Sunday, September 18, 2016

--- Isn’t renovating our current structures much more costly? Why is the City asking for so much money if it only needs half? --- 

The City’s argument in favor and rebuttal argument both claim that:
Retrofitting or expanding the existing structures has been shown to be more costly than new buildings
&
The alternatives the opponents mentioned were studied by an independent consultant and found to cause dangerous delay and be much more costly than this measure.



First of all, the majority of this project will need to be funded by residents. The City claims to have $2 million on hand if construction begins within a few years and expects an additional $8 million to come by 2023. Essentially, that means that residents will need to cover the rest and will pay approximately 90% of the project. With all this housing construction going on across the City, does this sound like sound fiscal management?




Second of all, it is helpful to look at the estimates provided by the City's consultants. According to this slide from the February 2016 City Council hearing:

• Option 1A (renovate current library, rebuild city administration & police headquarters building) costs $64,857,900

• Option 1B (build new buildings at current site) costs $63,278,200

• Option 2 (build new buildings at Community Center site) costs $65,593,000

Difference between Option 1A and 1B: $1,579,700









Later the consultants would provide an updated figure in April, by then they did not have to compare with Option 1A.

Option 1B: $64,000,000

New difference between April estimate for Option 1B and February estimate for Option 1A: $721,800

In either case, a difference of give or take $1,000,000 in a $64,000,000 dollar project does not sufficiently merit descriptions as "much more costly”.

To further add, these estimates are not meant to be exact, rather extrapolations based on sq. ft. costs that were taken from the costs to build a library in Half Moon Bay and Rinconada Library in Palo Alto. Why did the government not provide a cost estimate from a contractor that detailed the exact costs of construction? The library that is needed in Half Moon Bay and Palo Alto does not share the exact same needs for a library in Newark.

If one trusts the numbers provided by the consultants, the replacement of the three buildings is around $64 million, yet the City is asking for $126 million over 25 years. Strangely, the City refuses to go on the record stating their willingness to use excess tax collection from the sales tax towards paying back the debt. Perhaps, their unwillingness to do so is tied to their desire to have a slush fund to be use at their discretion.

If the entirety of the sales tax revenue is used to paying back the debt, the City can pay the entirety of the loan within 20 years. However, by not doing this, a slush fund is created.

In the case that a principal amount borrowed of $64,000,000 that will be paid back at an annual interest rate of 4%, initial sales tax collection of $3,500,000, with an average sales tax growth of 2.5% annually, a slush fund of $25,000,000 is created over the 25 years the sales tax will be in effect. An Excel file has been attached which provides various number of situations, with various interest rates and expected growth in sales tax.










Recall the City frames opponents of the ballot measure as pushing alternatives that are “costlier” (using the consultant’s extrapolated cost models, renovation is expected to be less than $700,000 compared to building new), whereas the local government refuses to promise to put surplus tax revenue into paying back the debt from this project allowing a slush fund to be available for the City and sees no problem in pretending they have the best economic interests of residents.

Even then, the City is pushing estimates that are prone to significant errors as they fail to account for the differences in needs required by Half Moon Bay, Palo Alto and Newark. Therefore, these estimates ought to really be taken with a grain of salt.

Ultimately, instead of the government vilifying residents for wanting to maximize the life of investments already made in our current buildings, the government should instead focus on how they can avoid putting the city further into debt and the expectation that Newark residents are here to bail them out.

Take me back to the Table of Contents

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