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HomeMy WebLinkAbout1996-11-19 City Council (4),0~ City City Managerl TO:HONORABLE CITY COUNCIL ATTENTION: FROM: AGENDA DATE: Finance Committee Planning Commission CITY MANAGER November 19, 1996 DEPARTMENT: Administrative Services and Public Works Departments CMR:466:96 SUBJECT:INFRASTRUCTURE PLAN: MODULE 1 (BUILDINGS & FACILITIES) RECOMMENDATION Staff requests that the Finance Committee comment on the first module of the Infrastructure Plan dealing with buildings and facilities and provide guidance on the timing for proceeding with an enhanced buildings and facilities improvements program. DISCUSSION On September 26, 1996 the Finance Committee approved an infrastructure work plan, which included a timetable for presenting infrastructure elements to the Committee. The first module on buildings and facilities is being submitted to the Committee in accordance with that timetable. The information on buildings and facilities is contained in two attachments. The first includes a discussion of the existing inventory, maintenance needs, capital replacement requirements, new and expanded infrastructure needs, prioritization rationale and funding options. The second attachment is a detailed study of building and building systems replacement and repair needs. This report identifies a significant need for public building infrastructure work over the next ten years. As such, direction is requested from the Finance Committee and Council on how rapidly to proceed with building and facility infrastructure work. Given the relative facility with which debt financing can be issued and its suitability for building and facilities improvements, one option is for staff to immediately pursue debt fmancing for a package of building infrastructure improvements. Since this report identifies a significant need for capital work in this area in the next ten years, action in the FY 1997-98 budget may be judicious. A second option is for the Finance Committee to proceed with its review of all the infrastructure elements that will be presented during the upcoming year (CMR:377:96 "Infrastructure Work Plan"). After that review, the Council would be able to prioritize all CMR:466:96 Page 1 of 4 infrastructure financing, in conjunction with the FY 1998-2000 budget. Should the option of waiting for a comprehensive recommendation be chosen, staff will prioritize the most critical infrastructure needs in this element and propose them for incorporation in the FY 1997-98 CIP process. Roof repair and replacement work, for example, is especially critical in FY 1997-98. In order to implement the enhanced building and infrastructure program outlined in this report, it will be necessary to thoroughly assess current staffing levels within the Public Works Department. Staffing levels need to be evaluated whether staff is directed to pursue a debt financing package for building improvements or whether the decision is to wait until a comprehensive infrastructure program is presented. POLICY IMPLICATIONS This report and future infrastructure reports will identify considerable funding needs for existing assets in need of repair or replacement. A fundamental policy decision in moving forward with a major infrastructure effort is that the City will have fewer resources to devote to new services, enhanced service levels, new buildings or expansion of existing buildings for expanding programs. Finite resources implies a need to choose and in a City accustomed to high service levels, as indicated in a series of Levels of Service studies conducted in 1991 and 1992, choices will be challenging. While the City enjoys high fire, library and police services, for example, it also faces new demands on resources. Examples of projects under cosideration include expanding efforts on PAUSD athletic fields, building a community library, implementing a new shuttle service, constructing a new safety building and initiating a Family Resource Center. As the Finance Committee proceeds in its review of the infrastructure modules, the policy issue of allocating resources between existing infrastructure needs and new programs, as well as among infrastructure modules, will be present. To prudently allocate resources, staff is proposing a rationale for prioritizing buildings and facilities projects. The rationale deals primarily with how to address capital replacement and rehabilitation needs for existing facilities that have reached physical obsolescence. It was not within the scope of this project to address programmatic obsolescence, i.e. when a facility may be serviceable from a physical standpoint, but which no longer meets staff and/or the community’s needs. Nor does it address prioritizing the need or desire for new facilities. These issues will continue to arise, and will need to be prioritized on a project by project basis, alongside the capital replacement needs identified for existing facilities. Because the proposed infrastructure management system is intended to set a plan for the 10 to 20 years of infrastructure changes and improvements, staff has reviewed policies from both the 1980 adopted Comprehensive Plan and the proposed Comprehensive Plan which has had only preliminary City Council review and has not yet been adopted. CMR:466:96 Page 2 of 4 The 1980 Comprehensive Plan does not reference the development of a long-term infrastructure plan. The proposed Comprehensive Plan includes the following Policy and Program in the Community Services and Facilities Element that relate directly to the preparation of an Infrastructure Management Plan: Policy C-23: Reinvest in aging facilities to improve their usefulness and appearance. Avoid deferred maintenance of City infrastructure. Program C-17: Invest in plant, equipment and human resources to assure the continued availability of infrastructure. Program C-18: conduct comprehensive analysis of long-term infrastructure replacement requirements and costs. The 1980 Comprehensive Plan contains no policies or programs directly related to the development and use of public buildings and community facilities. The proposed Comprehensive Plan includes the following Policies and Programs related to buildings and facilities: Land Use Element Policy L-49: Encourage the preservation of significant historic buildings owned by the City. Land Use Element Policy L-55: Promote the use of community centers, libraries, local schools, parks and other community facilities as gathering places. Ensure that they are inviting and safe places that can deliver a variety of community services during both daytime and evening hours. Land Use Policy L-66: Promote and maintain public art and cultural facilities throughout Palo Alto. Land Use Policy L-73: Design public infrastructure including paving, signs, utility structures, parking garages and parking lots to meet high quality urban design standards. Remove or mitigate elements of existing infrastructure that are unsightly or visually disruptive. Community Services and Facilities Element Policy C-21: Where appropriate, maintain existing community facilities in public ownership to prevent potential shortages in the future. Additional Policies and Programs will be cited from both the 1980 comprehensive Plan and the proposed Comprehensive Plan as the later modules on traffic, streets, sidewalks, bikeways, pedestrian ways, parks, open space, and others are brought to Council. CMR:466:96 Page 3 of 4 FISCAL IMPACT This report identifies an unfunded infrastructure need of over $31 million in 1996 dollars in the next decade for building systems replacement, building replacement, ADA improvements and seismic upgrades. For illustration purposes, if alI $31 million in improvements were approved and debt financed, the additional debt service obligation on the General Fund would be about $2.6 million per year. The report identifies a need to periodically update facility conditions and to perform a comprehensive study of building electrical systems. This will result in additional replacement costs above the $31 million. Staffing will be required to implement an enhanced building and facilities replacement and maintenance/repair program. These costs will be evaluated as part of a review of the Public Works staffing for the FY 1997-98 Budget. Needs for remodeled, expanded or new facilities have not been considered within the scope of this project. However, such costs could easily exceed $50 million. ENVIRONMENTAL ASSESSMENT The infrastructure modules reports do not require California Environmental Quality Act (CEQA) review. Individual projects identified in the reports will be reviewed for environmental compliance as they are further developed. ATTACHMENTS A -Module 1, Buildings and Facilities B -Building System Study (Two Volumes - Because of their size the reports may not be part of the normal Council packet distribution. Copies are available for review at the Public Works Department counter, 6th floor Civic Center and City libraries) PREPARED BY:Geo/ge Bagdon, Assistant Director of Public Works Joe Saccio, Senior Financial~nalyst DEPARTMENT HEAD REVIEW: ~,. #~ EM~ARRI-gON Deputy City Manager, Administrative GLENN S. ROBERTS Director of Public Works Services CITY MANAGER APPROVAL: CMR:466:96 Page 4 of 4 MODULE 1: BUILDINGS AND FACILITIES EXISTING INVENTORY The City of Palo Alto facilities inventory consists of over 100 structures including theaters, fire stations, garages and a Civic Center with a combined total square footage of approximately 1,100,000 square feet. The facilities are divided into three groupings. The occupied building space group consists of 60 facilities with a combined square footage of 680,000 square feet. The parking space group consists of three parking facilities and the public parking area at the Civic Center, with a combined square footage of 420,000 square feet. The miscellaneous facilities group consists of 37 smaller unoccupied facilities such as sheds and storage buildings with a combined square footage of 20,000 square feet. In addition to this, the City has varied capital responsibility for facilities which are on the Real Estate Division’s Leased Properties Inventory. The Infrastructure Management Plan discussed in the Capital Replacement/Rehabilitation section of this report addresses the replacement of major building components in 70 of the 100 structures as part of the capital improvement program. The remainder of the facilities have component replacement costs below $25,000 and are handled through the operating budget. The major building components consist of the following" exterior skin: exterior walls, windows, wood trim and trellises roofing: roof structures and flashing interiors: wall f’mishes, flooring and ceilings mechanical: heating, ventilation and air-conditioning equipment, plumbing, pumps, fans, etc. electrical: power sources, fixtures and fire alarm systems A listing of structures includes: administrative offices municipal maintenance and operations buildings fire stations community buildings interpretive centers restrooms parking structures PREVENTATIVE MAINTENANCE/ON-GOING MAINTENANCE All replacement and refurbishing work with a value less than $25,000 is accomplished through the Public Works Structures and Grounds functional area in the operating budget. This includes preventative maintenance of all building systems, as well as, refurbishing and 1 replacement of building components and equipment. Mid-size refurbishing and remodeling projects are accomplished as part of the Facilities Rehabilitation program, in the operating budget. Example projects recently scheduled or completed include: College Terrace and Downtown Libraries carpet replacement Cultural Center kiln room upgrades Children’s Theatre storage shed construction Main Library and Cultural Center asbestos removal Toilet partition replacement at park restrooms Certain Civic Center space reconfigurations Junior Museum, Foothill Park Interpretive Center heating replacement systems The Structures and Grounds operating budget includes $1,150,000 in direct costs for facilities maintenance and repair work. This consists of in-house maintenance, supplies and materials, contract maintenance and repair, and staff salaries. There are twelve staff members in the Maintenance section, three in the Rehabilitation section, and two in the Administrative section. Current staffing and funding levels are adequate to provide for the maintenance and repair of critical building c,omponents but are inadequate to meet current program need requests. Additional workload due to increased square footage and number of pieces of equipment maintained, has led to a backlog of non-critical maintenance projects. These projects include work such as interior remodel and relocations, interior paint and other client requested work. The above costs are for maintenance and repair work and do not include custodial work. CAPITAL REPLACEMENT fREHABILITATION Over the last year, staff with the assistance of a consultant, has reviewed all City structures with respect to their condition. A report was prepared which concludes that the building components are currently in reasonably good condition due to the City’s existing preventative and ongoing maintenance program. The most serious problems requiring immediate attention involve roofs. Existing equipment in some facilities provide inadequate cooling or heating and the electrical systems in most buildings are outdated. As the average age of the City’s building inventory is approaching 35 years, it is recommended that a responsible program be initiated at this time to address the replacement of building components as they reach the end of their useful life. This is necessary to avoid future unexpected system failures and uneconomically high levels of maintenance. The attached report presents an anticipated schedule of improvements by building and component. This information was developed from in-house maintenance data and a physical survey of the buildings where the current condition and remaining life span of 2 components was determined. The information is presented in two formats. The first provides a list of components with life spans modestly adjusted to accommodate a uniform annual funding level. The second format lists components with unadjusted life spans and varying funding levels. Projects in the second format have been prioritized to guide staff in identifying an annual program which meets future funding availability. A discussion of the method of prioritization is discussed later in this report. The report is meaningful in providing a global picture of building and facility infrastructure needs. However, in implementing the program, the timing and priority of each component would be reevaluated and adjusted with each CIP budget. For instance, various components in a building may be packaged as one project to minimize construction impacts to occupants and the public. Costs indicated in the report should be considered in order of magnitude subject to review in each budget cycle. Overall, the report identifies a capital replacement need of approximately $23,000,000 over the next ten years. In addition, facilities will need to be considered for possible replacement in the next decade due to physical obsolescence totaling $5,000,000. Examples include Fire Station 3, Fire Station 4, Animal Placement Center, Baylands Interpretive Center, park restrooms and the Lawn Bowling Facility. Also, $1,500,000 of ADA improvements in various City facilities and $1,500,000 of seismic renovations at the Childrens Library, Junior Museum and College Terrace Library will be necessary over the next decade. In summary, staff has identified an unfunded need of approximately $31,000,000 in 1996 dollars over the next decade for building systems replacement, building replacement, ADA improvements and seismic upgrades. As a comparison, the City has spent approximately $12,000,000 in the last 10 years on such improvements. The report identifies the need to periodically update facility conditions and to perform a comprehensive study of building electrical systems. An estimate of the cost of this study and budget for electrical upgrades has been included in the report. However the actual scope and cost will be determined by the future electric study, and may result in additional replacement costs above the $31,000,000. NEW OR ENHANCED FAC~IT[ES It was not within the scope of this project to address programmatic obsolescence, i.e., when a facility may be serviceable from a physical standpoint, but which no longer meets staff and/or the community’s needs. Nor does it address prioritizing the need or desire for new facilities. These issues will continue to arise, and will need to be prioritized on a project by project basis, alongside the capital replacement needs identified for existing facilities. A number of such needs have been identified. Remodeling and expansion are considered desirable for the Municipal Service Center and each of the Community Centers, the libraries, the Junior Museum and Zoo and the Arts facilities. New facilities which have 3 been discussed include a public safety building, a Teen Center (the current center is scheduled to be demolished if a parking structure is approved to be built on the teen center site), a performing arts facility, a new aquatic facility, and restroom and snack bar facilities at Cubberley Community Center. Each of these projects and their implementation schedules, will have to be addressed through the capital improvement program. The cost of such remodeled, expanded and new facilities could easily exceed $50 million. PRIORITIZATION RATIONALE CRITERIA Staff has reviewed several factors for prioritizing the building and facilities module. First, the four major categories were ranked as follows: Preventative/Ongoing Maintenance. This category was given the highest priority as the life of building components could be extended very economically with a good maintenance program, forestalling more costly capital replacement. There is also a critical need for this program to respond to emergencies and other unscheduled work. Capital Replacement/Rehabilitation. This category is extremely important in addressing the timely replacement of building components to avoid system breakdowns and costly interim maintenance. New and Enhanced. Although important in responding to program changes, this category is not considered as high as capital replacement and maintenance which address the needs of the City’s existing infrastructure inventory. Comprehensive Plan. This category provides an additional selection filter in reviewing the big picture. The requirements of the comprehensive will emphasize land use and community services and facilities elements. Secondly, due to the large unfunded need, staff used the following criteria in creating subcategories for prioritizing Capital Replacement/Enhancement work. 2a. 2b. Building components critical in providing a safe functioning building and are at the end of their useful life and should be replaced to avoid costly maintenance. Buildings critical in providing City and community functions. Building components affecting the most users if failure occurs. Building components that can be logically combined with more critical components for replacement to minimize construction impacts on users. 4 FINANCING OPTIONS The City has traditionally funded building and facilities capital improvements on a pay-as- you-go basis. Over the past six years the City has steadily increased funding for infrastructure projects, reaching a peak of $1,600,000 in 1995-96 (33% of the overall $4,800,000 1995-96 General Fund Capital Improvement Program.) Typical infrastructure projects have included seismic upgrades, roof repairs and replacements, building system improvements (ventilation, heating), replacement of a chiller and emergency generators, waterproofing of the Civic Center Plaza, and ADA improvements. While the City has devoted increased resources to its building and facilities needs, this report identifies $31,000,000 in capital requirements needed over the next 10 years which exceeds the normal allocation of Capital Improvement Program (CIP) funding to building infrastructure projects. To meet these needs, augmented funding through alternative mechanisms or a sizeable reallocation of funds within the existing CIP is required. Following is a description of financing options available for buildings and facilities infrastructure work: Certificates of Participation (COPs) - This financing vehicle allows the City to raise tax-exempt funds through the leasing of a public facility to a nonprofit corporation that the City establishes. In a COPs arrangement, the financing is not technically considered "debt", but rather a long term lease. By entering into a long- term leasing arrangement, the City is not subject to State constitutional requirements concerning long-term debt. Seismic improvements to the Civic Center were financed through the issuance of COPs. It is worth noting that the City may use the proceeds from the issuance of COPs to pay for capital improvements either for the leased asset, or for other, unrelated city assets. The advantages of COPs include: COPs allow the City to acquire capital for infrastructure improvements by leveraging, existing, unencumbered assets. This long-term lease vehicle does not require voter approval and allows the City to implement capital improvements that are critical but lack the high public visibility that voter approved bonds would require. The disadvantages of COPs include: ao In general, interest rates are slightly higher for COPs than interest rates paid on General Obligation bonds. Unlike payments for General Obligation bonds (discussed below), which are based on a new source of revenue (increased ad valorem property taxes), payments for Certificates of Participation come from 5 existing resources and are subject to annual appropriation in the City’s budget. This payment methodology is considered a higher risk in the financing market. Given the City of Palo Alto’s excellent credit ratings the difference between COPs and General Obligation bonds may be marginal. General Obligation (GO) Bonds - Local GO Bonds are secured by a pledge of the full faith and credit and taxing power of the issuer. These bonds must be approved by a two-thirds popular vote and are payable from ad valorem property taxes. Proceeds from the bonds may be used for acquisition, construction or completion of the real property portion of any "municipal improvement" which can include bridges, street work, park improvements, buildings for municipal uses, and property or structures necessary or convenient to carry out the objects, purposes and powers of the city. The advantages of GO Bonds include: These bonds provide a new and significant source of revenue for infrastructure projects. bo These bonds guarantee issuers the lowest borrowing costs since they are backed by the full taxing power of the issuer and are widely accepted in the marketplace. The disadvantages of GO Bonds include: ao Approval by two-thirds of the electorate may be difficult to obtain. GO bonds may be more appropriate for high prone and popular projects and less so for the critical, but routine improvements cited in this report (e.g. replacing heating, cooling and ventilation systems.) bo Compared to other financing mechanisms, such as issuing Certificates of Participation, the election process creates a longer time frame for financing. Two resolutions must be passed by City Council by a two-thirds vote: the first to determine that the public interest demands the contemplated improvements and the second to submit to the voters the proposition of issuing bonds for municipal improvements. Following these votes, an election would be scheduled where two-thirds of the electors voting would have to approve the bond measure. Infrastructure Replacement Sinking Fund - The City could establish a new and separate General Fund reserve earmarked for infrastructure improvements. This can be accomplished initially by transferring funds from the Budget Stabilization Reserve (BSR). Policy guidelines for contributions to the fund and maximum levels in the fund would be discussed and adopted by Council. The General Fund BSR policy 6 would be reviewed and revised appropriately if a sinking fund is established. The sinking fund would be used in conjunction with other financing mechanisms. If the City was able to fund projects through the use of Certificates of Participation (COPs), the sinking fund could then be used to fund projects that cannot be funded through the use of debt. The advantages of a Sinking Fund include: ao The City would neither incur debt nor issuance costs associated with debt financing and could use these funds for infrastructure improvements. The City would have maximum flexibility in allocating its resources to projects since proceeds from debt financing must be used within a specific time frame so as not to incur arbitrage penalties. The disadvantages of a Sinking Fund include: ao The sinking fund would be funded and replenished as the financial health of the General Fund permits. The annual funding requirements for building and facilities improvements may not be sustainable in years of weak performance by the General Fund. Other - Prior to the passage of Proposition 218 on November 5, ("Right to Vote on Taxes" initiative) cities had the ability to finance certain citywide capital and maintenance programs through the uses of benefit assessment districts. Property owners could be assessed for the costs of providing such services, through a charge on their property tax bill. Proposition 218 requires that assessments be allocated only in accordance with the special benefit derived by each assessed parcel. Assessments for those types of services previously discussed with the Council in the context of a Landscape and Lighting Assessment District, i.e., for the maintenance of trees, landscaping, parks and open space would therefore have to be assessed to specific properties according to the specific benefit that those properties received. No assessment would be allowed for services that were based on a general benefit. 7