Higher costs, time threaten new ECC

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Bid comes in $1M more than expected

By Shannon Brock

A new Early Childhood Center may not be as close as school district officials originally thought.
Anderson County Board of Education members voted Nov. 30 to move forward in building a new ECC even though bids for the project came in close to $1 million over what was expected.
Even so, enough circumstances have changed regarding the project in the last week that board members will likely vote on the new building again at their December meeting on Monday night, that is, if they don’t call a special meeting to do so beforehand.
As of Tuesday morning, no special meeting had been scheduled. Monday’s meeting is planned for 7 p.m.

Over budget, under expectations
The original estimation for the cost of a new ECC — not including the construction manager and architect fees — was roughly $5.5 million.
When bids for the project were accepted a couple weeks ago, they came in around $6.4 million.
“Bids did not come in where we wanted them to come in, and I can’t give you a reason why,” Tim Geegan of Alliance Corporation, the construction manager on the project, told board members last week.
Geegan said his company received bids on a couple other projects recently and those bids came in where they were expected to be.
“All I can tell you is that on that day, that’s what that job was worth,” he said. “We’re disappointed.”
The bids received were for a building with 14 classrooms, although the hope is to add four more at some point. Those four classrooms are estimated to cost an additional $370,000.
“I can live with a five to 10 percent increase,” Chairman Lee Hahn said during the meeting. “But we’re talking a 16 to 17 percent increase.
“We’re coming up on the short end of what we had anticipated. We just had an audit and were told we were spending more money than we have coming in.
“I have a hard time understanding how we go from $5.5 [million] to $6.4 [million].”
Hahn questioned whether moving forward was the best option.
“We’ve got to put everything on the table,” he said. “Is now the time? I’m not real sure.”
One factor weighing heavily on the board is the fact that the school district has qualified for a Qualified School Construction Bond.
The QSCB was created by the American Recovery and Reinvestment Act of 2009, and is essentially interest-free financing.
The district is qualified for a 2010 bond allocation of $6,271,930, which was the preliminary estimated cost of a new ECC, including associated fees.
The only catch is the bonds must be issued by Dec. 31 of this year.
If the district doesn’t move forward and sell bonds by the end of the year, the interest-free financing is gone.
Using the QSCB is estimated to save the district approximately $4 million, said Chris Bowling of C.D. Bowling and Associates, who is the fiscal agent on the project.
The majority of that savings will come from the interest the board would otherwise be paying if the project were financed traditionally instead of through the QSCB.
Also, because of the QSCB, the board will be making its bond payments to an interest-accruing account over the life of the loan. The loan would have to be paid back in full at the end of a 19-year period, as of Nov. 30.
Therefore, the payments would accrue about $1.6 million in interest, which the board could then put toward the principal at the end of the 19 years, Bowling said. This means the board would actually only have to pay back $4.6 million of the QSCB.
Typically, in situations where the QSCB is not a factor, the project would be re-bid, but because the district is on such a strict schedule, that is not the case.
“In the scenario to get finished on deadline, we don’t have the luxury to go back and re-bid,” Hahn said.
Hahn asked if there was any way to reduce the construction manager and architect fees in light of the situation.
Both Alliance Corporation and Sherman-Carter-Barnhart said their fees were capped at the original expected cost of $5.5 million and would not increase.
Hahn said he meant nothing personal by his request.
“We’re a small group of people representing a whole community who will be asking us a lot of tough questions,” he said.
Based on all of the information presented, the board voted unanimously to move forward with the project contingent upon approval by the Kentucky Department of Education and a successful bond sale.
Board member Roger McDowell was not present at the meeting.

Less time, more complications
Since the board met Nov. 30, several contributing factors have changed regarding the life of the QSCB loan and the funding the board plans to use to pay back the loan, Superintendent Sheila Mitchell said Monday morning.
At the beginning of each month until the bond sale and finalization of the QSCB, the life of the loan is subject to change. As was discussed at the Nov. 30 meeting, the life of the loan in November was 19 years.
However, the next day, Dec. 1, the life of the loan was changed to 18 years effectively shortening the amount of time the district would have to pay it back and increasing the amount of the yearly payment.
On top of that, the district learned that the funding it planned to use to make its bond payments may not be as high as expected.
School districts receive a certain amount of funding from the state based on their average daily attendance numbers, or ADA.
In calculating how much money the district would receive based on the ADA, the school district was incorporating its growth factor from last year to this year. Attendance has grown by about one and a half percent, most likely because of absences due to the H1N1 strand of influenza last year, Mitchell said.
However, after submitting the project to KDE for its approval, Mitchell received a call saying the state wasn’t sure it would be able to provide the district with the funding based on the growth factor ADA.
“And if they’re not sure, it’s very difficult for us to be sure,” she said.
The board will meet no later than Monday, Dec. 13 to discuss these changes, Mitchell said.

Possible outcomes
When the board meets, members could decide to move forward with the QSCB financing. A bond sale is scheduled for Dec. 15, and if it is successful, the project could continue as planned.
However, the board could choose not to immediately approve moving forward with the ECC project.
If this is the case, it is likely that building the new ECC would get pushed behind the district’s need to replace the HVAC system at Anderson County High School, Mitchell said.
The district recently replaced the boiler and is planning to replace a compressor in the chiller to prolong its life and put off the need to replace the entire system, Mitchell said.
However, the system is only a few years away from needing to be replaced, and if the ECC project does not proceed with the QSCB financing, the district may look into first replacing the high school’s HVAC with a geothermal system. Including doors and windows that would need to be replaced with the system, the estimated cost is $3.4 million.
If this is the case, the ECC project would get tabled until the district could build up enough bonding potential to finance it. As it stands, every dollar that would be put toward bonds for a new HVAC system is a dollar taken away from the bonding potential left to build a new ECC.
If the QSCB financing does not go through, then the district would try to get ECC back on the state’s Category 5 list, meaning it is a top priority project that could not be extensively repaired, only replaced.
In this case, it would be possible for the district to receive some Category 5 financing for the project when it does move forward.