LBReport.com

Opinion

City Mgm't Position On Civic Center Rebuild Understates Future Taxpayer Costs, Gives No Basis For Current Claimed Costs, Fails To Offer Obvious Alternative, Unwisely Rushes Council Decision With Long-Term Public Consequences

by Retired City Attorney Jim McCabe

Includes city management response


On May 28, 2014, retired Deputy City Attorney Jim McCabe provided the offices of all incumbent Long Beach City Council members, Mayor Bob Foster and city management's Director of Finance with correspondence below regarding a proposed new Civic Center. If approved by a Council majority, it would be financed, built. operated and maintained by a private entity paid an agreed sum increased annually by the City over roughly forty years. Mr. McCabe received no responses to his correspondence. We publish it below with minimal edits. Prior to doing so, LBREPORT.com invited city management (via the city's Public Information Officer) to advise us if it contends there are material flaws in Mr. McCabe's reasoning. We publish city management's response immediately following Mr. McCabe's text.
Dear Mayor and City Councilmembers:

The proposed "Public Private Partnership" (P3) plan for a new Civic Center will cost at least $888 million not the $170 million cited by City Management. This is mostly simple arithmetic. The proposed starting yearly rental is $13 million. This yearly figure times the proposed 40 years is $520 million. But, in addition, the yearly rental figure increases every year by the Request for Proposals (RFP) mandated figure equal to the yearly increase in the cost of living index (the "CPI".) According to nationally recognized university level statisticians I know, after RFP mandated CPI increases over 40 years of the P3 plan, using a typical CPI figure of 3%, this bring us to a total of $888 million.

The actual figure will be much higher because it includes the value of three parcels of property handed over to the operator/developers. Almost certainly, the cost over 40 years of the proposed deal could push one billion dollars! The figure used by city management as the cost of the new Civic Center has been $170 million. This figure is just plain wrong, apparently pulled out of thin air.

Months ago, I made a Public Records Act request asking the City for any documents that indicated that this proposed deal could be done for a cost of no more than $12.6 million, the figure then used by the City. The City has responded that it has no such documents!

As separately reported by LBREPORT.com, Terry Jensen independently submitted his own Public Records Act request, in response to which city management refused to provide a number of documents he requested [see his opinion piece here.]

I recognize that the $888 million total does not reflect the time value of money often considered in long term capital projects. If one were to estimate how much money today would be equivalent to $13 million in payments plus inflation adjustment per year for 40 years, using a reasonable discount rate of 4%, the "present value" of these payments would be $385 million. Even this present value amount is still about $200 million dollars more than the City Management figure of $170 million. Viewed another way, the $385 million is roughly how much money on account now and earning 4% interest, would be needed to cover $888 million in rent payments over 40 years.

The following is critical: If Mayor Foster and city management are correct somehow in assuming that the costs of the P3 project are no more than present management costs increased by the CPI and including the cost of the old courthouse and other properties located in one the most valuable parts of downtown, then the City could take those properties to be given away, sell them and come up with enough or nearly enough money to build a new civic Center! This is simple logic. And this simple straightforward path has been discussed by no one in the City.

The City has not authorized a rigorous study of how much it would cost to retrofit the present City Hall. I believe the figure would be a fraction of management's figure of $170 million. If the retrofit were done sequentially on the three staircases, it may not even be necessary to relocate city employees during the construction.

Finally, no one has explained how this is a "once in a lifetime opportunity." Why will this so called opportunity not be available after six more months of more intense and careful consideration?

Someone might suggest that City management show the taxpayers how, if at all, P3 building programs have been successful elsewhere. That's going to be a hard thing to do.

I would respectfully suggest that everyone just slow down and think about what course of action to take.


Below is the response LBREPORT.com received on June 6 after we invited city management (via the city's Public Information Officer) to advise if it contends there are material flaws in Mr. McCabe's reasoning above.

On October 22, 2013, the City of Long Beach, California, Department of Public Works presented findings of certain studies to the City Council, which identified significant seismic deficiencies in the existing Long Beach City Hall and Main Library. These studies concluded that retrofitting City Hall to address the seismic deficiencies -- including tenant improvements, building code and Americans with Disabilities Act required upgrades, temporary relocation, and soft costs -- would cost approximately $194 million (in 2013 dollars) to retrofit and upgrade a building that is over 40 years old, is not adequately sized, and suffers from functional obsolescence.

Accordingly, the consideration of development of a new civic center complex is warranted. The City issued an RFP to developers on February 28, 2014, and will be evaluating the proposals upon their return. Please see [October 22, 2013 management agenda item memo here.]


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