City Council

CITY OF FREDERICKSBURG, VIRGINIA HON. MARY KATHERINE GREENLAW, MAYOR HON. CHARLIE L. FRYE, JR., VICE -MAYOR, WARD FOUR CITY COUNCIL HON. KERRY P. DEVINE, AT-LARGE HON. MATTHEW J. KELLY, AT-LARGE HON. JASON N. GRAHAM, WARD ONE HON. JONATHAN A. GERLACH, WARD TWO Council Chambers, 715 Princess Anne Street HON. DR. TIMOTHY P. DUFFY, WARD THREE Fredericksburg, Virginia 22401 City Council Work Session August 16, 2022 Tourism District (Parking & Expo Center) Sale of Visitor Center Council Priorities Capital Impacts Study (Proffers) The Council of the City of Fredericksburg, Virginia held a work session on Tuesday, August 16, 2022, beginning at 4:03 p.m. in the Council Chambers of City Hall. Council Present. Mayor Mary Katherine Greenlaw, Presiding. Vice-Mayor Charlie L. Frye, Jr. Councilors Kerry P. Devine, Timothy P. Duffy, Jonathan A. Gerlach, Jason N. Graham (4:16) and Matthew J. Kelly. School Board Present. Chair Kathleen Pomeroy, Vice-Chair Malvina Kay (4:12), Jarvis Bailey, Jennifer Boyd, Jannan Holmes and Matthew Rowe. Also Present. City Manager Timothy J. Baroody, Assistant City Manager Mark Whitley, City Attorney Kathleen Dooley, Finance Director Robin Shugart, Budget Analyst Donna Leahy, Fire Chief Mike Jones and Clerk of Council Tonya B. Lacey. Others Present. Superintendent Marci Catlett, Deputy Superintendent Matthew Eberhardt, Chief Financial Officer Jen Brody, Chief Operations and Information Officer Michael George, Chief Academic Officer Lori Bridi, Director of Human Resources Sue Keffer Steven Halsey with Moseley Architect, English Construction Representatives and Kevin Rotty with PFM Financial Advisors. Roll Call. School Board Chair Pomeroy called the meeting to order at 4:03. The Clerk for the School Board and the Clerk for the City Council call the roll and determined a quorum was present. 1  New Middle School Capacity and Square Footage (Attachment I). Dr. Eberhardt gave an update on the new middle school project. The August 2021 Request for Proposal called for a school of 1,100 core capacity and 950 student seating capacity. The net area of the educational program equals 112,560 square feet. The support areas (hallways, walls, mechanical rooms, stairwells, non-educational areas equal 48,240 and the total gross square footage equals 160,800. Project Status (Attachment I). Dr. Eberhardt reported that the Interim Agreement had been approved and will serve as the starting point to arrive at a Contract Cost Limit (CCL) to be included in the Comprehensive Agreement. The estimated cost of the project was provided by FirstChoice early and as they began to go through the process they get closer to that number. After the Interim Agreement was signed FirstChoice began their 90-day work to arrive at 35% plans, which included a cost summary. He said when they saw the $78 million figure they were all shocked. Dr. Eberhardt said they immediately began working with FirstChoice to find ways to reduce cost. If approved they were looking at an August 2024 opening but that may not be an option, they may have to move that date to August 2025. The original budget in the Capital Improvements Plan (CIP) was $57,000,000 and deduct $1,300,000 for the Interim Agreement and the budget amount was $55,700,000. There would have been $50,500,000 in bonds, $4,700,000 from the school fund balance and city fund balance dedicated to School Capital and $500,000 developer proffers. The current cost estimate is $78,330,000 or $77,030,000 deducting the Interim Agreement. The project was being reviewed for potential cost savings and FirstChoice reported possible savings of $2-# million in savings which leaves a funding gap of $21,000,000. The numbers provided by FirstChoice include Construction - $65,830,000; Design/Allowances $8,500,000; Contingency $3,300,000; Owner Costs $700,000; Deduction of $1.3 million for the Interim Agreement, totaling $77,030,000. Increasing Cost (Attachment I). Mr. Steven Halsey of Mosely Architect explained the increasing costs. Mr. Halsey showed a PowerPoint slide that showed a snapshot of some of the inflation information that they have been monitoring. He said those numbers were supported by a couple of inflation reports and the National General Contractor Professional 2 Organization who tracks this information as well. See the Increasing Cost slide for more information. Dr. Eberhardt said they wanted to explain how they got to $77 million and the inflation costs was one of the reasons. The second would be the increase in square footage. He said the net at 140,000 square feet was used to calculate estimated costs. They dropped that number back to 112,000 square feet but there was still the need to add passage, stairwells, mechanical rooms and all the other things and those are estimated at 48,000 square feet bringing the square footage to 160,000. He explained that this has always been the number they used since selecting FirstChoice. Projected Operating Cost Update (Attachment I). Ms. Brody noted the estimated operational cost was a working draft. See Project status slide for more information. She also noted that in the CIP budget for 2023 there was a number of $1.3 million, which is a placeholder for the City’s CIP budget. Board Member Boyd asked what the delta was in the current operating budget for the current middle school and Ms. Brody said she was looking at the budget as having one additional school and every school building has a certain amount of operating cost for services, supplies and equipment and that is how she reviewed what was spent throughout all the schools and the $2.4 was in addition to what was currently being spent on the middle school. Councilor Duffy clarified that the schools would mainly be looking for elementary school staff because the current middle school staff would most likely go to the new middle school. Mayor Greenlaw clarified the staffing needs at the new elementary school and it was explained that they have majority of the staff now but there may be positons needed such as librarians and nurses. Councilor Kelly asked the status of the salary study and when it would be completed and Ms. Brody was hopeful to have it this year however, many organizations were trying to complete salary studies and they had not contracted a company yet. Councilor Kelly asked whether all the operational and capital transportation costs were included in the figures and Ms. Brody said that still needed to be filled in. She said once the route optimization is looked at they will determine how to combine routes. 3  Finally, Mr. Kelly asked about teacher shortage and Ms. Keffer noted that they were in a better position than what was being perceived. She said they only had nine long term subs, and they were working with three of those subs to become Certified teachers and they are working closely with people that have degrees to get them a provisional licenses. She did say that they were looking for three counselors. Dr. Catlett noted that in May they saw a large number of teachers leaving but with the help of City staff and the School Board they were able to offer 10% salary increase for certified employees and it slowed people from leaving and some returned. Disclosures. Vice-Mayor Frye disclosed that his spouse was an employee of the Fredericksburg City Public Schools but he was able to participate in the matter fairly, objectively and in the public interest. Councilor Duffy disclosed that his is an employee of the Fredericksburg City Public Schools but he was able to participate in the matter fairly, objectively and in the public interest. State Construction Grant Update (Attachment I). Dr. Eberhardt said they have been working with two lobbyists, who were former secretaries of education, who have been working to secure construction monies and other monies if they are available. As part of the Board of Education approval process, there must be a formal public comment period. He said the lobbyists were working before the guidelines come out and they are working with the Department of Education and others. The lobbyists were hopeful that the Board of Education could approve the guidelines within the 30-day period. Dr. Eberhardt said they will continue to work with their lobbyists to secure funding for the new middle school. The school construction assistance grant will allocate grants base on the guidelines developed by the Department of Education. The guidelines considered are financial commitment, demonstrated need and school building conditions. The maximum grant is based on a combination of the local composite index and fiscal stress categories. It is believed that the schools will fit into the 20% category. This is 20% of the building construction cost not the total project cost. 4  Councilor Kelly question the type of competition there would be for the funding and Dr. Eberhardt explained that with these kinds of funds everyone would be asking for them but he was hopeful that the City was in favorable positon to receive funding. (See State Construction Grant Update slide for more information.) Assistant City Manager Whitley presented a possible revision on how to finance the new school. (See Possible Revision on How to Finance slide). He discussed a possible savings of $3,500,000, additional funds in the amount of $15,800,000, the total cost savings plus the additional fund totaling $19,300,000 and funds needed in the amount of $2,030,000. Proposed Bond Issuance. Mr. Rotty the City’s financial advisor from PFM began his PowerPoint presentation discussing some of the City’s general governmental needs along with the new school project at $50,500,000. Mr. Rotty reviewed five possible borrowing options. He noted that Scenario 4 was closest to the revised finance plan that Mr. Whitley presented. In his presentation, he also discussed the financial Impact of the various options and the conditions of the tax-exempt market. Mr. Rotty presented a possible timeline for the bond issuance: finalize project amount in September; public hearing and City Council approval early October; bond sale in late October and funds would be available in November. Councilor Graham asked the difference between borrowing all the monies now and refinancing if the interest rates went down or borrowing some now and borrowing the rest later. Mr. Rotty explained that typically municipal bonds get refinanced, because municipal bonds sell on annual increments and the City would be paying down the debt as they go. He explained that typically municipal bonds have a call period where you cannot advance refund or call before the call date on a taxable basis. The typical call period is 8-10 years. Councilor Kelly noted that the costs of the school had gone up but the City projects had not shown any increases and he wanted to know if they should expect increases in the City’s projects. Mr. Whitley said some of the City projects would need to increase especially the Fire Station; they would need to look at Pond D, the CAD replacement was software and would not be affected by the construction environment and the other projects may be combined or fund balances may be used. 5  Councilor Kelly asked if staff knew what implications there would be on the budget due to the shifting of funds. He also wanted to know the tax implications. Mr. Whitley said that because of City Council planning ahead, there was $2 million in the Fiscal Year 2023 budget and 1 penny equals $459,000 in real estate taxes. Mr. Whitley also states that other taxes were doing really well and they would help to meet the needs in terms of staff salaries, school salaries and increasing costs of fuels and services. Board Member Boyd asked how they were planning to pay for the converting of Walker- Grant Middle school to an elementary school. Ms. Brody said they have been looking a reprioritizing some fund balance and she also said there was some ESSR funds that had not been spent. They would be looking at the ESSR budget to see what was remaining and reprioritize. Dr. Eberhardt reminded everyone that the ESSR funds expires in 2024 and now the school would be delayed at opening and that would need to be taken into consideration. Councilor Graham asked if they had looked at the future markets to see what the material cost might be. He was hopeful that the prices may start to come down. He asked if they had a timeframe where they were using the estimates for the material costs. Mr. Halsey stated that in the 35% documents they had escalation built in through the third quarter of this year. He said it was too soon to tell what the cost would be because he had seen some pretty favorable numbers and others approaching almost $500 a square foot. Councilor Gerlach asked Mr. Halsey to explain the producer Price index of 22.1% and whether it included all the other trades and materials in it and Mr. Halsey said it did and the construction article did not explain how it all rolled up into that 22.1%. Councilor Duffy asked the School Board or the staff whether they had considered what they would do if they ran into a $20 million gap. Mr. Rowe noted that at the last School Board meeting they discussed month to month inflationary increases and they were given a cost of $1 million per month. Mr. Halsey explained that they derived at that number from the current inflation data and he said the 20% increase has been pretty consistent. Dr. Catlett also responded in regards to other options considered and she said they spent hours with the consultant during the ECE process reviewing the pros and cons of the different options in terms of addressing the overcrowding conditions in the elementary schools. She said they came up with a short term solution which was reconfiguring the schools to have two K-5 6 schools for a short period. She said they did a lot of work in evaluating the options and in terms of the instructional program she said it was hard to align with the State Department in terms of the accountability system when there are not clean cut K-5, 6-8 middle school and 9-12 high school. She noted when those configurations are off the schools have challenges. Councilor Devine asked if there were other school districts that were Title I and have a high LCI such as the City that may be competing for the funds and Dr. Eberhardt said he did not know of any. Ms. Holmes said Harrisonburg was in the process of trying to build a new high school. She was concerned that the taxes were going up and she wanted to be sure the graduates from the City Schools could afford to live here. Councilor Kelly requested from staff a briefing on tax revenues and what economic development project the City was looking at. He said there were lots of moving pieces and information that was not available. He said if the State money does not come through this would be difficult to do this project without putting other City projects on hold. Vice-Chair Kay asked if the state funding does not come through, would the Council consider placing a moratorium on building new developments. She said for that to continue without the building of a new school would cause an issue for the school’s system. She also asked the Council to rely on the community to decide what the priorities are and whether they are willing to have increased taxes. Mayor Greenlaw noted that was a difficult ask, because with increased density comes increased taxes. She said it was a balancing act for the Council. Board Member Boyd added that a moratorium on future development was not going to do any good. In addition to bringing in more tax revenues, if the school system declined and failed to educate the students there would be a mass exodus out of the City. She said this is very complex. Councilor Gerlach expressed his concern and he read a statement. (See Attachment III). Mr. Halsey addressed Councilor Gerlach’s concern of the per square foot cost of the new school and he explained their metric of square foot construction cost, but not the overall project costs because it varies from project to project. He said the way the State tracked costs and the numbers that were reported to Virginia Department of Education (VDOE) were site and building costs in terms of square foot. The numbers for 165,000 square feet was $65.8 million for construction put the square foot costs at $389 per square foot. 7  Ms. Holmes stated that Councilor Gerlach’s comparison of schools built in 2018 was not a fair comparison of the school being proposed because the number they were given six months ago was not the same as the number they have today. She expressed that the cost of waiting was real due to the inflation rates. Vice-Chair Kay also reminded everyone that they discussed this last year and she would like to see a comparison of what the numbers were. She said those numbers were very different and they cannot be compared. Board Member Bailey asked if a member of FirstChoice could speak to square foot costs. Mr. Halsey said he had received the list of 99 items that Councilor Gerlach had spoken of and he had begun to go through the VDOE guidelines. He said the guidelines were minimum guidelines and there was language in the forward to encourage school divisions to make decisions that were in the best interest of their school division. Mr. Halsey said a better metric to look at was the square footage provided per student. Since 2012, there has been 19 or 20 new middle schools built in the Commonwealth and the square foot per student has been approximately 150 square feet and the new school was a little over 146 square feet per student. Ms. Kay noted that she takes offense to comments being made regarding public use of the school facilities. She stated that the schools have opened every facility and field for public use. Councilor Kelly said with all the moving parts to this project he was hoping this would not be the last time the Council and School Board meet. Ms. Holmes addressed her concerns with postponing and she stressed that postponing affects every citizen in Fredericksburg. Vice-Mayor Frye said the subcommittee met weekly and the meetings were very beneficial. He noted that the Council had concerns in November with the numbers. He also asked where the 48,000 square foot difference came from and Dr. Eberhardt explained that when the Schools were going through the PPEA process, in August, the number used for the educational program was 160,000 square feet (112,000 square feet plus the 48,000). He said nothing was decided then, that was the program they put out there for the companies to look at. After that they chose one company and the School Board approved that company (FirstChoice). He said from that moment they have always used the 160,000 square foot 8 number (112,000 square feet for education and 48,000). He said everything FirstChoice has been working on has been based on those numbers. Chair Pomeroy asked Mr. Whitley if he calculated the $57,000,000 and Mr. Whitley explained that they used that for the Capital Improvements Plan based on Downey and Scotts numbers from some time ago. He said he used the 140,000 square feet based on the reduction from 1100 students down to 950. He said this was an estimate and now they need to move forward with the 160,000 square foot that is needed for this educational program. Mr. Halsey informed that there were four middle schools built from 2018 and reported to VDOE. They ranged from $251-$287 per square foot all in. He said the sites were very unique dependent upon stormwater, rock and community assets. The building costs ranged from $205-$253 per square foot which is an average of $226 per square foot from June 2018 to October 2018. He said currently their numbers were in the 35% documents take them into October 2022 and he explained that four years of inflation would need to be added into those numbers. He said they were currently at $350 per square foot for building only. Board Member Rowe asked about the proposed timeline and Mr. Whitley explained that the timeline was for the bond issue but the critical go, no go, on the project would be the Comprehensive Agreement. He said there was a draft but it needed more work. He said there would need to be a public hearing and the soonest they could have a hearing would be the second meeting in September. Mr. Whitley reminded everyone that there would be three votes the Council would need to take: the bond issue; Comprehensive Agreement and a Budget Amendment. Councilor Duffy said there were lots of issues before them mainly the State funding but the cost of not moving forward would be significant. Councilor Gerlach agreed, he said he would like to move forward on the Comprehensive Agreement. Councilor Graham echoed those sentiments and he said there is a must to move forward because the citizens and the children needed this. He said he was willing to work hard to bring economic development here. Vice-Mayor Frye also provided information on Project Labor Agreements and he explained how they worked. (See Attachment IV for more information). 9  Many of the Council members expressed the need to move forward with the Comprehensive Agreement. Adjournment. There being no further business to come forward at the joint meeting. Board Member Rowe moved to adjourned; motion was seconded by Ms. Holmes and declared adjourned at 6:23 p.m. ______________________ Tonya B. Lacey, MMC Clerk of Council City of Fredericksburg 10