HomeMy WebLinkAboutMINUTES - 06062006 - C.72 TO: - BOARD OF SUPERVISORS E':s L Contra
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FROM: JOHN CULLEN, County Administrator
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DATE: MAY 22, 2006 o --------- County
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SUBJECT: RECEIVE GRAND JURY REPORT NO. 0602 ^�
CONCERNING CAPITAL FACILTIES PROJECTS
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATION
RECEIVE Grand Jury Report No. 0602 entitled "Contra Costa County Capital Facilities Projects:
How are New County Buildings Justified?", and refer it to the County Administrator and Capital
Facilities Committee for response.
BACKGROUND
Penal Code section 933 provides for final grand jury reports at any time during the grand jury's
term and requires the governing body of any agency whose operations are the subject of a report
to comment on the grand jury's findings and recommendations to the presiding judge of the
superior court within 90 days from the date the governing body receives the report.
Report No. 0602 was received on May 18, 2006 and requires a response by the Board no later
than August 18, 2006. It is recommended that the Board refer the report to the County
Administrator and the Capital Facilities Committee for preparation of a draft response to be
returned to the Board for adoption.
CONTINUED ON ATTACHMENT: BYES SIGNATURE:
aRECOMMENDATION OF COUNTY ADMINISTRATOR ❑ RECOMM N ATION OF BOARD COMMITTEE
H APPROVEOTHER
SIGNATURE(S):
ACTION OF BO ON dn:)Co
APPROVED AS RECOMMENDED MOTHER ❑
VOTE OF SUPERVISORS: I HEREBY CERTIFY THAT THIS IS A TRUE AND
CORRECT COPY OF AN ACTION TAKEN AND
UNANIMOUS(ABSENT ) ENTERED ON THE MINUTES OF THE BOARD OF
SUPERVISORS ON THE DATE SHOWN.
AYES: NOES:
ABSENT: ABSTAIN: ATTESTED: JUNE 6, 2006
Contact: JULIE ENEA (925)335-1077 JOHN CULLEN,CLERK OF THE BOARD OF
SUPERVISORS COUNTY ADMINISTRATOR
cc: COUNTY ADMINISTRATOR(ENEA)
STAFF,CAPITAL FACILITIES COMMITTEE
By: Deputy
A REPORT BY
THE 2005-2006 CONTRA COSTA COUNTY GRAND JURY
725 Court Street
Martinez, California 94553
REPORT 0602
CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
How Are New County Buildings Justified?
MAY 18, 2006
APPROVED BY THE GRAND JURY:
Date: I D
ROBERT W.Y<IgEDY
GRAND JURY FOREPERSON
ACCEPTED FOR FILING:
Date:
TERENCE L. BRUINIERS
JUDGE OF THE SUPERIOR COURT
Grand Jury s__._ Contra
725 Court street - -
P.O.Box 911
Martinez,CA 94553-0091 Oe - Costa
- ------- County
Contact: Robert Kennedy
Foreperson
(925) 646-2345
For Immediate Release:
CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
How Are New County Buildings Justified?
Summary
Despite several years of balancing budgets by drawing down a nearly exhausted reserve fund, the
County shows no sign of pausing its program of new building construction. Justifications for
new buildings are based on flawed financial projections and explanations which are often little
better than"nice to have."
Contra Costa County should defer the proposed $22 million District Attorney Building until the
County's financial condition improves. At a time when the County is facing a substantial
reduction in the services it provides to County residents, embarking on this capital project sends
the wrong message to taxpayers, employees and the financial community.
In addition,the County should defer all other non-emergency capital projects and establish
rigorous justification standards for capital projects. The justifications, for some of the projects
recently approved, are inadequate. The financial presentations significantly understate the
projects' drain on County finances, and the justifications do not contain specific information on
the problems that exist or how the capital projects resolve them.
The complete report is available on the Grand Jury web site: www.cc-courts.org/grandjury.
CONTRA COSTA COUNTY GRAND JURY REPORT 0602
CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
How Are New County Buildings Justified?
TO: Contra Costa County Board of Supervisors
INTRODUCTION
Each year Contra Costa County("County") spends millions of dollars on capital facilities
projects. These expenditures have a significant impact on the reserves and outstanding debt
levels of the County. At a time when the County is facing a reduction in the services it provides
to the people of the County, a rigorous justification for capital projects is critical.
BACKGROUND
The Capital Facilities Committee, a two-person committee of the Board of Supervisors(`BOS"),
reviews most major capital projects. All major capital projects require BOS approval for each
major phase,e.g., feasibility,design, and construction.
In recent years,the County has used the following criteria, listed in descending order of
importance, to prioritize projects:
• Resolves life safety threat to building occupants.
• Protects health and safety of public.
• Addresses immediate facilities problem.
• Preserves prior investment in a facility.
• Improves productivity or reduces net County cost.
• Necessary for regulatory/statutory requirements.
• Reduces overcrowding of building occupants.
• Enhances delivery of County services to public.
• Leverages non-General Fund resources.
Two major buildings are either under construction or near construction. They are the District
Attorney Building(cost$22,500,000) and the Clerk-Recorder/Elections Building(cost
$12,000,000). A summary sheet prepared by County staff indicates that these projects are
justified based on the following prioritization criteria:
MAY 18,2006 CONTRA COSTA COUNTY GRAND JURY PAGE 2
REPORT 0602 CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
District Attorney Building
• Resolves life/safety threat to building occupants.
• Reduces overcrowding of building occupants.
• Improves productivity or reduces net County cost.
• Leverages non-General Fund resources.
Clerk-Recorder/Elections Building
• Resolves life/safety threat to building occupants.
• Reduces overcrowding of building occupants.
• Improves productivity or reduces net County cost.
• Leverages non-General Fund resources.
• Addresses immediate facilities problem.
These projects were examined to understand the written rationale used to support the project
("justification"),particularly sections of the justification that address improved productivity or
reduction in net County cost. Neither justification addresses the life/safety threats or
overcrowding that exist,or how the new facility will resolve these issues.
FINDINGS
County Finances
1. In each of the last three fiscal years,the County's expenditures have exceeded revenue
by amounts ranging from $17 million to $22 million. The County drew down reserve
funds to cover the shortage.
2. On June 28, 2005,the BOS approved the 2005/2006 budget with a projected$20
million deficit. At this rate of deficit spending,the June 30, 2006 unreserved fund
balance will be approximately 3.5%of revenue--below the 5%minimum level
recently established by the BOS --and will be exhausted before June 30, 2008.
3. On May 2, 2006,the BOS approved a balanced budget for fiscal year 2006-2007 that
includes a reduction of 200 staff positions and reductions in services provided by the
County.
Capital Projects
4. The Capital Facilities Committee, a two-person committee of the BOS, oversees most
major capital projects.
5. All major capital projects require the approval of the BOS for each major phase,i.e.,
feasibility, design, and construction.
MAY 18,2006 CONTRA COSTA COUNTY GRAND JURY PAGE 3
REPORT 0602 CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
6. The BOS has not adopted a written policy regarding the justification and approval of
capital facilities projects which addresses such basic questions as:
a. How large does a project have to be before it is subject to review and approval
outside a department?
b. What specific information is required for the justification for each phase of a
project?
c. What is the approval process for each phase of a project?
7. The Capital Facilities Committee has no written document, which outlines the scope
of its activities.
8. In capital facilities project justifications,prior year fund balances and other funds,
(e.g.,the Criminal Justice Construction Fund)which could be used for many other
purposes, are treated in financial projections as"free"funds and are used in the
projections to reduce the amount of funding and related interest cost of the project.
9. The District Attorney Building is partially justified by"improved productivity or
reductions in net County cost",however even the best case justification shows an
increase in net County cost over the life of the project. (The annual increase in net
County cost would be another$1 million, if"free"funds, as described in Appendix A,
were not utilized in the justification to reduce the amount of lease revenue bonds
required to fund the project and the related interest cost.)
10. The justification for the District Attorney Building does not contain specific
information or data that document the life/safety threats or overcrowding that exists or
how the issues will be resolved by the new facility.
11. The Clerk-Recorder/Elections Building is partially justified by"improved productivity
or reductions in net County cost",however the justification shows a$64,000 increase
in annual net County cost over the life of the project. (The annual increase in net
County cost would be another$150,000, if"free" funds, as described in Appendix A,
were not utilized in the justification to reduce the amount of lease revenue bonds
required to fund the project and the related interest cost.)
12. The justification for the Clerk-Recorder/Elections Building does not contain specific
information or data that document the life/safety threats or overcrowding that exists or
how the issues will be resolved by the new facility.
13. The justification for the Clerk-Recorder/Elections Building dated April 26,2005
provides no explanation why the costs increased from the September 23, 2003
justification. (See Appendix A for more detail.)
MAY 18,2006 CONTRA COSTA COUNTY GRAND JURY PAGI 4
REPORT 0602 CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
CONCLUSIONS
1. Important phases of both of these projects were approved by the BOS in 2005/2006
when the County's reserves were in steep decline—a time when a more prudent course
of action would have been to review the justifications very thoroughly(particularly the
financial projections), and most probably defer, such non-emergency capital
expenditures that added to cost and outstanding debt.
2. The justifications for the District Attorney Building and Clerk-Recorder/,Elections
Building significantly understate their impact on Net County cost using"free funds"to
reduce the amount of lease revenue bonds required to fund the project and the related
interest cost. (Comments on these justifications are provided in Appendix A.).
RECOMMENDATIONS
The 2005-2006 Contra Costa County Grand Jury recommends that the BOS:
1. Defer the District Attorney Building and all other non-emergency capital projects
unless they reduce net County cost, until the County's unreserved fund balance in the
General Fund is at least 5%of annual revenue--the minimum level specified by the
County's Reserve Policy.
2. Establish rigorous standards for justification of capital projects that include the
following:
a. Contents to be included in the justification for each phase of a project --
feasibility study, design phase, and construction phase.
b. Information requirements for each prioritization criterion.
c. Specific guidelines on the financial information and projections to be included
which: (1)prohibit the use of prior years' savings and other sources of"free"
money to determine the funding required and the related impact of a project on
net County cost and(2)track and explain changes in project cost estimates.
3. Establish a capital project approval process for each of the three phases (feasibility,
design, and construction) that specifies whose approval is required at various dollar
thresholds.
4. Before proceeding with the District Attorney Building,re-evaluate the project
justification using the recommended justification standards especially with respect to
the financial projections(Recommendation#2c).
MAY 18,2006 CONTRA COSTA COUNTY GRAND JURY PAGE 5
REPORT 0602 CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
REQUIRED RESPONSES
Findings:
Contra Costa County Board of Supervisors: 1-13.
Recommendations:
Contra Costa County Board of Supervisors: 14.
MAY 18,2006 CONTRA COSTA COUNTY GRAND JURY PAGE 6
REPORT 0602 CONTRA COSTA COUNTY CAPITAL FACILMES PROJECTS
APPENDIX A
District Attorney Building
On April 29, 2003,the BOS authorized a feasibility study of a new District Attorney building.
The building consolidates four separate offices into one building adjacent to the courts in
downtown Martinez. In 2005,construction documents for the new building were completed. On
May 2, 2006,the BOS authorized issuance of a request for competitive bids for construction.
Total project cost was estimated as follows:
Design phase $2,800,000
Construction 18,500,000
Furniture 1,200,000
Total $22,500,000
The projected funding sources were as follows:
Plant Acquisition Account $3,800,000
Criminal Justice Facility Construction Fund 4,000,000
Lease Revenue Bonds 14,700,000
Total $22,500,000
The Plant Acquisition Account figure represents accumulations from the District Attorney's
annual operating budget over the past few years.
The Criminal Justice Facility Construction Fund ("Criminal Justice Fund") is derived from court
fines and fees. It may be used for"construction,.reconstruction,expansion,improvement,
operation, or maintenance of county criminal justice and court facilities and for improvement of
criminal justice automated information systems."
The project justification (dated December 1, 2005)assumes that 25-year lease revenue bonds
would be sold in mid-2006,at a rate of 6 percent interest,to partially finance the project. Three
revenue streams are identified for this new debt service:
1. $500,000 annually from the Criminal Justice Fund.
2. $213,340 annually from personnel reductions of two clerks and one office manager,
due to consolidation of offices.
3. $366,608 to $377,380 annually from occupancy cost savings,due to vacating the
current offices at four different locations. This savings assumes that replacement
tenants can be found.
MAY 18,2006 CONTRA COSTA COUNTY GRAND JURY PAGE 7
REPORT 0602 CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
Projection of Annual Costs and Savings
(in thousands)
2012
2008 2009 2010 2011 &beyond
Net Debt Service $847 $1,049 $1,082 $1,117 $1,156
Savings:
Criminal Justice Fund (500) (500) (500) (500) (500)
Personnel Savings (213) (213) (213) (213) (213)
Occupancy Savings 3a 6) 3�.70) 373 377 377
BEST CASE(sublease of existing facilities):
Net cost or(savings) $(232) $(34) $(4) $27 $66
POSSIBLE CASE(without subleasing):
Net cost or(savings) $(91) $111 $143 $179 $107
Comments:
Without the $3.8 million from the plant acquisition account and the $4.0 million from the
Criminal Justice Fund(both of which are used to lower the amount of lease revenue bonds
required to finance the project from$22.5 million to $14.7 million),the annual debt service cost
would increase by slightly over 50%, or more than $500,000 per year.
In addition to$4.0 million in up-front money from the Criminal Justice Fund,the project
proposal contemplates using $500,000 per year for 25 years from the Criminal Justice Fund to
offset part of the lease revenue bond debt service.
The source of the Plant Acquisition Account is the General Fund. If this project were not
undertaken, the funds would be available for any General Fund expenditure,which covers most
County expenditures. Using Criminal Justice Funds(which, as previously indicated may be used
for a wide variety of expenditures related to criminal justice) for this project makes them
unavailable for other expenditures. Such projects will then have to be funded by the General
Fund,thus increasing net County cost at that time. The proposal understates the net County cost
by more than$1 million annually-- $500,000 from understated debt service cost and the
$500,000 of"free"funds from the Criminal Justice Fund.
Clerk-Recorder/Elections Building
On September 23,2003,the BOS approved a project to replace and consolidate the County
Clerk-Recorder and Elections facilities. At present, the functions of this department are located
in six different buildings in downtown Martinez. This project involves a newly constructed
office on Escobar Street in Martinez. On April 26,2005,the BOS approved a specific lease
MAY 18,2006 CON1`RA COSTA COUNTY GRAND JURY PAGE$
REPORT 0602 CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
agreement with a purchase option, which, consistent with BOS policy that the County has an
equity interest in facilities in which the County has long-term occupancy, the County is expected
to exercise.
Total purchase cost was estimated as follows:
Sept 23, 2003 April 26, 2005
Projection Projection
Building Purchase $8,900,000 $10,994,000
Other Costs07 0,000 769,000
Total $9,600,000 $11,763,000
The projected funding sources were as follows:
General Fund Contributions $1,950,000 $1,950,000
Micrographic Modernization Fund 2,000,000 2,000,000
Lease Revenue Bonds 5,650,000 7,813,000
Total $9,600,000 $11,763,000
The General Fund Contributions figure represents accumulations from the County Clerk's annual
operating budget over the past few years.
The Micrographic Modernization Fund receives revenue from filing and recording fees. The
funds are to be used for micrographics and modernization of the Recorder's Office.
The project justification assumes that 25-year lease revenue bonds would be sold in mid-2006, at
a rate of 6 percent interest,to partially finance the project.
Projection of Annual Costs and Savings
Sept 23,2003 April 2672005
Projection Projection
Current Facilities Lease Cost:
Fiscal Year 2005-2006 $(612,019)
Fiscal Year 2006-2007 $(765,085)
New Building:
Debt Service 386,500 604,071
Maintenance/Utilities 220,000 225,000
New Building Subtotal $606,500 $829,071
Increase(Decrease) in net County cost $(5,519) $63,986
MAY 18,2006 CONTRA COSTA COUNTY GRAND JURY PAGE 9
REPORT 0602 CONTRA COSTA COUNTY CAPITAL FACILITIES PROJECTS
Comments:
This project justification indicates that it meets the"improves productivity or reduces net County
cost"prioritization criterion. However,there are no projected staff reductions and the final
justification shows an increase in annual net County cost of$64,000.
The approach to financing the building purchase is similar to that used for the District Attorney
Building. As such, it has a similar conceptual flaw. In this case, it assumes the use of
$1,950,000 of funds that originated in the General Fund to reduce the amount of lease revenue
bonds required. Without these"free"funds the County would have to issue$1,950,000 more
lease revenue bonds and the annual net Count cost would increase by more than $150,000 due to
higher debt service costs.
There is a similar question with respect to the $2,000,000 to be obtained from the Micrographic
Modernization Fund. There are some differences in that the Fund comes from revenue from
County Clerk functions,the permissible uses are restricted much more than for the Criminal
Justice Fund,and the $2,000,000 is based on the square footage to be occupied by micrographic
functions.
There is only a very limited explanation for the changes in project financial projections from
September 2003 (for the BOS's conditional approval)to April 2005 (for final approval). With
respect to the$2.2 million(23%) increase in cost, the April,2005 presentation states that
"project costs have been refined to incorporate all fixed tenant improvements, state-of-the-art
climate control, mechanical, electrical,fire alarm and security systems." No further details are
provided. This does not explain why the costs increased. There are no comments on the
$117,000 (19%) increase in occupancy cost in 2005/2006 or on net County cost,which increased
by $69,500 and changed from a savings to a cost.
MAY 18,2006 CONTRA COSTA COUNTY GRAND JURY PAGE 10