and public safety facilities." One of the three specific work items included in this action priority was to adopt a policy framework for long range plans to help guide decisions on reinvestment in existing City buildings downtown. A policy for the maintenance and preservation of City Hall and the Public Works Building was presented to Council on July 5, 2001. This policy reduced the level of reinvestment in both buildings to provide only for an expected 8 to 10 years of continued use. On September 19, 2001, the Council addressed both near-term and long-term projects by directing that relocation of Special Operations and EPD personnel in the basement of City Hall, and relocation of Fire Station #1 be the first priority of projects proposed in the Downtown Space Plan. Construction of a new Police Services building and City Hall were the next tier of projects, with design for the Police Services building projected to begin in FY05, and a replacement of City Hall was targeted to begin design in FY08. The September 19, 2001, council agenda item on funding the Downtown Space Plan included a description of internal and external funding sources to implement the eventual replacement of City Hall with new buildings. The Council approved the staff recommendation that the projected funding gap be met with a combination of the dedication of additional General Fund resources L:\CMO\2004 Council Agendas\M040428\S040428A. doc and General Obligation Bonds. One of the proposed internal mechanisms, the payment of market based "rent" by services that would be located in new downtown buildings, was the topic of a follow-up work session on November 26, 2001. The "market rent" concept was incorporated as an on-going City practice beginning in the adopted FY03 Budget. On February 25, 2002, Council approved a resolution to fund the construction of the new Fire Station #1 primarily through General Obligation Bonds, with City resources funding non-bond eligible capital costs. At a May 22, 2002, work session, Council approved the location of the Roosevelt Police Facility, a financing plan over two fiscal years using City resources from the Facility Replacement Re- serve, and the use of a Construction Manager/General Contractor (CM/GC) form of construction management. Council adopted funding elements for the Roosevelt Police Facility on FY02 Supplemental Budget #3 and on FY03 Supplemental Budget #1. Some of the assets originally to be dedicated towards Downtown Space Plan projects have been used for other purposes. The adopted FY04 budget includes a transfer of $900,000 from the Facility Reserve to help balance the General Fund. In addition, on July 23, 2003, Council adopted a financing plan for the new Santa Clara Fire Station #11 that dedicated revenues from the sale of the three surplus fire stations to this project, rather than to the Downtown Space Plan projects. Similarly, on August 18, 2003, Council directed that the proceeds from sale of the Kaufman Annex be deposited in the Kaufman Trust Fund, for support of the Kaufman Center. As a result of these actions, the sale of these surplus assets is no longer an element of the Downtown Space Plan. On October 29, 2003, council held a work session on the Downtown City Space Plan, focusing specifically on the need for a new Police services building. Council directed staff to bring more specific recommendations back on the preliminary planning, cost and financing of a new Downtown Police Services building. During the work session, several Councilors expressed the desire to have more information on how a new Police building would fit with future plans to replace City Hall, and to develop a more general "civic center" concept. On November 17, 2003, staff presented the Multi-Year Financial Plan to the Budget Committee. This plan identifies both the capital and operating needs for the entire organization over a six- year period. The police building is listed as a high priority need in the MYFP, and replacement of City Hall is also included as a future project. On November 19, 2003, council held a work session on sequencing of financial measures to be presented to the voters. The staff materials for that work session indicated that a bond measure for a police building would be the next potential item to be presented to voters in November 2004. Council discussed the materials, but did not provide any direction or make any decisions at the work session. On February 25, 2004, council held an informational work session on the Civic Center Design Charrette and the Mayor's Civic Center Visioning Committee. L:\CMO\2004 Council Agendas\M040428\S040428A. doc ATTACHMENT B Civic Center/Police Building Financing Plan SOURCES OF FUNDS General Obligation Bonds: The City could ask voters to approve a property tax levy to repay general obligation bonds. Under Measure 50, a bond measure would be subject to double- majority requirements, which includes an exception if the bond election is held at a November general election in an even numbered year. GO Bond proceeds cannot be used for furnishings and equipment. Other Borrowing Methods: If the City had a dedicated revenue stream to put towards this project, other borrowing methods could be used. Attachment C includes a summary of the alternate borrowing methods that might be available for a large construction project. Capital Levy: The City could ask voters to approve a capital levy of up to 10 years to pay for the costs of capital construction. The levy would exacerbate Measure 5 compression in the General Government category of taxes and cause a loss of taxes levied for the library and youth/schools programs. In addition, the funding would come in over time, rather than up front when capital construction is occurring. For those reasons, this option seems undesirable. Facility Reserve: The City has been saving money for several years towards construction of a new civic center, including a police facility. The current balance in the Facility Reserve is approximately $6million. Capitalization Charge for Downtown City Offices: General City office space in the downtown area pays a capitalization charge that's meant to help offset a portion of the replacement cost for downtown City office facilities. The annual charge is deposited into the City's Facility Reserve. Net Freed-Up Lease Payments: If sections of Public Works that are located in private lease space are moved into City-owned space, the annual amount that is paid in lease payments (net of the operations and maintenance costs on the new space) could be re-directed towards debt service payments on bonds issued for the new space. Rate Increases for Services Housed in City Hall: Those services that are rate-based, such as stormwater, wastewater, and so on, could increase their rates to contribute funds towards annual debt service payments on bonds issued to construct a proportionate area in the new City Hall. Service Reprioritization in the General Fund: Services in the general fund could be reprioritized to dedicate a portion of the resources towards annual debt service payments on a civic center or police facility. This will probably need to be done in order to pay for higher operating and maintenance costs on the facilities too. CDBG Non-Profit Grants: CDBG funds could be used for leasehold improvements on any space built into the project for the provision of social services by non-profit entities. The amount L:\CMO\2004 Council Agendas\M040428\S040428A. doc available would be fairly small, and would include some significant restrictions on the use of funds. Homeland Security Grants: There may be funds available for public safety purposes from Homeland Security grants. Sale of Tax Credits: There are tax credit programs that might be available for this project. One option is an energy tax credit program, which the City is currently experimenting with on Fire Station # 1. Urban Renewal Funds: If a project is located within the boundaries of either urban renewal district, it is possible that a portion of the project cost could be paid from tax increment funds. The Riverfront District plan amendments that would allow funds to be used for this project are currently in the process of being challenged by a voter referendum. The City Council would have to approve urban renewal plan amendments for the Downtown District in order to use tax increment funds for any project other than the library in that district. Asset Sales: One option might be to consolidate as much City office space as possible. In that case, other City-owned facilities might be available for sale, such as 858 Pearl Street or the Atrium. If a non-City owned site is chosen for any facility, the existing City Hall and/or the parking lot across the street might be available for sale. It should be pointed out, however, that asset sales typically take several years to accomplish, and they frequently do not generate the level of proceeds that have been estimated; therefore, it is difficult to guarantee this funding source for projects unless the sale has occurred and proceeds are already in the City's coffers. Telecommunications Tax Funds: The City's telecommunications tax could be used to pay for new City technology related projects and purchases, such as installing fiber to the site, purchasing and installing telecommunications equipment, incorporating a back-up 911 center, or undergrounding existing utilities. Donations: The City could solicit donations directly, or any partner social service agencies could solicit donations to help pay for a share of their space in the new facility. County Road Fund: If there are any significant road projects included within the Civic Center plan, the City could apply for County Road Fund money. Parks & Open Spaces Bond Proceeds: The Parks & Open Spaces Bonds approved by voters in 1998 can be used to purchase parkland and build parks. Although most of the money has already been programmed for specific projects, there might be some funding available to help with development of a new park block, for instance. Systems Development Charges: A small amount of SDCs for park projects might be able to be used for development of additional park blocks. The transportation projects envisioned for around the civic center would most likely not qualify for SDC funding. L:\CMO\2004 Council Agendas\M040428\S040428A. doc Other Miscellaneous Funds: The City will continue to look for opportunities to set funds aside for this project, including any one-time dollars that are identified over the next few years. Other Government Agency Funds: If other government agencies co-locate at the civic center, or want to share facilities, they would bring their own funding sources to the project. This could include bringing land owned by other agencies to the project. USES OF FUNDS Police Building: The building area for a police headquarters was programmed at approximately 93,000 square feet and the initial project cost estimate was about $30 million. The building could also include lease space for social service agencies, a day care center, a back-up 911 center, and co-location or joint use opportunities with other agencies. The overall project could include other elements, such as street and sidewalk improvements, additional park space and a parking structure. Some of these options are described below and none of them are included in the initial cost estimate. City Hall: The estimated building area for a new City Hall is approximately 280,000 square feet. The cost has not been updated for several years and would be affected by the level of consolidation that's achieved in the facility. This facility could also provide potential opportunities for co-location or joint use with other government or non-profit agencies, as well as additional green or open space for citizens to enjoy. Social Service Agency Lease Space: The City could build subsidized lease space for certain key social service agencies that have a high degree of contact and interaction with the police. This could result in operating efficiencies for both the City police and the County Sheriff' s office. Day Care Center: It might be possible to include a day care center for City employees and others who work in the neighborhood. Parking Structure: The civic center development will result in increased parking demand in the downtown area. Additional private development and construction of the Federal Courthouse will also increase demand for parking in the downtown area. Street and Sidewalk Improvements: The Downtown Plan envisions a civic street that has a more developed presence than the current 8th Avenue. The street improvements could include wider traffic lanes, bike lanes, additional trees and amenities, and wider sidewalks. Park Blocks Improvements: The project might include relocation of parking from the County's butterfly parking garage to another area, and redevelopment of a portion of that block into additional park area. The increased park blocks could be used to expand the area available for Saturday Market. Land Purchase: If the facilities are located on non-City owned property, the budget will need to include the cost of purchasing land. L:\CMO\2004 Council Agendas\M040428\S040428A. doc Demolition/Site Prep/Relocation Costs: Depending on the property chosen for the civic center or police building, there could be demolition costs, environmental remediation, or other site preparation costs. There might also be a cost for relocating an existing business or facility. Back-up 9II Center: The City has been looking for opportunities to locate a back-up 911 center that could serve in the event that the 2nd and Chambers primary location is unavailable for any reason. Telecommunications/Technology Projects and Equipment: New City technology related projects and purchases could be funded from the City's telecommunications fee funds. Green Building Issues: The project could include additional green building features designed to reduce environmental impacts and decrease operations and maintenance costs in the future. It could also include certification under the US Green Building Council's "LEED" program. Added energy savings features could qualify for energy tax credits. Other Furnishings, Fixtures & Equipment: Computers, furniture, and other kinds of furnishings, fixtures and equipment that are not permanently attached to the facility cannot be funded with General Obligation bonds. Transition Costs: During construction, it might be necessary to relocate some functions from their existing locations into rental space, which would cost more than the operations and maintenance costs now being paid for occupying City Hall. There will also be costs to move functions from the old space into a new building. Bond Issuance Costs: If the facility is funded in part with bond proceeds, a cost factor for bond issuance costs must be included. This will cover such things as bond offering documents, credit rating update, bond counsel and financial advisor fees, and so on. Other Government Agency Space: Other government agencies might be interested in an opportunity to co-locate at the civic center site or to build a joint use facility. L:\CMO\2004 Council Agendas\M040428\S040428A. doc ATTACHMENT C Borrowing Methods Summary Direct Borrowing Methods Because the City is a highly-rated municipal entity in Oregon, there are several very flexible and inexpensive direct borrowing methods available directly to the City for funding capital projects. A summary of those methods is included below. General Obligation Bonds: General Obligation (or "GO") bonds, which are approved by the voters, are the least cost borrowing method for any construction project. This kind of bond is well understood by underwriters and investors, and as a result, the issuance costs are low. It is also the most secure kind of borrowing that a government can enter into, so the bond ratings are the highest and the interest rates demanded by investors are the lowest rates of any kind of borrowing. In addition to being the most cost effective method, this form of borrowing also comes with a revenue source to repay the bonds - the ability to levy a property tax. The City's debt policies limit GO Bonds to projects that will benefit the entire community, rather than a subset. Historically, the City has used GO bonds to borrow funds for construction of projects like City Hall, parks and open space projects and public safety facilities. Limited Tax Bonds: If the City has an identified revenue source to repay a borrowing, such as parking revenues, limited tax bonds may be issued to pay for the project. Limited tax bonds are rated one notch lower than the City's GO Bonds, and are slightly more complicated, so the costs are slightly more than for GO Bonds, but are still very low compared to other borrowing methods. The lower cost is due primarily to the security which is the "full faith and credit" of the City, usually interpreted as the General Fund resources, although the promise is a bit broader and covers all "legally available" funds. These bonds are authorized by resolution and are therefore not subject to citizen referral. There must be a specific authorization in the statutes for the type of project that is to be funded with the bonds. The amount that can be borrowed using this method will depend on the revenue stream available to repay the debt and the interest rates at the time of the borrowing. Historically, the City has used Limited Tax bonds to borrow funds for to pay off the unfunded accrued pension liability, parking garages and assessment projects within the City limits (also see Assessment Bonds) Certificates of Participation (COPs) or Lease-Purchase Financing: COPs or lease-purchase financing can be appropriate for certain kinds of real property projects. This financing method is more complicated and less secure than GO bonds, so the issuance costs and interest rates are higher. There are two types of COPs financings. Full Faith and Credit Obligations ("FF&C"): These are certificates of participation in a financing agreement. The "full faith and credit" of the City is provided as security. These securities are also rated one notch lower than the City's GO Bonds. This kind of L:\CMO\2004 Council Agendas\M040428\S040428A. doc obligation is often chosen when there is no provision in the statutes to issue limited tax bonds for the project being financed. COPs: Prior to the mid 1990s when participations in financing agreements were authorized in the statutes, most COP borrowings were participations in a lease agreement and issued on a non-appropriation basis, meaning there was a "walk-away" clause which made it legal to terminate the financing prior to the final maturity, without this being a default. Even though the full faith and credit was often pledged as security, these types of financings were considerably more expensive. While this type of financing is still available, the significantly higher cost and the usual requirement to pledge the asset as collateral has made this type of financing virtually disappear in Oregon. The amount that can be borrowed using this method will depend on the revenue stream available to repay the debt and the interest rates at the time of the borrowing. Historically, the City has used COPs or lease-purchase vehicles for the library, the acquisition of the Atrium and the Santa Clara Fire Station. Because COPs have gotten bad media attention due to failed projects in the past, the official names assigned to these borrowings are usually "Full Faith and Credit Obligations", rather than COPs or lease-purchase transactions. Revenue Bonds: If there is a reliable source of revenue available to pay debt service, revenue bonds may be an appropriate choice for borrowing. Often, revenue bond issues require additional security features, such as bond insurance, a debt service reserve fund, restrictions on issuing additional bonds paid from the same revenues and a debt service coverage ratio (i.e., projected revenues must exceed the debt service payment by a certain percentage). Most revenue bonds utilize the coverage ratio in a "rate covenant" which commits the issuer to raising its rates on the revenue sufficiently to cover all operating costs and debt service by this margin. Revenue bonds are subject to referral by the voters. Revenue bonds are more complicated and costly than either GO or Limited Tax Bonds. Revenue bonds are usually chosen when it is important that the users of an enterprise service should pay the costs of the borrowing, rather than general taxpayers. The amount that can be borrowed using this method will depend on the revenue stream available to repay the debt, the types of security required by the bondholders (i.e., the debt service coverage ratio and reserve requirements) and the interest rates at the time of the borrowing. The City has historically issued revenue bonds for the "non-public" areas of the airport and for EWEB. Assessment Bonds: For local improvement districts that levy assessments, the City can issue assessment bonds. Usually assessment projects are funded with Limited Tax Improvement Bonds (see Limited Tax Bonds) where the bonds are paid from assessments but secured by the City's full faith and credit, thereby obtaining the lowest interest cost. The payment on assessment bonds is guaranteed by liens placed on properties that benefit from the capital project. These bonds are very difficult and costly to market and have not been used often in Oregon. L:\CMO\2004 Council Agendas\M040428\S040428A. doc Because policy makers did not want to pledge the City's assets to pay debt for projects outside the City limits, the City issued assessment bonds for sewer projects outside City limits in the Santa Clara area. While the debt service on those assessment bonds are paid through assessments to private property owners, the City has improved the credit rating of those bonds by pledging sewer system revenues as additional backing. Tax Increment Bonds: For projects located within an urban renewal district, it is possible to borrow against the incremental property taxes generated within the district. Because the issuer has no ability to increase the taxes in case of a shortfall, this kind of borrowing is considered more risky than the other types mentioned so far and treated like revenue bonds, so the costs are higher. Bondholders will usually require additional security features similar to revenue bonds, such as bond insurance, debt service reserves, additional bonds restrictions and debt coverage ratios. Here the coverage ratios are often expressed as "collection covenants" where the issuer commits to levying taxes higher than the debt service by the margin, provided there is sufficient room within the allowable tax increment. The project must be located within the district boundaries and be included in the plan. There must be sufficient incremental property tax available at the time of borrowing (not dependant upon future development) to repay the debt. The amount that can be borrowed using this method will depend on the revenue stream available to repay the debt, the types of security required by the bondholders (i.e., the debt service coverage ratio and reserve requirements) and the interest rates at the time of the borrowing. Historically, the City has used tax increment bonds for the community conference center. Section 108 Loans: Section 108 is the loan guarantee provision of the Community Development Block Grant (CDBG) program. It allows local governments to transform borrow up to five times their annual CDBG entitlement. Local governments borrowing funds under the Section 108 program must pledge their current and future CDBG allocations to cover the loan amount as security for the loan, but other revenues may be used to actually repay the debt. For Eugene, the maximum Section 108 borrowing capacity would currently be approximately $8 million. Proceeds of a Section 108 borrowing must be used in a CDBG eligible project. A good candi- date for this type of financing would have other revenues available to repay the debt, so that the community does not have to lose the ability to use CDBG funds for other high-priority community needs such as affordable housing and human services. The City has not used this borrowing method in the past. Borrowing Methods Involving the Private Sector as a Third Party "Public/private partnership" is a term that can mean many different things. It can include privatization of services, direct investment of public funds in private enterprises, joint development of projects, and other approaches to providing on-going services or funding capital projects. There are a number of factors that should be taken into consideration when choosing to employ a public/private partnership for a construction project. For instance, the public and private sectors L:\CMO\2004 Council Agendas\M040428\S040428A. doc have very different motives for operating, ways of measuring their success, and expectations about the kind of process needed to complete a project. Public projects that are completed in conjunction with the private sector can have significant complications around public bidding laws, prevailing wage laws, and tax laws. In addition, there is a prohibition around the "lending of credit" between a government and a private sector entity that can cause some approaches to not work well. These limitations can cause public/private projects to become extremely complex and, therefore, not very understandable for the average citizen. In addition, citizens can often perceive a public/private partnership to be an inappropriate subsidy to the private sector. Staff has discussed some of the options for public/private partnerships on capital project financing with the City's bond counsel and financial advisor a number of times over the past several years. The advice consistently given by both advisors is that these kinds of arrangements involving an additional private sector party for borrowing money are entered into for reasons other than to achieve the lowest cost financing. They are generally entered into because a there is not legal authority or political support to undertake a borrowing, or because the municipality is out of room under borrowing limits. The line between a borrowing method and construction method on some types of public/private partnerships can be fuzzy. Attachment E includes information about types of public/private partnerships on the construction management side. The public/private partnership methods set out below are methods of borrowing for the public sector partner. There are other types of public/private partnerships that are available for the private sector to borrow funds, but those are not discussed here. Conduit Financings: In some states (such as Washington), municipalities do not have the flexibility that Oregon gives to its municipalities in terms of tax-exempt borrowing methods. In order to enter into a lease type transaction, municipalities must engage a third party to implement the borrowing. This is sometimes called a "63-20" financing, which refers to a section of the tax code. 63-20 bonds are issued by the non-profit and the municipality's role is to make lease payments to the non-profit and the non-profit uses that money to pay the debt service. The main reasons to do this type of financing are to avoid debt limitations and public purchasing rules for the project construction and/or equipping. Because there are additional parties to the transaction, the fees and issuance costs are higher than if the municipality were able to borrow directly from the credit markets. In addition, the third- party conduit issuer may have a degree of control over the financing and the construction of the project. There may be times when this option is a good choice because there is a reason (other than to achieve the lowest cost) to package the financing of a facility with a private developer's participation in the construction of the facility. In this type of financing, the governing body gives up a significant amount of control over the project. L:\CMO\2004 Council Agendas\M040428\S040428A. doc The City has not use this type of borrowing in the past. The City of Portland used this type of financing for the Public Services Building because COPs financings had not been fully developed in Oregon at that point in time. They have not used that financing method since. Lease Purchase: Municipalities in Oregon can enter into agreements with private developers to purchase buildings through a long-term lease. (The conduit financings described above are essentially a way for a government to enter into tax-exempt lease-purchase financings, when not otherwise allowed.) In a case where a municipality has annual funding available, where it is unable or unwilling to issue debt for a capital project, and where there is no direct access to COPs financing, this could be an appropriate avenue for borrowing. The City has used a lease with the private sector for operation of the Conference Center. The City has also leased office space from the private sector. The City has not used a lease-purchase with the private sector (rather than through the bond markets) as a way to borrow funds for a public construction project, however, because it is more expensive than other direct borrowing methods. Joint Development: This type of public/private partnership is not a borrowing method, but rather a cooperative approach to acquisition or construction of a capital project. The exact form that this kind of partnership can take can vary widely, depending on the parties involved and the type of project being undertaken. This might be a successful approach when there are features in a mixed use development that are more appropriate owned and managed by the private sector, such as retail shops or housing. The mix of public and private uses must be compatible. Historically, the City has used the joint development approach for the Broadway Garage project, where the City paid for and developed the parking and the private sector paid for and developed the housing and retail on top of the parking. The private sector received a tax exemption for the housing, as a way to encourage mixed use development in the downtown. The City also entered into a cooperative agreement with the Hilton regarding the conference center. Joint public/private development was proposed for a new library in the early 1990's, but voters did not approve the plan. Choosing a Borrowing Method The chart on the follow page sets out some factors to consider when choosing a borrowing method. L:\CMO\2004 Council Agendas\M040428\S040428A. doc Comparison of Borrowing Methods Is on-going What part of funding Is' there sufficient the community Are voters likely Is' it important to achieve Borrowing available to room under debt will use/who to approve a hal- the lowest possible bor- Other Factors limits' to include should pay for lot measure for rowing cost and interest Type make annual project borrowing? the project? rates? payments'? the project? GO Bonds No Subject to statutory Whole Voter approval First choice - lowest cost This borrowing method comes limits community required, with with a funding source to make benefits double majority the annual payments provisions Limited Tax Yes Subject to policy Whole Voter approval Second choice Statutes limit the purposes avail- Bonds limits if not self- community or not needed able to borrow under this pro- supporting subset gram COPs or Yes Subject to policy Whole Voter approval Third choice - FF&C lease- Lease- limits if not self- community or not needed purchase Purchase supporting subset COPS - can be very expensive Revenue Yes Subject to policy User pays Subject to citizen Can range from relatively May be used for projects Bonds limits if not self- referral of inexpensive to very expen- including but not limited to real supporting ordinance sive, depending on the property construction or project and revenue source acquisition Assessment Yes Subject to statutory Benefited Creation of More expensive; financing Can only be used for assessment Bonds limits party pays assessment depends on nature of projects district subject to property assessed remonstrance Tax Yes Not Applicable (no Whole Voter approval More expensive Can only be used for projects Increment statutory or policy community or not needed included in the UR plan Bonds limit) subset Section 108 Yes Not Applicable Whole Voter approval More expensive Project must be eligible for Loans community or not needed CDBG funding. subset Conduit Yes Subject to policy Whole Voter approval Very expensive due to com- May be used if there is no statu- Financing limits if not self- community or not needed plicated relationships and tory authority to issue COPs; are supporting subset additional parties there reasons to give up control over the project? Lease Pur- Yes Subject to policy Whole Voter approval More expensive than GO May be used if there is no chase with limits if not self- community or not needed bonds, even with conduit statutory authority to issue COPs Private Sector supporting subset financing Participation L:\CMO\2004 Council Agendas\M040428\S040428A. doc ATTACHMENT D Construction Methods Summary There are a number of ways that capital construction projects can be managed to deliver projects to a public owner. On a number of occasions, Council has expressed interest in how different project delivery methods might be used to improve the City's experience in construction of major public facilities. A description of these alternate project delivery methods, and their strengths and weaknesses from the owner's perspective, is provided below. The City's experience with using some of those methods follows the descriptions. CONSTRUCTION METHODS Design/Bid/Build: The typical project management method used by the City of Eugene is the traditional approach that has three independent project entities - the owner, the design consultant and the construction general contractor. The key aspects of this method are clear lines of accountability for each entity. The design of a facility is completed prior to bidding. While having complete plans decreases uncertainty for the construction contractor about what will be required for construction of the project, this also means that the overall timeline for the project is extended as there is no overlap between the design and construction phases. Public competition for the construction contract helps ensure that the owner obtains the maximum value for the lowest cost. Project cost is determined when the bid for construction is complete, although later project changes may increase final project cost. However, the requirement that the owner use the "low bid" contractor creates the potential pressure on the contractor to build with limited quality control to preserve profits. Partnering: The goal of partnering on a project is to increase the collaboration between the owner, the design firm and the general contractor. Prior to the start of construction, the three parties meet to form a commitment that the primary goal of the project is to produce a quality project on time and on budget. At the same time, agreements on open communications are made, and a system put in place to address project questions and issues prior to initiating change orders or formal contract dispute resolution procedures. The intent of this process is to maintain the most positive working relationships and reduce the overall cost and time impact of construction project administration, while retaining the accountability of the each of the parties. In cooperation with WBGS Architects and Planners, and the John Hyland Construction, Inc., this approach was used during the Library project with very positive results. Construction Manager/General Contractor: This method, also called an "At-Risk" construction manager, differs from the usual design/bid/build approach by involving the general contractor during the design process. The general contractor also negotiates a guaranteed maximum price for the project with the owner at some point in the design process. The advantage of involving the general contractor during design is that the contractor will understand the design requirements and is able to identify alternate construction methods that will reduce overall project cost while maintaining quality. Also, construction on some elements of the project can begin prior to completion of design, shortening the overall project timeline. The L:\CMO\2004 Council Agendas\M040428\S040428A. doc owner can select the general contractor based on qualifications, rather than low bid. The general contractor becomes primarily responsible for ensuring that the project cost is within budget, but setting a guaranteed price prior to completion of design can mean that the price reflects a higher level of uncertainty. As a result, there can be disagreements later in the project over what was intended in the design at the time the guaranteed maximum price was set. Construction Manager/Owner's Representative: The City can retain a construction management firm to act as the owner's agent. In a consulting capacity, the owner's representative provides advice on construction issues, schedule and cost during the design process, and can bid construction elements of the project during the design process. However, there in no general contractor in the usual sense. The owner's representative manages the bidding process, but the City would have multiple contracts directly with different construction trade contractors. This project delivery method is also known as the "multiple prime contractors" method, reflecting the fact that there are several independent contractors working on a project. Having multiple contracts increases the risk of schedule and budget complications during the project, and increases the management requirements for the owner's representative. This method is most applicable for organizations that do not have in-house project management expertise. Design/Build: The term "design/build" has been used to refer to a variety of projects that include public/private development, lease-to-own financing, and other relationships between an owner and the firm that designs and builds a facility. However, a "design/build" project simply means that the owner contracts with a single firm to both design and build a facility. Prior to awarding a contract, the owner provides design criteria, programming information and functional requirements to potential bidders. Typically, an owner awards a project to a firm or joint venture, based on qualifications and experience of that firm. A guaranteed maximum price is set, and the firm begins design of the facility. There is no "market check" on the value of the project, as the price is set before significant design work is completed. The main advantages of having design and construction within a single firm is potentially shortening the project timeline, and having a fixed price at the outset. However, the owner has limited input into the design process, there are no "checks and balances" between the designer and the construction contractor, and no control over quality or features other than what is included in the initial documents provided at the time of bidding. In a pure design/build project, the focus of the building firm is to preserve profits by designing to the minimum required to meet the contract. Bridging: To address the problem of limited control over the quality of a design/build project, an owner can complete partial design prior to awarding a design/build contract. In this currently evolving method, which has become known as "bridging", the owner hires a design firm to develop the design of a building. An RFP is issued for the project, and a design/build firm is hired to complete construction drawings and construct the facility. This method combines a higher level of quality control for the design of a building with the advantages of a fixed price and potential "fast-tracking" of the project during the final design phase. However, the owner has the added cost of hiring a design firm to provide the initial design development and monitor the design/build firm's performance to that initial design during the life of the project. L:\CMO\2004 Council Agendas\M040428\S040428A. doc The attached table titled "How to Get the Best Value for Your Construction Dollar" summarizes the advantages and disadvantages of a variety of construction delivery methods, and provides a flow chart of the major project relationships for each type of project. This table was prepared by a consulting firm for use by school districts, but the information is applicable to the City of Eugene. Following this is a matrix that summarizes how each of these project delivery methods relates specifically to the City. SUMMARY OF THE CITY OF EUGENE'S EXPERIENCE The City of Eugene has had experience with most of the major project delivery methods in recent years. This includes a design/build project for construction of the Pearl Street Garage and the Bethel Skate Park, a construction manager/owner's representative project with the Airport Terminal Expansion project, the Construction Manager/General Contractor method used for the current Roosevelt Police Facility project, and a modification of a traditional design/bid/build project called "Partnering" on the downtown Library. A form of public/private partnership was used on construction of Broadway Place, with each entity responsible for construction of its own part of the development. The overall lesson from this experience has been that gaining schedule and cost predictability of these different forms of project delivery usually requires a trade-off in the City's control of the quality or functional performance of the project. None of the project delivery methods completely eliminates the City's need for oversight of the project. The experience, skill and commitment of the construction firm become the critical elements in ensuring a good working relationship between the City and the construction firm, and eventual success of the project. L:\CMO\2004 Council Agendas\M040428\S040428A. doc Often referred to as Design/Bid/Build, Many aspects of this delivery process CM at-Risk allows the Owner to inter- CM Agency differs from CM at-Risk Under the design/build delivery sys- Bridging combines the traditional design this method is the one with which most are similar to competitive bid, with two view and select a fee-based firm to : in the lack of a guaranteed maximum tem, the builder and architect are one process with design/build delivery. owners are familiar. It is a linear process major exceptions. First, proposals are manage construction before design is price. Here, the Owner contracts with entity hired by the school to deliver a The Owner selects an architect who where one task follows completion of evaluated against published criteria, one complete. The construction manager and both a construction manager and an completed building. A guaranteed develops the design to the 30%-50% another with no overlap. Plans and of which is price. An award is made to the architect work together to develop architect, but signs separate contracts maximum price (GMP) is usually document stage. The owner then selects specifications are completed, then the firm providing the best value. Second, and estimate the design. A guaranteed with each subcontractor who will furnished at the very beginning based a design/build team to complete design advertised for bids. Contractors bid the Competitive Sealed Proposals allow maximum price (GMP) is provided by actually perform the work. on design criteria prepared by the school and construction of the school. This project exactly as it is designed with modifications to the proposals before the CM, who then receives proposals from district. The architect/builder then de- process is best suited to larger, new or the lowest bidder awarded the work. the bid is accepted, which allows the and awards contracts to subcontractors. STRUCTURE velops drawings that fulfill the criteria renovation projects that are schedule owner to negotiate a change of scope The final construction price is the sum while staying below the furnished GMP. sensitive and difficult to define. STRUCTURE before accepting the bid. of the CM's fee and the subcontractors' Upon completion, the school is either bids. The Owner will not pay more leased or turned over to the school dis- STRUCTURE  STRUCTURE than the GMP, and retains any savings, trict, depending on the funding source. [] ~ STRUCTURE STRUCTURE SCHEDULE ~ SCHEDULE ~ SCHEDULE ['- ~-50% DESIGN DEVELOPMENT ADVANTAGES j ~ ~ , SCHEDULE ADVANTAGES SCHEDULE  · CM selected on quality rather than ~0-15% DESIGN CRITERIA ADVANTAGES · Familiar delivery method ADVANTAGES low bid ~tl~k'titl~l~II)~i'iil{lI · Easy process to manage · Early CM involvement in estimating · Single point of accountability for · Defined scope * Flexibility in contractor selection · Single point of accountability · Enables the scope to be redefined to and constructability ADVANTAGES final design and construction · Lowest price accepted fit the budget without having to re-bid ADVANTAGES · Owner selects architect, CM and · Potential for faster delivery · Good for uncomplicated projects · Single point of accountability subcontractors · Single point of accountability for · Owner gains better understanding of that are budget sensitive, but are not · Allows award based on value rather · Construction firm selected by inter- · CM responsible for delivery of design and construction design before awarding D/B contract schedule sensitive and not subject to than price alone: lowest price usually view based on quality rather than project in budget and on schedule · Enables fast-track delivery (construc- · GMP eliminates Owner concern with change accepted low bid · Enables fast-track delivery (construc- tion begins before design is complete), cost overruns · Good for uncomplicated projects · Early CM involvement in estimating tion begins before design is complete), saving time DISADVANTAGES that are budget sensitive, but are not and constructability saving time · Early GMP facilitates alternative DISADVANTAGES schedule sensitive · Owner selects architect and CM financing methods · Linear process means longer separately and may be involved DISADVANTAGES · GMP elirnirmtes Owner concern with · No check and balance between schedule DISADVANTAGES in selection of subcontractors cost overruns designer and builder · May require re-design or re-bid to · All work except CM fee is bid · CM has no contractual responsibility · Design/build team only meets meet budget after bid · Linear process means longer schedule · Single point of accountability: with subcontractors DISADVANTAGES minimum criteria standards for · No control over contractor selection · Some control over contractor CM at-Risk signs contracts with · Final price is not established until all quality · No control over subcontractor selection all subcontractors packages are bid · No check and balance between · Potential for conflict between selection · No control over subcontractor · Guaranteed maximum price · No guaranteed maximum price architect and builder architect and design/builder · No budget input from contractor selection · Enables fast-track delivery (construc- · Owner manages multiple contracts · Owner must select a team rather · Not suitable for small projects or · Not suited for projects that are ° No budget input from contractor tion begins before design is complete), · Cost may be higher with multiple than the best architect and best those subject to change sequence, schedule or change prior to bid saving time prime contractors, builder sensitive · Not suited for projects that are · Good for large, complex projects · Design is completed after GMP sequence or schedule sensitive ~s g~ven DISADVANTAGES · Difficult to control quality because design/build team must only meet · Negotiated CM fee is not competi- minimum criteria standards tively bid · Not suited for small projects Attachment D Comparison of Project Delivery Methods Criteria Project Delivery Method Design/Bid/Build Partnering Construction Manager Contract Manager as Agent Design/Build Bridging (Modified (CM/GC) (Multiple Prime Contractors) Design/Build) Accountability++ Highest accountability ++ Highest accountability + High accountability between - CM acts as owner's agent, so -- Least project control by - Using design consultant between owner, designer between owner, owner, designer and owner may not be directly owner, as most design to prepare partial design, and contractor designer and contractor. As CM involved at involved in many design and and construction issuesprior to contracting with ~ contractor design phase, ability to identify contract issues. As owner are resolved internally by design/build firm, and resolve design issues contracts with several prime the construction provides more owner early improves owner's control contractors, coordination contractor input in final product. of project outcomes, between contractors can However, two separate create accountability issues, design firms are involved for the remainder of the project. Cost +/- public bidding ensures +/- public bidding ensures + Involvement of construction +/- If construction started prior to +/- As design and +/-Owner must duplicate most building for lowest most building for manager in design process final design, phasing of construction are withinsome design costs, in cost, but full cost not lowest cost, but fullshould lower total cost.construction elements means one firm, total costs order to improve control known until end of cost not known until However, if project cost is full construction costs not should be lower. Project over quality of project. project end of project fixed in the design phase, CM known in advance. Public total cost is fixed during Since more conceptual may include higher bidding ensures most building design phase, without design work is available contingency than if design for lowest cost, but multiple direct cost competition, when the design/build were complete. Public bidding contracts reduces overall Contract is awarded on contract is awarded, the of construction elements can control, firm qualifications andguaranteed price for a be required to gain cost experience, so there isbuilding should be more competition, no public bidding predictable. Time Sequential design and 0 Sequential design and + Beginning construction prior to + Can save time if elements of ++ As design and + Bridging requires some bidding take more time; bidding take more completion of design, and project are bid prior to construction are within a design work prior to change orders during time; more addressing construction completion of design single contractor, the contracting with a design construction can include cooperative approach efficiency during design project schedule can bebuild firm, so not all the time delays during construction shortens overall project managed from the schedule advantages of phase avoids delays schedule, inception of design, design/build are gained. Quality + Highest control by owner ++ All parties commit to +/-Early involvement of 0 Quality related to -- Without checks and - Development of basic and designer during quality and positive construction manager ineffectiveness of the balances between design criteria and intent project life, but takes resolution of issues as design and cost estimating construction manager/owner'sdesign and construction, provide more quality effort as contractor a basis for contractual should create consensus on representative in managing owner has limited control control than a pure selection based on bidand working quality; during construction, design and multiple on quality design/build project. not performance relationships CM/GC may focus on costcontractors control at the expense of quality. City Staffing 0/-City has experienced0/- City has experienced +/-Staff requirement unchanged + Can reduce requirements on ++ Greatly reduces City+ Staff requirements Impact project management project management during design phase. Staff City staff dedicated to project staff requirement afterduring initial design staff with a recent history staff with a recent involvement changes frommanagement bid is awarded, phase similar to usual of similarly-sized history of similarly- project administration to design/bid/build process. projects. Would require sized projects. Would quality control during Staff role limited to allocation of staff require allocation of construction phase, general design oversight resources for the life of staff resources for the during construction the project life of the project phase. Impact on City's Highest risks to City are Increased Reduces risk of change Increased project Project cost is Project cost is Risk budget, schedule control collaboration to orders due to flaws in coordination and quality risks, negotiated, not bid. negotiated, not bid. and capability of a reduce risk of delays construction design, butdue to lack of single general Limited City influence on Added cost of two desigr contractor selected byand increase budget increases risk of CM/GC contractor. Total project cost building design and firms involved in the the Iow bid process, control for all parties cutting costs and quality not known until final contracts quality after the contract project, and potential during construction, are bid. is awarded, conflicts over design intent during constructior phase.