Staff recommends the Budget and Finance Council Committee recommendation that the project move forward with the full scope of work as discussed at the 11/28/2022 Council Meeting, and that Council approves moving forward with the funding options presented.

Staff and project team presented an update on the New City Hall project to Council on 11/28/2022. The presentation discussed the latest budget estimates which were higher than previously estimated by about $6 Million and higher than original cost estimates by about $13.5 Million.  These new estimates included approx. $1.9 million in value engineering reductions.  According to our general contractor, Dick Anderson Construction, these costs increases are primarily tied to inflation in the construction industry (Inflation in this area is running between 48% and 53% since COVID).  Options were presented to council to reduce the scope of the project or seek additional funding sources to keep the project moving forward as planned and designed. The direction from Council was to continue moving the project forward with the full scope as designed while continuing to look for cost savings and additional funding options. Further, council directed that staff meet with the Budget and Finance Council Committee to discuss staff recommended funding options available for the project. Staff met with the Committee on 12/8/2022 at the City Hall Conference room and discussed the New City Hall project funding options. 

The committee voted to recommend the following funding options for the project with the understanding that some funds are not guaranteed.  Staff recommends one-time or short-term cuts to other parts of the budget and reallocation to this project instead of long-term debt financing of the project, which will cost more over time. The overall impact to the project is an increase in funding sources of $12,800,000 - $16,300,000. Estimated reductions in project expenses are approximately $797,000. Overall this should provide enough funding sources to cover known project costs at this point in time.

General Fund/Public Safety vacancy savings ($500,000)
While positions are not being requested to be held open, we will likely have vacancy savings in FY23. At this point in the fiscal year, it is difficult to estimate the amount of funds that may be available, but it should be anticipated that any vacancy savings existing at year-end will be made available for the Stillwater Project. Based upon historical performance, a reasonable expectation of vacancy savings could be around $500,000.
Equipment Replacement Contribution ($500,000)
Currently, the City contributes about $1.6M annually to the ERP fund. This funds equipment replacements for Parks, Fire , Police, Code Enforcement & Library. Currently, 52 PD vehicles have an estimated useful life of 7 years, all other PD vehicles have a useful life of 8 or more years. If all PD vehicles were pushed to a minimum of 8 years, the Fire Departments 5 newest pumpers were pushed 1 year to a 16-year useful life, and all PRPL equipment was pushed to a minimum of 10 years, there could be additional funding of $500,000 made available from the ERP for one time. There could potentially be increased maintenance costs incurred as a result of extending the life of a vehicle.
Fire Station 8 Funds ($865,000)
The City has set aside $1.5M already for FS8 and has budgeted an additional $500K for FY22 to be added to this amount. The City has purchased the old Heights FS for $575,500. After the completion of the purchase there will be approximately $1,415,000 remaining. Additional funds will be needed for remodel, but there should be excess funds available after that is completed. Using these funds will meant there are not funds available for future Fire Station related capital.
Entitlement Share ($1,300,000)
Since FY02 the City has allocated the entitlement share revenue using the same percentages, with very little change. 76.1% to the General Fund, 12.9% to Public Safety, 3% to Library, 3.2% to Transit, and 4.8% to Street Traffic Oper. In FY23, those amounts are approximately $12.4M GF, $2.1M PS, $488k Library, $518K Transit, and $787k S/T Traffic. None of these funds are legally restricted, but reallocation of these funds would certainly have consequences on planned projects and operations. We are recommending $1.3M be redirected over 2 years from Library, Transit, and Street & Traffic. These funds are used for operating expenses, and will have short-term impacts on operations within these funds. After two years, it is anticipated that the funds will go back to the prior allocation amounts after two years. Potential impacts of deferring these funds could mean reduced maintenance programs along the transportation network to include plowing or landscaping. 
Police Drug Forfeiture ($500,000)
The City has drug forfeiture funds of approximately $900,000. Funds could be used for eligible Police Department building improvements.
Emergency Operations 9-1-1 Funds ($150,000)
The building includes space for an Emergency Operation Center. Funding from the EOC 911 fund could be used to pay for the eligible portions of this project related to the EOC. The estimated costs for EOC are $300K-$350K
Cell Tower Lease Revenue ($225,000)
The City receives cell tower lease revenue for a tower at the heights fire station and at Stewart park. These funds have been deposited into a Parks fund and have not been spent. There is approximately $225K accumulated that has not been spent. The Parks Department planned on using these funds for improvements to the Stewart Park parking lot.
Marijuana Revenue ($1,000,000)
The City will receive approximately $400,000 per year in Marijuana Revenue. We are recommending that a total of $1,000,000 ($200,000/yr for 5 years) be contributed towards the completion of this building.
Grant Revenue ($260,000)
The City will receive approximately $100,000 from the Opioid Settlement in the next two years. We will also receive $160,000 for energy efficient improvements through the Energy Efficiency and Conservation Block Grant Program. It is recommended that these funds be contributed towards eligible expenses within the building.
Outstanding Court Debt ($500,000)
The Municipal Court is taking a more proactive approach to collecting on delinquent court fines. Collection of these delinquent accounts should make available some funding for build-out of court space.
Historic Tax Credits ($2,500,000 - $3,500,000)
The City is exploring Historic Tax Credits as an eligible funding source for this project. While there is no guarantee that these fund will become a reality, we are digging deep to explore this option. The amount of credit is related to the total eligible expenses, so the exact amount cannot be known at this time.
Sale of City Assets ($4,500,000-$7,000,000)
The City Council has recently passed a resolution to begin marketing certain City properties for sale. These include the current City Hall Building, multiple parking lots downtown, and some retail space. Additionally, there are other properties the City owns, which may be considered for sale a future date. It is recommended that the proceeds from these sales be put towards the building.
Park District 1 and Parks Program Funds (Unknown at this time) If excess fund balance exists within PD1 or Parks Program Funds, there is a possibility that some of these funds could be used for eligible Parks expenses, making funds available for build-out.
Reductions in project scope (Reduce expense $797,000)
Some reductions in the project expenses could be made without impacting the function or quality of the building. These include deferring improvements to existing 4^th floor lobby and elevators, reduction in moving expenses and furniture and fixtures.

City Council may:

• Approve the funding recommendations from Budget and Finance Committee; or,
• Not Approve recommendations from Budget and Finance Committee and provide additional direction to staff

The fiscal effects of approving the staff recommendation would result in reducing and reallocating budget from other sources to this project, as indicated by the proposed funding options. By utilizing one-time and short-term cuts and reallocations as well as the sale of city assets, the City will avoid the additional cost of long-term debt service. There may also be additional sources of income from leasing space in the New City Hall building.

Based upon the recommended funding sources, the overall impact to the project is an increase in funding sources of $12,800,000 - $16,300,000. The most recent estimated reductions in project expenses net approximately $797,000. Overall this will provide enough funding sources to cover known project costs at this point in time.  It is also important to note that approx. 1.9 million dollars of cuts were previously made by the project team through value engineering efforts.