Second in a Special Series: Civic Center: "A Once in a Lifetime Opportunity" OR "Just Another Stupid And Expensive Idea"?
by Terry Jensen
(October 9, 2014) -- Can the City get a brand new "earthquake proof" City Hall building that costs taxpayers only what they're currently paying to operate and manage the Civic Center and the old "ready to collapse" building?
NOPE! It can't, and those claiming otherwise know or should know it!
City staff tells the Council and taxpayers: "A requirement of the project is that it will cost the City no more than the current $12.6 million on an annual basis, including an annual inflation index. So there will be no additional expense beyond the currently budgeted expense. As a result, there should be no additional financial burden on the residents of Long Beach."
BALONEY! This constraint isn't achievable and they know or should know it!
So, what's in the $12.6 Million sum that staff has told Councilmembers and taxpayers will pay for a new building, and how much does the city really have to pay for a new building?
There is a $31 Million debt -- with payments of $2.6 Million -- made in 2010 to refinance a previous 1973 LB Civic Center Revenue Bond used to "assist in the financing of a police headquarters facility, an emergency services system center and improvements to the LB Civic Center..." The City entered into a Facilities Lease dated 12/1/97 to facilitate the refinancing.
So, it seems a substantial portion of the bond actually paid for things other than the Civic Center Building and is NOT operating cost!
It is also DEBT, not EQUITY, and payments cannot buy anything.
The $2.6 Million annual payments go to the Bank and aren't available to pay for anything else for the next 13 years (until 2027).
As things currently stand, after 2027 the City will have paid off the debt and will have $2.6 Million annually to use as it pleases. It could even save it or perhaps hire a dozen police officers
However, if the P3 Developer and City defease the Bond so they can demolish City Hall, the City will end up making payments to the Developer, giving the Developer $2.6 Million for 27 yrs.
AND if the City does what staff recommends, instead of paying off the bond in 13 years and having free use of the money in year 14, LB taxpayers will instead be obligated to continue making the same payment for 40 years. Some deal eh!
*Take $2.6 Million off the $12.6 Million and you now have $10 Million*
City staff originally said they "want to get rid of costly property leases for off-site employees" and "remain cost neutral." Exhibit A in the RFP list "CANDIDATES" for relocation "cost $2.13 Million for 112,000 sf of leased space plus parking cost."
Oh Really! Unfortunately there are a few problems with what staff SAYS compared to what they SHOULD do.
The RFP indicates only 90,000 square feet of relocated departments will be in the new civic center project NOT 112,000 s.f. If so, take off $430,000 of "savings."
The average cost of the remaining "candidate" leases is only $1.59 s.f. and the largest lease (26,100 s.f.) only pays $.50 s.f..
So, why would the City want to relocate the departments that serve the neighborhoods in which they're located at low lease rates into a new building that will cost substantially more?
A new Class A building will cost upwards of $600 s.f. (see June 21, 2011 Study Session) Therefore the cost of building 90,000 square feet to house the "candidate leases" will cost $50 to $60 Million without land cost. The $1.7 Million in current lease payments will not even pay for debt service on such a building.
So, what should a fiscally prudent City do? Leave the "candidate" leases where they are at low lease rates and build a smaller building and save $50 to $60 Million in construction cost and the resulting extra lease costs.
*So, take $2.3 Million off the $10 Million and you get $7.7 Million*
City staff claims it costs taxpayers $7.8 Million per annum to operate and manage the Civic Center Building, Lincoln Park and the Library.
NOPE ONCE AGAIN! The NET expenses for the City Hall, Library, Parking Garages and Lincoln Park are approximately $6.7 Million per annum.
The City included an off-site lease and expenses for "Veterans" on Pine Ave. totaling $126,846 and $625,000 for Capital Improvements that may be non reoccurring
The City includes a cost of 12 FTEs for building engineering that totals $1,413,415 or $117,784 per FTE. That seems excessive.
DLBA PBID Assessments of $404,906 are also included
Remove the puffery re engineering staff, janitorial, police MOU and other operational expenses and I would suggest reducing the expense by another 1 Million.
*Take out $1.2 Million from the $7.7 and you get $6.5 Million.
Therefore, based on the City's published information, the City can only show, at best, $8.8 Million in continuing expense which is far short of the $12.6 million city staff claims it costs now for City Hall.
And when one deducts the "candidate leases" and leaves them where they belong, the continuing expense drops to $6.5 Million per annum.
And the puffery doesn't stop here!
How in the world is a P3 Developer going to finance and construct a new 300,000 square foot "earthquake proof" building for the City and a NEW Library with only $6.5 Million if you use my numbers or $12.6 Million if you use the City's puffed up number?
THEY CANNOT! The only way the program can pencil out is if the P3 Developer is able to use the balance of the public land not used for the City Hall and the annual payments from the city.
Despite what the City wants you to believe, giving, leasing or selling at less than market value is a COST to taxpayers and residents of Long Beach.
They may also most likely need the enormous assets of the Port and their building needs in order to make the project work.
It's interesting that now-former Mayor Foster killed the Port's plan to construct a new building on Port land because it was "too expensive" yet was giddy with enthusiasm when speaking about getting the Port in the Civic Center project.
So, what is the public land worth? We don't know for sure as our brain trust inside City Hall hasn't provided a highest and best use appraisal of the City land so an informed decision could be made.
Fortunately we know what the RDA paid for land downtown and we know how the Courts appraised their old building.
If you take the entire 15.87 acre parcel less the 4.9 acres of Lincoln Park you have the potential of developing approximately 10.97 acres of prime downtown property.
The land value is based on what can be developed on the land. The more density, the more value. Therefore if condominiums, apartments, high-rise office and retail are included the land has tremendous value.
Based on the Court appraisal and RDA property analysis and current market conditions, I believe the 10.97 acres could easily be worth up to $40 Million depending on the density and use.
The question is how much of the land will the P3 developer develops for residential, retail and office and what the City gets in consideration for the conversion of public land for private use? And there is a cost associated with the transfer of land. It would be an actual or opportunity cost and it must be quantified and considered before an informed decision is made by City Council.
In summary, out goes the claim of a legitimate $12.6 Million in existing Civic Center expenses and with it out goes the claim that the proposed transaction won't cost taxpayers anything beyond what they are currently paying. Sorry!
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Previously on LBReport.com: Common Sense by Terry Jensen (continuing series):