The Rockport City Council, at its special meeting Thursday, Dec. 30, heard a report regarding the increased cost of the new city hall, as well as a proposed financing plan that would not result in an increase in the debt portion of the tax rate. Following the report and discussion, the council approved contingent authorization of contract negotiations with Teal Construction for the City Hall project.
Mayor Pat Rios opened the meeting noting invitations to bid were sent to eight contractors after interest was shown by roughly 60 contractors/subcontractors. In the end, only two bids were received.
Teal’s contract is “contingent” upon FEMA’s approval. FEMA requires three bids, but only two were received.
(Note: Aransas County is in the same boat, having only received two bids for the new courthouse. County commissioners took the same action in a previous meeting.)
Rios said the original estimate for city hall was about $12.3 million, and Teal’s low bid is almost $16.4 million, due primarily to increases in material, labor costs, etc.
“We’re looking at a considerable overrun here,” said Rios. “We’ve looked into possible decreases of about $1 million. Subcontractors have said costs will increase close to 15% after Jan. 1.
“We have to make some tough decisions.”
Rios also noted the city hall and courthouse has basically the same exterior, but the new city hall is costing significantly more per square foot.
On hand at the meeting were PGAL’s Paul Bonnette (architect), Broaddus’ Mark Williams (construction manager at risk), Teal Construction Director of South Texas Operations Michael Miller, City Financial Advisor Bob Henderson of RBC Capital Markets, and bond counsel Tom Spurgeon, of McCall, Parkhurst, and Horton.
Bonnette said the city hall and courthouse are very important projects for the city and county, noting there have been several cost estimates during the process.
“We did at least five cost estimates as we went through the design phase,” he said. “There are places where we can still save some money.”
Bonnette said Teal is a “very qualified” bidder and he has no reservations recommending Teal as the contractor.
(Note: Teal Construction is the contractor for the Rockport Center for the Arts’ new downtown campus, as well.)
Williams said Broaddus is working diligently, value engineering options in an effort to lower costs.
He said the estimated costs, for construction only, before bids were received, was $12.3 million.
He noted the difference in square foot cost between city hall and the courthouse is due, in part, to economies of scale, and cost of materials.
“We just got notice that all gypsum products will rise 30%,” said Williams.
He added lumber prices have settled, but electrical and steel costs have increased.
“The plan is to act as soon as possible to mitigate any additional price increases,” he said.
Mayor Pro-tem J.D. Villa said he didn’t understand why the square foot cost between the two buildings is so different.
“I thought the whole reason for doing this the same (city hall and courthouse) was to lower costs,” said Villa.
Williams said the reasons behind the difference in cost per square foot had to be answered by Teal.
Miller said the big differences between the city hall and courthouse stems from the fact they are two different contracts, from different funding sources.
“Some sub-contractors bid one or the other project, and some bid on both,” said Miller.
Using roofing as an example, he noted one subcontractor bid on the courthouse, but not the city hall because of the subcontractor’s schedule.
“One of the weird things we’re seeing is supply costs are very high and interest rates are low, which is creating high demand to get stuff done now,” said Miller. “Right now, everyone is busy.
“In this area there’s probably only three or four contractors big enough to bond this project. That’s probably the main reason you only received two bids.”
Between receiving the bids two weeks ago, and Thursday’s special meeting, Teal looked at ways to reduce costs.
They identified a little more than $1 million in cuts during that time in 49 line items.
Those savings come from using less expensive alternatives in several areas, such as flooring, ceiling tile, and the location and type of generator.
Moving the generator from the roof to the ground provides almost half the savings discussed (approximately $430,000).
City Manager Kevin Carruth noted additional savings (not noted) will be realized by moving the generator because the roof had to be “beefed up” in order to hold the generator.
Miller agreed, and said that cost saving will be vetted in the near future.
Miller said with more time Teal might be able to find $300,000 to $500,000 more in savings, but he can’t promise anything.
He noted the City has a budget problem, and the county does not (in regard to the city hall and courthouse projects).
“Both projects needed to look like they were built at the same time with the same materials,” said Miller.
“It all rests on FEMA’s approval. It’s really scary right now. We have an idea of what increases (in material costs) will be.”
Noting time is of the essence, Miller added, “I don’t want to see all these savings get gobbled up with price increases.”
Mayor Rios noted the City got its financing last year (tax notes), and since then, COVID and supply chains changed a lot of things.
“We need a building. This (planned city hall) isn’t a Taj Majal. We’re looking at doing the best we can from a financing standpoint for the taxpayer.
“We’re talking about not only getting additional funding for city hall, but also some of the other projects residents want.”
Then the discussion changed to financing options.
Henderson said the City debt is very moderate and short in duration.
He noted the original certificates of obligation, which would have funded many additional projects, were scaled down to about $12 million through tax notes, the amount that could be financed over seven years (maximum for tax notes) without raising the tax rate for debt. The projects (other than city hall, Concho Street Drainage, and Key Allegro Bridge rights of way) were dropped when the council chose to finance via tax notes.
(Note: That action was taken after petitioners forced a public vote on the certificates of obligation at the last minute.)
Henderson said an early call date was set on the tax notes, and they could be refinanced up to 20 years, as well as adding additional debt, without raising the debt tax rate.
“Even with adding these expenses, we could have the I&S (debt) tax rate drop in future years,” said Henderson. “You don’t ever want to do a financing today that limits financing ability in the future.
“Doing this (refinancing tax notes and adding additional debt to fund most if no all of the projects dropped when the council chose to use tax notes) will still allow you to do future projects.”
Spurgeon said despite recent legislation limiting use of certificates of obligation in some areas, “Most of what you need to finance, you still can do.
“We’re very comfortable with your ability to do this without going to the public.”
Rios noted the City will lose several million dollars if it doesn’t move forward.
“What we’re looking at (if we don’t move forward) is potentially stopping,” he said.
Carruth said, “You are only postponing the inevitable. You will have to build a city hall.”
Rios said the city has operated out of the service center for more than four years and it’s very inefficient.
“The key to me is not increasing the tax rate,” said the mayor.
“It’s a strange situation. We can’t commit 100% (to Teal because financing isn’t in place and FEMA hasn’t approved the bid), and we have to look at finances without adding an extra burden on taxpayers.”
Councilman Brad Brundrett asked, “Can we talk about what other projects would be thrown into this (refinancing tax notes and additional bond funding)?”
Rios said the City can refund/fund about $11.5 million. After taking out the shortfall on city hall, about $6 million could be used for other projects (that were dropped from the original bond issue), including drainage and road work on Austin Street, purchasing needed vehicles, and improvements to the wastewater treatment plant.
“We could make significant inroads in regard to drainage,” he added.
Henderson said the 2020 tax notes can be refunded with general obligation refinancing bonds, and an additional $11.62 million in certificates of obligation could be issued, both over a period of 15 years, with no increase in the I&S (debt) tax rate.