Alderman Parker's Memo to Mayor Cohen Regarding NNHS Cost Issues

TO: Mayor David B. Cohen

CC: Sanford Pooler, CAO/CBO

From: Alderman Ken Parker

Date: January 23, 2006

Subject: Newton North High School Questions and Issues

Thank you for taking the time to discuss the Newton North project with me this afternoon. I consider it to be the most important issue facing the City. As I mentioned, I have put together a list of questions relating to the project. Some of these questions originate with Board colleagues and members of the public, but all relate to the potential cost increases for the project and how we should address them.
Opinion seems to be divided whether the project should be scaled back in light of its increased projected costs or whether we should proceed with the design believed to have the greatest educational value for our students, regardless of the cost.
As you know, I have long been a proponent of building a new high school, not just renovating or expanding the existing one. However, if the City is to proceed with a new high school, it would be helpful to have a better understanding of the long-term effects of the increased borrowing that is likely to result from the increased cost. Specifically, I would like to look into four areas: 1) understanding the latest cost estimates, 2) examining potential cost-reduction measures, 3) exploring financing options, and 4) soliciting public input.

I. Understanding Current Estimates
The Rider Hunt report on projected costs cites a price range for the project of $137 million to $160 million for a 388 thousand square foot high school, which translates to $353 to $412 per square foot. Adding the additional 11 thousand square feet voted by the School Committee last Monday adds another $3.9 to $4.5 million at those per-square-foot prices, bringing the total cost estimate to somewhere between $141 million and $165 million. The Rider Hunt analysis cited numerous sources for the increased costs, including post-Katrina construction industry demand, China’s increased demand for steel, higher oil prices, and “specialty features such as the indoor swimming pool complex [that] are not found in other school projects.” It would be helpful to know what role each of these factors plays in the anticipated cost increase. Also, the pre-Rider Hunt price structure included inflation factors and contingency funds. It would be helpful to know the assumptions that are being made regarding additional inflation and construction time-tables in the Rider Hunt analysis.
The fundamental question is why does Rider Hunt’s Newton North estimate have a cost per square foot so much higher than the comparable high schools they cite as costing $225 to $259 per square foot (in 2005 dollars)?
Specifically, it would be helpful to know:
1) What is the breakdown among the sources of cost increase in the Rider Hunt analysis among steel, energy, labor, and other factors? What percentage increase is being used for each factor in the low ($353/square foot) and high ($412/square foot) estimates for beyond their current price levels?
2) What are the actual costs for steel ($/ton) and oil ($/barrel) built into the low-end and high-end assumptions and how would increases or decreases in those commodity prices affect the high school’s cost?
3) What are the time frame assumptions for the Rider Hunt analysis: when are they assuming the project will go out to bid and when are they assuming that construction will begin?
4) How much more per square foot are they building into their model for the “specialty features” of Newton North than the overall figure (i.e. the $353 to $412 per square foot range represents an average price per square foot for the entire school, so what are the costs per square foot for the various components)?
5) To what extent are the estimated costs being inflated by site constraints?

These questions could probably all be answered simply by providing the Board with a copy of the spreadsheet Rider Hunt used to calculate their cost estimates.

II. Examining Potential Cost-Reduction Measures
Once we have a strong understanding of the various factors contributing to the cost of constructing a new Newton North High School, it becomes possible to examine those factors with an eye to identifying possible cost reductions. While some of the ideas suggested may be impractical or counter to other policy objectives, there is no harm in examining a wide range of ideas. Toward that end, what would be the potential project cost savings that could be achieved through:
1) Re-using parts of the existing Newton North High School structure, such as the swimming pool complex and other athletic facilities?
2) Using space more efficiently to reduce the overall square footage of the building?
3) Relocating the school to another site with fewer constraints?
4) Locking in commodity prices such as steel and PVC piping to protect against future price increases?
5) Selling 20-year bonds sooner to lock in low interest rates and to avoid having to sell interest-only bond anticipation notes?

As we discussed, the cost-reduction analysis should also include comparison to the other options (other than building a new school), such as the “large hybrid” recommended by the task force.

III. Exploring Financing Options
The biggest concern that has been raised so far regarding the draft financing plan is that it does not offer sufficient future budget flexibility and may have the unintended consequence of forcing a Proposition 2 1/2 override or unacceptable reductions in services at some point in the future (in other words that the proposed financing plan does not include an inflation factor for the $1.7 million of new growth being used to support the operating budget each year or the amount of support for bonding new capital projects each year). While it is not possible to finalize a financing plan until the actual project cost is known, there are a number of financing options that could allow greater long-term financial flexibility, adequate support for essential services, and improved infrastructure improvement and maintenance. Some of these options are more realistic than others, but it would be helpful to understand the potential impact on the project of each of the following:
1) Do we still have a chance of getting additional state aid through the School Building Assistance Program? If so, how much?
2) Could we solicit private contributions to support the project? If so, would we be able to offer naming opportunities (i.e. “The John Smith Auditorium”)?
3) What would the effect on the financing of the project be if we were to propose a partial debt exclusion override? Would such an override allow us to sell 20-year bonds sooner, locking in lower interest rates as well as reducing our reliance on bond anticipation notes (as discussed in II.5, above), thereby reducing the overall cost of the project?
4) What would the effect of a small annual operating override dedicated to paying for capital expenditures be? Could such an override pay the additional borrowing costs associated with the increase in Newton North construction costs and also make additional funds available for other projects like fixing our fire stations and finishing Newton South?
5) Is there any possibility that we could apply for federal grants or other federal assistance to address costs associated with parts of the project? Should we ask our Congressional Delegation to look into including support for the project in the federal budget?

For each financing scenario, it would be very helpful to know what the annual operating budget outlay will be to support the high school’s construction costs (direct outlay + principle payments on debt + interest payments on debt) for each year of the borrowing schedule.

IV. Soliciting Public Input
As the price of the Newton North High School project continues to climb, there have been increasing calls for us to put the question to voters in some form asking which option they prefer. Of course, if we pursue a financing option that includes an override (debt exclusion or operation), the public will have a chance to weigh in, but short of that, should we place an advisory question on the ballot? If so, should the question be an up-or-down vote on a recommended plan or a menu of options? Should the ballot question be descriptive (“borrow funds to build a new high school”) or quantitative (“support borrowing up to $150 million for construction of a new high school”)? And if it is quantitative, what dollar figure should be used? Should it be contingent on additional state aid? Should we wait to hear back from the state before placing a question on the ballot? Is there an alternative way to measure public support other than a ballot question that would be acceptable to the community?

I know I am asking for a great deal of information, but this is a large project and worthy of thorough consideration. Thank you for taking the time to answer my questions.




	Search Ken's Web Site		BOARD OF ALDERMEN City of Newton Massachusetts INTER-OFFICE MEMORANDUM TO: Mayor David B. Cohen CC: Sanford Pooler, CAO/CBO From: Alderman Ken Parker Date: January 23, 2006 Subject: Newton North High School Questions and Issues Thank you for taking the time to discuss the Newton North project with me this afternoon. I consider it to be the most important issue facing the City. As I mentioned, I have put together a list of questions relating to the project. Some of these questions originate with Board colleagues and members of the public, but all relate to the potential cost increases for the project and how we should address them. Opinion seems to be divided whether the project should be scaled back in light of its increased projected costs or whether we should proceed with the design believed to have the greatest educational value for our students, regardless of the cost. As you know, I have long been a proponent of building a new high school, not just renovating or expanding the existing one. However, if the City is to proceed with a new high school, it would be helpful to have a better understanding of the long-term effects of the increased borrowing that is likely to result from the increased cost. Specifically, I would like to look into four areas: 1) understanding the latest cost estimates, 2) examining potential cost-reduction measures, 3) exploring financing options, and 4) soliciting public input. I. Understanding Current Estimates The Rider Hunt report on projected costs cites a price range for the project of $137 million to $160 million for a 388 thousand square foot high school, which translates to $353 to $412 per square foot. Adding the additional 11 thousand square feet voted by the School Committee last Monday adds another $3.9 to $4.5 million at those per-square-foot prices, bringing the total cost estimate to somewhere between $141 million and $165 million. The Rider Hunt analysis cited numerous sources for the increased costs, including post-Katrina construction industry demand, China’s increased demand for steel, higher oil prices, and “specialty features such as the indoor swimming pool complex [that] are not found in other school projects.” It would be helpful to know what role each of these factors plays in the anticipated cost increase. Also, the pre-Rider Hunt price structure included inflation factors and contingency funds. It would be helpful to know the assumptions that are being made regarding additional inflation and construction time-tables in the Rider Hunt analysis. The fundamental question is why does Rider Hunt’s Newton North estimate have a cost per square foot so much higher than the comparable high schools they cite as costing $225 to $259 per square foot (in 2005 dollars)? Specifically, it would be helpful to know: 1) What is the breakdown among the sources of cost increase in the Rider Hunt analysis among steel, energy, labor, and other factors? What percentage increase is being used for each factor in the low ($353/square foot) and high ($412/square foot) estimates for beyond their current price levels? 2) What are the actual costs for steel ($/ton) and oil ($/barrel) built into the low-end and high-end assumptions and how would increases or decreases in those commodity prices affect the high school’s cost? 3) What are the time frame assumptions for the Rider Hunt analysis: when are they assuming the project will go out to bid and when are they assuming that construction will begin? 4) How much more per square foot are they building into their model for the “specialty features” of Newton North than the overall figure (i.e. the $353 to $412 per square foot range represents an average price per square foot for the entire school, so what are the costs per square foot for the various components)? 5) To what extent are the estimated costs being inflated by site constraints? These questions could probably all be answered simply by providing the Board with a copy of the spreadsheet Rider Hunt used to calculate their cost estimates. II. Examining Potential Cost-Reduction Measures Once we have a strong understanding of the various factors contributing to the cost of constructing a new Newton North High School, it becomes possible to examine those factors with an eye to identifying possible cost reductions. While some of the ideas suggested may be impractical or counter to other policy objectives, there is no harm in examining a wide range of ideas. Toward that end, what would be the potential project cost savings that could be achieved through: 1) Re-using parts of the existing Newton North High School structure, such as the swimming pool complex and other athletic facilities? 2) Using space more efficiently to reduce the overall square footage of the building? 3) Relocating the school to another site with fewer constraints? 4) Locking in commodity prices such as steel and PVC piping to protect against future price increases? 5) Selling 20-year bonds sooner to lock in low interest rates and to avoid having to sell interest-only bond anticipation notes? As we discussed, the cost-reduction analysis should also include comparison to the other options (other than building a new school), such as the “large hybrid” recommended by the task force. III. Exploring Financing Options The biggest concern that has been raised so far regarding the draft financing plan is that it does not offer sufficient future budget flexibility and may have the unintended consequence of forcing a Proposition 2 1/2 override or unacceptable reductions in services at some point in the future (in other words that the proposed financing plan does not include an inflation factor for the $1.7 million of new growth being used to support the operating budget each year or the amount of support for bonding new capital projects each year). While it is not possible to finalize a financing plan until the actual project cost is known, there are a number of financing options that could allow greater long-term financial flexibility, adequate support for essential services, and improved infrastructure improvement and maintenance. Some of these options are more realistic than others, but it would be helpful to understand the potential impact on the project of each of the following: 1) Do we still have a chance of getting additional state aid through the School Building Assistance Program? If so, how much? 2) Could we solicit private contributions to support the project? If so, would we be able to offer naming opportunities (i.e. “The John Smith Auditorium”)? 3) What would the effect on the financing of the project be if we were to propose a partial debt exclusion override? Would such an override allow us to sell 20-year bonds sooner, locking in lower interest rates as well as reducing our reliance on bond anticipation notes (as discussed in II.5, above), thereby reducing the overall cost of the project? 4) What would the effect of a small annual operating override dedicated to paying for capital expenditures be? Could such an override pay the additional borrowing costs associated with the increase in Newton North construction costs and also make additional funds available for other projects like fixing our fire stations and finishing Newton South? 5) Is there any possibility that we could apply for federal grants or other federal assistance to address costs associated with parts of the project? Should we ask our Congressional Delegation to look into including support for the project in the federal budget? For each financing scenario, it would be very helpful to know what the annual operating budget outlay will be to support the high school’s construction costs (direct outlay + principle payments on debt + interest payments on debt) for each year of the borrowing schedule. IV. Soliciting Public Input As the price of the Newton North High School project continues to climb, there have been increasing calls for us to put the question to voters in some form asking which option they prefer. Of course, if we pursue a financing option that includes an override (debt exclusion or operation), the public will have a chance to weigh in, but short of that, should we place an advisory question on the ballot? If so, should the question be an up-or-down vote on a recommended plan or a menu of options? Should the ballot question be descriptive (“borrow funds to build a new high school”) or quantitative (“support borrowing up to $150 million for construction of a new high school”)? And if it is quantitative, what dollar figure should be used? Should it be contingent on additional state aid? Should we wait to hear back from the state before placing a question on the ballot? Is there an alternative way to measure public support other than a ballot question that would be acceptable to the community? I know I am asking for a great deal of information, but this is a large project and worthy of thorough consideration. Thank you for taking the time to answer my questions.