Williams on the LID, Part IV

Don Williams has been closely following the complex Street LID project of Ocean Shores. The North Coast News asked Williams to write a chronology on the project, to help people understand how it all happened. And now, Part IV:

By Donald S. Williams

In last week’s installment of the Ocean Shores street LID project chronology, I covered the first two construction phases starting in the spring of 2007 through the fall of 2008, and  two surprises.  This week’s final installment covers the third and final phase of street paving, and another big surprise.
May 11, 2009. The biggest surprise of all.  Mayor Bunkers dropped a bombshell, telling the City Council that additional financing was necessary to pay for Phase 3.  Bunkers explained that even though the City thought it adequately financed the entire LID by selling bond anticipation notes (BANs) in 2007 and 2008 totaling $32.070 Million (see Chronology – 2nd Installment; NCN Sept. 22), “capitalized interest” and financing costs were not properly considered.
The Problem:  Interest had been stripped from the BANs’ proceeds and put into separate accounts (which is standard procedure in municipal financing) in order to create a reserve to pay for future interest costs of the BANs.  Because this “capitalized interest” and the financing costs were removed from the bond proceeds, the City really had only $27.620 Million – $4.45 Million less than it thought it had.  Bunkers also told the Council that he identified $700,000 that was spent above and beyond the five Phase 1 and 2 paving contracts.  Bunkers said he met with Piper Jaffray (the City’s financial advisor) and it recommended the City apply for an $8 Million line of credit, enough to cover the shortfall and have sufficient funds in reserve to pay the interest cost on the line of credit. The City had made a big mistake.  Bunkers said, “I had some sensitivity to this three, four or five weeks ago and that’s why Piper Jaffray was here today.”
Author’s Note: Using figures provided by the City at the September 20, 2010 Protest Hearing, the City charged City employee and other costs to the LID totaling $1,567,660 above and beyond what the City spent on the 9 paving contracts – over double the $700,000 that Bunkers stated on May 11, 2009.  Finance Director George Rogers retired at the end of March, 2009.  Bunkers introduced his new Finance Director, Art Wuerth, at the April 13, 2009 City Council meeting.
May 26, 2009. Finance Director Wuerth, assisted by Public Works Director Ken Lanfear, explained details of Mayor Bunker’s bombshell.  As of the end of April 2009, $21,666,771.70 had been spent and an estimated $13 Million more was needed to complete the project.  Adding these two amounts resulted in a total of $34,666,771.70 needed to complete the project.
Lanfear told the Council, “The interim interest costs were not properly considered.”
June 22, 2009. The City Council passed Ordinance No. 865 authorizing the issuance and sale of a bond anticipation note in the principal amount of $8 Million, maturing August 1, 2011, to establish a line of credit for the LID.  Because these funds were needed immediately otherwise Phase 3 could not be started, the Council waived the second reading and voted unanimously to pass the ordinance.
Phase 3 of construction, during the summer of 2009, consisted of four paving contracts.  Three of these contracts, totaling about $10.9 Million, were for most of the remainder of the City including the downtown area.  A fourth contract, bringing the total for the LID to nine paving contracts over three years, was awarded to pave the new roundabout, and to repave Point Brown Avenue south of the roundabout to the Library, and west of the roundabout on Chance A La Mer.  Using figures provided by the City at the September 20 Protest Hearing showing a total of $32,388,305 for “Contractor Costs” associated with the nine paving contracts, and subtracting the cost of the first eight contracts documented in the final Macaulay & Associates assessment report on page 11 ($31,606,010), the cost of the ninth and final paving contract was $782,295.
Author’s Note: It appears to this author that the City has spent on comparable contractor costs about $4.4 Million more than was estimated in 2007.
Nov. 23, 2009. The last surprise: The City Council was presented a proposal from Macaulay & Associates to prepare the Final Special Benefit/Proportionate Assessment study at a cost of $329,230.  Some council members were surprised that the Final Study did not take advantage of work done in the earlier 2007 study and, therefore, cost less.  When asked why the Final Study cost about the same as the first study, Lanfear stated that the study needed to be redone because of the three year time span since Macaulay’s first report, changes in property ownership and property valuation changes.

Author’s Final  Notes:  The Contractor Costs of $32,388,305 reported by the City at the September 20 Protest Hearing covers only the nine paving contracts.  Other contractor and work-related costs of $1,567,660 were added by the City.  These were the two assessment reports prepared by Macaulay & Associates ($672,293), surveys and monument replacement ($233,690), charges by city employees ($541,639) and an unexplained item called “Supplies and Services” ($120,038).  These add to $33,955,965 which this author considers to be the City’s final figure for the work-related activities on the street LID project.
To this sub-total the City added an additional $5,407,123 to cover the interest costs on the bond anticipation notes sold by the City in 2007 and 2008 and the line of credit obtained in 2009 – the three financial instruments that provided interim financing for the LID.  It also includes a “Contingency” charge of $220,613.
These bring the total costs of the LID project, including all work performed and interim financing costs to $39,363,088.  This is the figure that should be compared to the $31.784 Million that was the estimate when the LID was presented in 2007 and that remained in effect until the big surprise that occurred on May 11, 2009.  This represents an increase of 23.8% over the original plan.
I want to thank the North Coast News for asking me to write this chronology of the LID project.  I used extensive notes I’ve kept since the project was first announced in 2005 and I received assistance from the North Coast News’ archive files.  I also made use of agendas and minutes of City Council meetings available on the City’s Web site.  I hope the readers have enjoyed reading the chronology as much as I enjoyed writing it, and that it helped explain how the project unfolded.

Contact Don Williams at dsw1222@yahoo.com

A longer, more-detailed version of Part IV, as well as the previous three parts of the chronology, will  be available at northcoastnews.com.