CC SHS Add Appropriation 2021Nov23 — File 212664

SHS Supplemental Appropriation Agenda ID# 27621 Mayor Joseph A. Curtatone Richard E. Raiche, Director of Infrastructure & Asset Management Edward Bean, Director of Finance 23 November 2021

Presentation Outline • Financial retrospective • SHS project financing background • Construction & change management • Revised finance plan 2

Financial retrospective 3

New Growth at record highs 4 $1.4M $10.6M FY2004 FY2022 New Growth has increased significantly since 2004, creating more financial capacity to support our ambitious goals.

Success at utilizing DIF programs 5 $613 Million Estimated tax increment collected over 30 years $1.2 Billion Estimated tax increment collected over 30 years Union Square Boynton Yards

Increased stabilization funds give us the flexibility to solve emergent issues 6 $360,000 Stabilization fund balance $64,905,241 18-fold increase in reserves since 2004. FY2004 FY2021

General Fund Equity has increased 497% since 2004 7 $15,109,593 $75,162,299 FY2004 FY2021 General fund equity has risen in thirteen of the past fifteen years, with a consistent upward trend.

Six bond rating upgrades since 2004 8 A+ S&P rating A2 Moody’s rating FY2004 FY2021 AA+ S&P rating Aa1 Moody’s rating

Since 2004... 9 62% Increase in the number of businesses in Somerville 4,100 net new housing units 2.8M sqft of commercial development complete or under construction 3.3M additional sqft of construction completing permitting 40% growth in private sector employment 410 COVID small business assistance grants issued $2.3M+ rental assistance funds allocated with more to come $1M in licenses and fees to small business owners waived during the pandemic

Financial background Background on the SHS construction project financing 10

2016 Debt Exclusion On November 8, 2016, Somerville voters approved an exemption from Proposition 2 ½ for the amount of debt issued to design, engineer, construct, and equip the new Somerville High School Project. At this time, the estimated project cost was $256M. • City share: $136M • $130.3M Debt + 5.7M Reserves • MSBA Share: $120M 11

2017 Project Appropriation On March 23, 2017, the Somerville Board of Aldermen unanimously authorized an appropriation of up to $255,982,704 to fund the SHS reconstruction project. Final cash flow developed by PMA on 3/15/17: • City Share: $134,147,557 • MSBA Share: $121,835,148 Planned City resources of $137,474,379 included $130.3M Debt and $7.2M Reserves 12

Summary • The overall appropriation of $255,982,704 passed in 2017 needs to be increased • Project cost will exceed appropriation • Cannot spend above appropriation • Risk failing to pay contractors timely-further project delay 13 YTD Actual Expenditures $234,498,818.50 PLUS Encumbered Amounts 20,986,886.00 Available Budget 496,998.00

Construction management Time is money! Advancing work while resolving disputed costs for changes 14

Starting project budget, March 2017 Category Value Construction $199,747,908 Soft costs $36,702,127 Furnishings & equipment $5,096,000 Contingency $14,436,669 Total $255,982,704 Building Phase 1 occupancy January 2020 Building Phase 2 occupancy August 2020 Field completion Summer 2021 15

Change management 1,700 PCOs, CCDs & risk items over project lifetime 16

Corrections & clarifications to contract • guideline 17

Owner-directed discretionary 18

Unforeseen site conditions 19

Unforeseen building conditions 20

New restrictions and conditions 21

Extraordinary unanticipated costs High-level overview of significant costs 22

Standard change & approved costs Category Amount Declined value management $2,640,153 Design changes & clarifications ≈ $2,400,000 Discretionary design changes $377,934 23

Unforeseen direct costs Category Amount Phase 1 Asbestos containing material (ACM) disposal $1,859,528 Phase 2A Auditorium structural revisions $754,630 Covid-19 mitigation expenses (including Mods rental) $1,482,332 Additional police & fire details $712,820 Phase 3 ACM disposal to date $3,942,526 Projected phase 3 ACM disposal (NTWP 8) $2,099,343 24

Schedule impact costs Category Amount Phase 1 ACM delays $2,640,153 Covid-19 & additional Phase 1A, 1B, 2, 2A delays $6,962,440 Phase 3 ACM delays through August 2023 (NTWP 8) $7,620,617 25

Settlement agreement & budget adjustment 26

Adjust GMP & schedule for all completed & known required work • 198 open PCO’s & potential claims for completed work • Phase 3 work & delays known as of October 22nd • Shift final cost negotiation & litigation risk to Suffolk • Exceptions for items outside of Suffolk’s control 27

Revised project budget, Dec 2021 Category March 2017 Value Dec 2021 Value Construction $199,747,908 $237,066,092 Soft costs $36,702,127 $34,423,765 Furnishings & equipment $5,096,000 $5,784,414 Contingency $14,436,669 $6,584,962 Total $255,982,704 $283,859,233 Building occupancy Phase 1: Jan 2020 Ph 1&2: Mar 2021 Building occupancy Phase 2: Aug 2020 Ph 2A: Dec 2021 Field completion Summer 2021 Summer 2023 28

Financial plan 29

Summary of Changes in Project Cost 30 Date District Share MSBA Share Total Project Cost Original Cash Flow Projection 3/15/17 $134,147,557 $121,835,148 $255,982,704 Updated Cash Flow Projection 11/18/21 167,333,739 116,525,494 283,859,233 Planned City Resources 137,474,379 Resource Gap $29,859,360

Proposed Plan to Close Financing Gap 31 Funding Source Amount Premium Revolving Account (SHS/Armory/GF Bonds) $4,392,071.70 Receipt Reserve / Premium (Other Premium) 1,051,868.60 Funds from USQ D2 Disposition 7,108,111.91 Facility Stabilization Fund 1,847,290.88 Unallocated COVID-19 Stabilization Fund 5,327,288.00 Free Cash Appropriation 6,000,000.00 Total 25,726,631.09 Remainder to be borrowed 4,132,728.91 District resource gap (total closed) $29,859,360

What is bond premium? • When market borrowing interest rates are low, buyers (underwriters) of bonds (debt) may offer cash payments (premiums) in exchange for higher interest rate on bond to make bond more marketable. • A bond selling at premium is trading above its par value. It’s considered premium when it offers a coupon rate higher than its prevailing interest rates. Example • Proposed buyer offers to buy bond at 2.5% rate of interest and to pay city premium of $100,000 • If city accepts offer and issues $2 million bond, bond will issue at 2.5% and city will receive cash from buyer of $2.1 million (bond proceeds + premium). 32

How can bond premium be used? Premiums on bonds/notes sold on or after 11/7/2016 are not general fund revenue and must be used one of two ways: • To net down the borrowing authorization by a like amount. • Reserved to fund future capital projects for an equal or longer period than the original loan. Option 2 is applied to the Somerville High School Construction Project. Somerville High School is a 30 year loan period. 33

Future Debt Service reduced by $73M due to favorable bond rates 34 Reduction in interest payments are expected to save Somerville taxpayers $2,713,044 per year in debt service compared to July 2016 estimates. This amounts to a total savings of nearly $73 million.

Additional debt service costs are minimal 35 Borrowing to close the funding gap will add an increase of $6,215,590 in debt service costs to the project. Total cost remains $67M below initial estimates.

Appropriation Request Details Item 27621 Requesting an amendment to the Somerville High School Construction appropriation to a new amount of $283,859,233 and increasing the amount of bonds, fund transfers, and other available funds of the city authorized to meet said appropriation Item 212517 Request to appropriate and transfer $8,796,290 from Facility Construction and Renovation Stabilization Fund to the Somerville High School Construction Fund 36

SHS Supplemental Appropriation Agenda ID# 27621 Mayor Joseph A. Curtatone Richard E. Raiche, Director of Infrastructure & Asset Management Edward Bean, Director of Finance 23 November 2021