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Saturday, February 1, 2014

Library Director Doug Koschik informs Birmingham City Commision of the implications of delaying Library Building Bond Election.

To: City Commission:
From: Doug Koschik, Baldwin Public Library Director
Subject: Implications of Delaying the Library Building Bond Election
Since early 2013, the targeted date for a vote on the library building bond measure has been May 6, 2014.
 The activities of the Joint Library Building Committee (JLBC) and Quinn Evans Architects (QEA) have been scheduled around that date. For example, the JLBC and QEA made sure that all conceptual design work and cost estimates were completed by November 2013. The JLBC accepted QEA’s final written report (‐Study‐Final‐Report‐from‐
Quinn‐Evans‐1‐6‐14.pdf) on December 11, 2013. The project’s schedule (page 21 of that report) is based on a May 6, 2014, election, with architectural and engineering design work lasting slightly under one year, construction RFPS being issued in spring 2015, bonds being sold in June 2015, and construction starting in July 2015. QEA’s construction cost estimates (page 23 of the report) were based on work from mid‐2015 until mid‐2017. The City of Birmingham’s bond financial advisor, Bob Bendzinski, estimated the bond interest rate (5.5%) for June 2015.
If it is decided to hold the election instead in August or November of this year, the schedule—and most likely the cost—would be severely impacted. A year’s worth of design work is needed before
construction RFPs can be issued. In accordance with past practice in Birmingham, a bond sale would be authorized and take place only when construction bids come in. And construction would begin after that. So theoretically, if the election were pushed back, we could look at a construction start date of late 2015.

In fact, however, that date is not feasible for two reasons

1. A tax can be levied only in the month of July. If the City does not know the amount of the bond until late 2015, then it won’t be able to collect the necessary tax to cover the bond until July
2016. To pay for construction costs between late 2015 and July 2016, the City would have to borrow money, on which it would pay interest. The interest on the borrowed money (“capitalized interest”) would have to be added to the cost of the project. Bendzinski estimates the capitalized interest for one year on $21.5 million to be about $1.2 million. (For a shorter period of time, the capitalized interest would be proportionately less.) Clearly, it is not  advisable to add this cost to the project.

2. Winter weather would most likely prevent the digging of foundations, and “frost laws” would impose limitations on bringing in heavy equipment.

Therefore, an election delay would result in a probable construction start date of spring/early summer 2016. This means that QEA would have to re‐estimate construction costs for 2016‐2018, instead of
2015‐2017, and Bendzinski would have to re‐estimate interest rates for spring 2016, instead of spring 2015. Since construction costs and interest rates will probably rise over the next few years, a delay
would translate into additional costs for this project. Every year of construction delay would addapproximately $500,000 to the cost of the project (based on a 3% cost escalator built into the present
cost estimates), and every .25% increase in the interest rate would add around $663,000 in taxpayer costs over the 20‐year life of the bond.
Note that construction cost increases would either have to be built into the project cost, or else we would be forced to spend that amount of money less on other aspects of the project. Costs associated with interest rate increases would be borne by taxpayers in their annual millage payment. Finally, the cost estimates are as good as they are going to be. They have been done by a well‐qualified construction cost estimator. Architectural renderings will not change because QEA has delivered what the contract required (and probably more), and their work has been accepted by the JLBC. Further refinements to the design, with community input, will occur in phase 2.

In summary, a delay in the vote date would result in the following:

1. A 9‐ to 12‐month delay in construction, delaying the completion date to 2018.

2. A probable increase in construction costs, thus adding approximately $500,000 to the project
cost for each year of delay.

3. A probable increase in the bond interest rate, thus adding $663,000 to taxpayer costs for every
.25% increase in the rate.

4. No additional information, no improvement in the accuracy of the cost estimates, no refinement in the architectural renderings. All the money set aside for this phase of the project has been spent. The proposal that QEA developed and that was accepted by the Library Board on November 18, 2013, and by the City Commission on November 25, 2013, is complete.

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