Rec Center: $58.3 Million

After the design preference was settled back in July, the costing out of the Rec Center project has been able to proceed with more certainty.  As eagle-eyed observer Lorne has noted on that July post, the new numbers going to Council are sizable--more sizable than expected just a couple of years ago.  The parameters from the Staff Report are:

The project hard costs include local prevailing wage construction costs based on a design-bid-build procurement process with competitive bidding for all sub-trades of the construction work, general contractor’s job site management costs, general contractor’s insurance and bonding costs, and general contractor’s profit. The project soft costs include allowances for engineering and design fees, construction management, permit fees, inspections, and testing. The project contingency allowance is calculated at 10% of the project hard cost and 5% of the project soft cost, and the escalation allowance is calculated at 5% per annum on the project hard cost estimated to the midpoint of construction. Construction is anticipated to be January 2020 to December 2022.

I'm having trouble copying and pasting the chart from the Staff Report, so here are the totals by line item using the parameters above, i.e. all in with contingencies and escalations and rounded off to the nearest $100K:

Playground, Multi-court, Picnic Area            $2.4 million

Building, Associated Sitework, Parking        $49.9 million

Furniture, Equipment, Technology                $2 million

Everything Else                                            $4 million

                                                                   -------------

Total                                                            $58.3 million

Many thanks to Lorne for spotting this in a timely fashion.  We'll have to wait and see if there is any value engineering to be done.  In the meantime, here is the financing plan

In November 2017, the voters of Burlingame approved Measure I, a ¼ cent sales tax measure that will generate an estimated $1.75 million to $2 million annually. At the January 27, 2018 goal- setting session, the City Council discussed the City Manager’s recommended expenditure plan for the Measure I funds, which included an annual pledge of $1 million toward debt service on the issuance of lease revenue bonds. The City Council approved the recommendation on February 20, 2018. An additional $1 million annual General Fund transfer was approved in the 2018-19 fiscal year budget, also intended to fund the debt service, to allow for a lease revenue bond issuance of approximately $30 million for the Community Center project.

Comments

[hollyroller@gmail.com]

Dear Joe/Russ,
How are "Vulgar/Irrelevant Comments" determined?
I love this site and it provides lots of fun, as well as important information.
How is the Editing done?
That's all.

[Editor]

It's done very well, thank you.

[hollyroller@gmail.com]

Touché'

[Lorne]

Just an update: The City Council has been trying to “value engineer” the overall project cost to a max of $50 million. However, during the most recent council discussion on July 1, an additional $2 million of staff-recommended add-ons were approved, bringing the new total estimate to $52 million. Coincidentally, it was announced at the council meeting that a capital campaign committee has been formed to raise $2-$2.5 million in private donations.

Importantly, the above $52 million estimate does not include the interest cost of an eventual $30 million bond issue to partially pay for this project (this is the max capacity the city has to debt finance using $ from the Measure I sales tax and additional contributions from the general fund).

Assuming an average 20 year bond issue (consistent with a previous assumption by the city’s financial advisory firm, PFM) and a 2% interest rate (in-line with current investment grade municipal bond rates), the interest cost could be about $7 million, bringing the total project cost closer to $60 million. Of course, we won’t know what the interest cost will be until bonds are actually issued, as it will depend on the interest rate environment at the time.

Finally, all of the above relates only to the upfront capital cost. I don’t believe I have ever seen estimates of what the ongoing operating costs of the new center will be.

Here’s the most recent project budget that was presented at the July meeting:

https://burlingameca.legistar.com/View.ashx?M=F&ID=7339610&GUID=C47F015E-A733-44D3-A8D3-9538C69AABD0

[Lorne]

Actually, the assumed interest cost would be closer to $6 million in my example above. My apologies.

[Just Visiting]

With interest rates still at historical lows, isn't now the time to borrow for capital improvements? Isn't that the financially sound approach? Capital improvements ARE expensive, that's why entities borrow and governments bond for them. There's nothing unique about that. Shouldn't our government use this opportunity to undertake those capital projects?

Or, alternatively, should the City simply abandon capital projects, and allow the rec center, City Hall, etc. to continue their deterioration?

[Bruce Dickinson]

Ok, time for a Bruce Dickinson teaching moment! Far more than the interest cost of capital improvements, the City should be a lot smarter with respect to three things:

1. Not overpay for "trophy" buildings that are setting records in terms of the dollar per square foot constructed. Something more modest may be in order for something such as a rec center that is more in line with what is there now (it can look nice but doesn't have to be the next Trump Tower).

2. The City should engage in aggressive capital improvement programs during a recession or downturn. When you do it a peak of an economic cycle you will overpay for materials, labor, architect fees, etc. We're building this Rec center at the peak pricing of all these things. And guess what? Interest rates tend to be even lower during a recession!

3. While bonds are being raised for this and other projects, the debt service comes from the City. Guess what the City also has to service? The underfunded pension and healthcare liabilities of current and retired city workers. This is also real debt, and when you have too much debt and you can't service it, then guess what happens? you go bankrupt! So there is a real limit to how much Burlingame can effectively borrow, especially considering the gross receipts of sales taxes, occupancy taxes, and property taxes are highly levered to the tech/bubble economy. Look how much revenues went down in 2000-2001 and 2008-2009. There was a lot of nail-biting at City Hall at that time!

Folks, it doesn't take a Captain of Industry, like yours truly, to come up with this stuff. Even Captain Obvious should be able to get it, but I fear that some of our city leadership may not have full the grasp and experience of smart decision making and figuring out the right timing to make those decisions!