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10.E.

City Council Draft Agenda

Meeting Date:: 11/16/2021

TITLE:

Consideration and Approval of Contract: Approval to not execute the Lease Agreement with US General Services Administration – U.S. Geological Survey Campus Build to Suit.

STAFF RECOMMENDED ACTION:

Approval to not execute the lease agreement for the U.S. Geological Survey campus reconstruction with US General Services Administration in the amount of $1,894,137.78 annually and a duration of 10 years firm; option for 20 years.

Executive Summary:

The City was selected by the U.S. General Services Administration (GSA) after a competitive bidding process for U.S. Geological Survey (USGS) Science Center Campus – Build to Suit Project. Under the terms of the new lease, the City would demolish USGS Buildings 3 and 4, and the City would construct two new buildings: Buildings 7 (new office/laboratory) and 8 (new warehouse). The USGS would then lease these facilities from the City at a fixed cost.

The City Council authorized the execution of a new lease on September 15, 2020. This new lease has never been executed, however, because the City needed to update construction costs and some of the design standards.

Over the past few years, construction costs have ballooned over 70%, based on estimates evaluated and completed by a construction contractor. Due to these increased costs, the City can no longer viably finance the USGS - Build to Suit Project.

If the City does not execute the new build-to-suit lease, the GSA will work with the City to revise the current operations lease (extend the term of the existing operations lease) in order to continue the current operations of the USGS Campus for up to 10 years. The operations lease extension will enable a new procurement to be issued and the opportunity for adjustment of the new lease price to conform with market construction costs.

Financial Impact:

During the May 2004 election, voters approved Proposition 101 for the purpose of the USGS Campus facilities construction and/or renovations. The City has only issued $3.37M of the $61.2M authorized by the voters. The City budgeted $27.9 million in the fiscal year 2021-2022 budget.

Policy Impact:

No impact.

Connection to PBB Key Community Priorities/Objectives & Regional Plan:

Council Goal || Economic Development

Grow and strengthen a more equitable and resilient economy.

Council Goal || Climate Change

Take meaningful climate change action.

Regional Plan Goal || Environmental Planning & Conservation

Reduce Greenhouse Gas Emissions (E&C.2)

Regional Plan Goal || Energy

Increase Energy Efficiency (E.1)

Regional Plan Goal || Community Character

Support and promote art, science, and education resources for all to experience

Priority Based Budget Community Priorities and Objectives || Environmental Stewardship

Actively manage and protect all environmental and natural resources
Provide environmental community outreach, education, and volunteer opportunities

Priority Based Budget Community Priorities and Objectives || Livable Community

Support diverse employment opportunities that provide residents with a living wage

Priority Based Budget Community Priorities and Objectives || Robust Resilient Economy

Attract employers that provide high quality jobs and have a low community impact

Has There Been Previous Council Decision on This:

On 15 September 2020, Council approved the lease with GSA in the amount of $1,894,137.78 annually and for a duration of 10 years firm; option for 20 years.

Options and Alternatives:

1. Approval to not execute the lease with the GSA as recommended. Approval will allow a revised lease to occur while the project and funding are reevaluated.

2. Retain the approved lease without the financial means to construct the project.

Background and History:

The USGS Science Center Campus has been a part of the Flagstaff community since Building 1 was constructed in the mid-1960s. The campus expanded in the mid-1970s to include Buildings 2, 3, and 4. As time passed and needs changed Buildings 5 and 6 were added to the campus, while Buildings 1 and 2 were demolished. Today, the needs of the USGS continue to change, which has spawned this latest phase of the science campus to include 57,242 square feet of rentable office and related space.

During the May 2004 election the voters approved Proposition 101 for the purpose of US Geological Campus Facilities Construction and/or Renovation. The City has been negotiating for a new built to suit facility with the GSA since May 2016. On 17 April 2018, Council directed City Staff to continue negotiations with the GSA. In October of 2019 the cost of construction had increased to $27,815,873 from our initial May 2016 submittal of $20,821,698. City staff was able to develop a financial plan that would deliver the project with debt issued for up to a 24-year period based on the October 2019 construction estimate.

The estimate of construction costs was analyzed and updated in September of 2021 to $38,269,376, which is approximately $10M over the previous financial plan for this project. In order to continue the project, the City would need to identify a funding source for the cost increase and/or increase financing to 37-40 years. Neither option is recommended.

Key Considerations:

The City has been leasing the City facilities to the USGS since the 1970s. To re-solicit and re-scope the project would allow the USGS to reevaluate the needs and infrastructure required for the future functionality of the USGS Science Center Campus here in Flagstaff while affording the City an opportunity to evaluate funding options. In the interim, a revised lease would continue this long-term partnership between the City and both the GSA and USGS.

Community Benefits and Considerations:

The authorized amount for the USGS – Build to Suit Project was for $61.2M, of which the City has only bonded for $3.37M leaving an available balance of $57.83M. The purpose was to lease facilities to GSA or others with the ability to pledge state shared revenues or other revenues. Debt was no more than 25 years with a maximum interest rate of 10%.

The City has been negotiating for a new build to suit facility with the GSA since May 2016. In the previous proposal, the City would contribute $3M from the USGS reserve account and would need to finance $24,815,873 with an estimated interest rate of 3.5% over a 24-year period.

Community Involvement:

The United States Geological Survey (USGS) Flagstaff Science Campus (FSC) houses science centers and research teams of the USGS that have a diverse range of scientific expertise. The Flagstaff Science Campus houses five USGS science centers: Arizona Water Science Center; Geology, Minerals, Energy, and Geophysics Science Center; Astrogeology Science Center; the Western geographic Science Center; and the Southwest Biological Science Center all of which employ several hundred staff and science professionals. The expertise of FSC scientists and collaboration opportunities provide the ability to address science issues related to water, ecosystems, climate and land-use change, energy and minerals, environmental health, and planetary exploration and study.

The USGS has been an integral part of the Flagstaff community, and more specially the Flagstaff science community for nearly 60 years. The City looks forward to continuing this partnership and contribution to the community.

By not executing the current build-to-suit lease, there would be the opportunity for the City to enter into a revised lease to continue operations of the science campus while providing time for the USGS to update the documentation and infrastructure specifications of current new build needs while the City explores financing options to allow the completion of a build-to-suit construction project. The current Program of Requirements, POR, a 280-page, design-guiding document from the USGS, was created in January 2014 and revised in June 2017.

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