Last night the Salem City Council, meeting as the Urban Renewal Agency board, failed to ask the right questions about a massive cost overrun on the not-yet-built new police facility.
This failure was across the board. Council progressives didn't ask the right questions. Neither did the council conservatives. The Mayor didn't ask the right questions. And City of Salem staff sure didn't either.
So I'm going to present some key questions that went unasked.
What bothered me the most about the approval of $2 million in urban renewal funds to fill a hole in the police facility budget wasn't so much the decision itself, but the failure of the Mayor and city councilors to fulfill their role as careful overseers of public funds.
Watching the proceedings via the CCTV feed from home, I couldn't believe that the slide presentation by a City staff person didn't set off alarm bells that should have led to these questions being asked.
(1) How is it that the construction budget for the police facility jumped 36% in just 18 months? As shown in the screenshot above, when the City Council decided in February 2017 to have a $61.8 million bond measure put on the May 2017 ballot, the construction budget for a 115,000 square foot facility was $42,233,000.
But last night City staff said that the current "Actual Construction" cost for a 115,000 square foot building is $57,448,331. Again, that's a 36% jump between February 2017 and July 2018.
UPDATE: Beaverton voters approved building a $35 million Public Safety building shortly before Salem's police facility was approved. In May 2018 a newspaper story reported that costs for the Beaverton facility have increased 17% over the past 18 months. That's about half of the jump in Salem's cost.
Further update: However, I just realized that the figure for Beaverton was an overall cost figure, not just construction costs. So the comparable percentage increase for the Salem police facility is 23% (adding soft costs to construction costs). This makes the overall Salem police facility cost increase close to the Beaverton increase, though it doesn't answer the questions below.
(2) Why is the 36% jump in construction costs so much more than inflation over the past 18 months? City staff presented several estimates of recent construction cost inflation. The image below was a small part of a larger slide, hence its fuzziness. My reading of the chart is that construction cost inflation has been about 10% since 2017, which is way less than 36%.
(As noted on the chart, the 2017 cost index is 100, and the latest value shown is about 110.)
City staff also showed the following slide, which says that construction cost inflation has been about 6% a year recently. Over 18 months, that would make cost inflation around 9%, which also is a heck of a lot less than the 36% increase in the police facility construction cost over the last year and a half.
Now, there might be good reasons why the Salem police facility construction costs rose 36% when general construction costs apparently rose 9-10% over the same 18-month period. But since the Mayor and city councilors chose not to ask City staff about this, I'm worried that the public won't have an answer to an important question.
(3) Why wasn't there a mention of the estimated $9.1 million earmarked for construction cost increases and contingencies? I talked about this money in a previous post.
It's perplexing that City staff didn't mention it when they were describing what was in the "soft costs" part of the police facility budget. Various items were mentioned, but not the line items for cost escalation and unforeseen contingencies.
As shown above, the "soft costs" remain at $18,581,000, while the new construction budget has become $49,857,530 after $7,591,041 in cost reductions were found in the $57,448,331 current construction cost budget.
Most of the cost reductions came from reducing the size of the police facility from 115,000 square feet to 104,000 square feet, and eliminating a bunch of spaces in the structured parking.
The construction cost per square foot has risen from $367 in the early 2017 plan, to $479 in the current mid-2018 plan.
That's a 31% increase in the cost per square foot, which is close to the 36% increase in the construction costs for a 115,000 square foot police facility with the original amount of structured parking.
This indicates that while police facility planners may have found some construction efficiencies, these weren't major, or the construction cost per square foot wouldn't have risen by 31%.
Here's the bottom line for the police facility, based on what happened at last night's Urban Renewal meeting:
-- The size of the building now is 9.6% smaller than the 115,000 square foot plan approved by voters in May 2017.
-- The construction cost has risen 18%, even though the building is about 10% smaller.
-- The construction cost per square foot has risen 31%.
-- The construction cost for a 115,000 square foot building rose 36%.
As I said at the start, questions should have been raised about the discrepancy between general construction costs appearing to rise about 10% over the past 18 months, while the police facility costs rose over three times as much.
I recall that Urban Development Director Kristin Retherford said that she's heard reports of construction costs increasing 1% a month recently. OK, even if we generously assume that rapid rate of increase occurred over the entire 18 months between February 2017 and now, that's still just an approximate 18% jump in construction costs.
Yet the Salem police facility experienced a 36% increase. The question "Why?" deserves an answer. I didn't hear even that question being asked last night, much less the answer.
Everyone makes mistakes. Someone appears to have made a big mistake in estimating the cost of the police facility plan that was submitted to voters in May 2017. A 9.2% cost escalation rate was used in that plan, which seems to be quite close to the actual rate of construction cost inflation.
Yet City officials have had to scramble to cobble together enough money to pay for a police facility that is 10% smaller than what voters approved. And now the total budget is $70,179,175 rather than $61,814,000, a 14% increase to get 10% less of a police facility.
It sure feels like something went wrong here. But that wasn't evident from the lack of critical questions from the Mayor and city councilors last night. Hopefully those questions will be asked and answered in the days ahead.