MEMORANDUM 05-88

TO: Mayor Hornaday – Homer City Council

FROM: Walt Wrede

DATE: May 3, 2005

SUBJECT: Bid Award / Library

I. INTRODUCTION

The Agenda for the May 9^th meeting contains a resolution awarding the library construction contract to Jay-Brant Company. As you know from our discussion at the last meeting, there is a difference of $890,023 between the amount of money the City has in hand and the cost of the project. This is essentially the difference between the engineer’s estimate and the low bid.

The City staff has spent the last two weeks conducting research, consulting with attorneys, talking to federal funding agencies, and generally reviewing all of the City’s options regarding how we might bridge this gap. It is important to remember that we cannot negotiate with the contractor regarding possible cost savings and efficiencies until we actually award a contract. We believe that substantial savings can be found and that the contractor is very willing to work with us to find ways to reduce costs.

The purpose of this memo is to provide a recommendation and strategy to the Council on how the gap might be bridged through a combination of budget cutting and new revenues. First, lets review the current situation. The available funds shown below reflect what remains in the project budget for construction. Architectural costs have been backed out because those funds are largely expended.

FUNDS AVAILABLE 5/3/05

Sale of Library $500,000

Foundation Grants 1,325,000

Government Grants 2,246,043 (less architecture expenses)

USDA 30 Year Loan 1,700,000

Fundraising 640,920

Total Funds Available $6,411,963

PROJECT EXPENSES

Construction (low bid) $6,146,889

Architecture Services -- ($569,161 / expended)

Construction Management 315,000

1% Art 43,777

Site Work / Materials 115,000

Interim Financing / Interest --

Admin. And Legal Expenses --

Equipment/Furnishing 250,000

Contingency 431,320

Project Balance $7,301,986

Net ($7,301 - $6,146,889) < $890,023>

II. RECOMMENDATION:

The administration proposes to close the gap by taking the following steps:

NEW REVENUE

* Increase USDA Loan Amount to full authorization <500,000>

* Increase sale of Library to appraised value < 75,000>

BUDGET REDUCTIONS

* Take Deductive Alternative < 37,500>

* Reduce Equipment/Furnishing Budget <200,000>

* Reduce Contingency Budget <77,523>

Net (Budget Gap) $ 0

NOTE: The Contingency and Equipment/Furnishing line items can be reduced now because they were not part of the construction bid package. They were simply part of the City’s overall project budget.

III DISCUSSION:

As I noted above, the staff spent a great deal of time evaluating all of the available options. Following are some important considerations and assumptions that we rely on in making this recommendation.

• We have now secured official word that the City will receive the grant from the Economic Development Administration. This was the final big piece of the agency funding puzzle. ($1.1 Million)
• We have confirmed that the City can extend the term of the USDA loan from 30 years to 40 years. We can borrow an additional $500,000 at the same interest rate (4.5% or lower). This will increase annual loan payments by approximately $11,000.
• This proposal gets the Council to the point where it can award a bid. Once the bid is awarded, we can begin serious negotiations with the contractor about savings that can be found through efficiencies. All savings found will go initially toward restoring the deductive alternate (shelving) and then toward replenishing the project contingency fund.
• If the legislature provides any money for the project ($100,000 currently in House Capital Budget), that money will also go initially into the Contingency Fund.
• If there is money left over when construction is complete, it can be used to restore some of the things that were cut including the Equipment/Furnishings line item.

IV. STEPS TO IMPLEMENTATION

The steps the Council needs to take to implement this plan and award a bid to Jay-Brant are all included on the May 9^th Agenda. There are five library related action items on the Agenda and they are arranged so that you can deal with all of the money issues first before you take the vote on awarding the bid. The five steps are:

1. Introduce Ordinance 05-19: This ordinance accepts and appropriates an EDA grant in the amount of $1,115,000. This ordinance appears on the Consent Calendar.
2. Approve Ordinance 05-23: This ordinance accepts and appropriates $690,000 from private donations and foundations. Ordinance 05-23 appears under Public Hearings and is up for a hearing and second reading.
3. Approve Ordinance 05-28 (S): This is the ordinance that “upfronts” or loans money from the Special Projects Fund to the library construction fund to be repaid when the old library is sold. The substitute ordinance changes the amount to be loaned from $500,000 to $575,000 to reflect the appraisal. Ordinance 05-28 (S) appears under Public Hearings and is up for a hearing and second reading.
4. Adopt Resolution 05-56. This resolution authorizes the Manager to borrow an additional $500,000 from USDA at the same interest rate. It extends the term of the loan from 30 years to 40 years and brings the loan amount up to $2.2 million; the amount authorized by the voters. This resolution appears on the Agenda under Resolutions.
5. Adopt Resolution 05-58: This resolution awards the bid to Jay - Brant Company at the bid amount minus the deductive alternate ($6,109,390.50). This resolution also appears on the Agenda under Resolutions.