Early Financial Projections
The original budget for the Community Safety Building (CSB) was $10 million. Changes to the scope of the BC Ambulance component, as well as rising construction costs (including labour and commodities), have driven up the projected cost of the building to just over $14M.
The estimated borrowing for the Town’s portion of the project has always been in the range of $5M to $8M. While we had hoped to be on the lower end of that range, increased project costs will see the Town's portion of the borrowing closer to the $8M upper limit of our estimate. We will not exceed the upper borrowing limit; that has not changed.
Cost overruns are due to factors outside the Town’s control: the South Island region’s unprecedented market conditions. Unfortunately, challenges associated with securing a site, and the resulting construction delays, have contributed to the cost overruns.
It is important to point out that the increase in scope of the BC Ambulance Station from $1.2M to $2.2M will be covered by BCEHS through a lease arrangement with the Town, and there will be no impact on Town borrowing.
How we are going to deal with the projected overage:
- The lease arrangement with BCEHS captures the additional cost of expanding the ambulance station to fit their needs; therefore, $1M of the cost escalation is covered. This is a good investment that helps ensure the ambulance service remains in Town to serve our residents.
- Proceeds from sale of existing Fire Hall site. Our initial projection on the proceeds of selling the existing fire hall site were conservative. A recent valuation has confirmed the site should generate net proceeds in excess of $3.25M. All of this will be directed toward funding the CSB, covering an additional $1.25M of the cost escalation. In addition, Council has decided to also market the parking lot site adjacent to the existing fire hall; but only if the majority of public parking spaces can be recovered through the resulting development.
- Value Engineering: the project manager and architect will provide recommendations on measures to reduce costs, and future tenders will be evaluated on this basis. Recognizing that this is a 50-year-plus project, with corresponding long-term community benefits, we are hoping to only consider those cost cutting measures that do not impact the long-term maintenance costs, shorten the lifespan of the building, nor diminish emergency service and disaster response functionality.
- Additional Funding Sources: we will be considering the use of additional, internal funding sources in order to minimize the impact of borrowing.
- Sources such as additional Gas Tax revenues, Infrastructure Reserves and Surplus funds, and others, will be brought forward with the upcoming budget process for consideration.
Projected Impact on the Average Household:
- The cost impact of the project on the average household has always been discussed using a range of potential borrowing amounts. This is still the case, but we are projecting to be near the top of our range.
- We went into this year predicting an annual impact of $42 per household; using a new figure of $8M in borrowing (instead of $6.3M) will add another $11 to this estimate, for a total of $53 per year.
- This equates to a total monthly impact to the average residence of less than $4.50 for a post-disaster building that will not only ensure our own emergency response to residents, but also keeps BC Ambulance in town.
What is the chance of additional cost increases?
With two tender packages still to be awarded, there is a small chance that the current cost projection could escalate beyond $14 million; but it should be noted that every effort is being made to reduce the $14 million projection. Currently, the project team is reviewing and evaluating the bids of Tender Package #4 with the intent of finding cost-saving measures that do not impact the long-term maintenance and 50 year+ lifespan of the CSB. Unfortunately, until TP#4 is finalized and TP#5 (interior fit-out) is complete, all we currently have to go on are the estimates that have been provided by our construction manager.
Our upper borrowing limit of $10 million, as per our borrowing bylaw, means that we have to keep costs under control. Once we’ve identified all other funding sources, we only have so much money that can be borrowed. Project costs must be kept in line with that upper limit.
Please refer to the staff report from the October 10th Council agenda for more information.