Barely two months into construction of a new city hall and parking structure, Whitefish already faces cost overruns that could lead to cutbacks or increased budgeting for the project.
The latest cost estimates for the project are roughly $1 million over the approved budget of $14.95 million, according to a memo from city manager Chuck Stearns.
A subcommittee tasked with overseeing the project is recommending the city council consider multiple options that would reduce costs and allocate new funds to the design and construction by borrowing from the tax increment finance district and allocating leftover money from an ancillary fund.
The subcommittee’s recommendations would cover $772,322 of the overruns, but an additional $227,687 would remain unfunded. Additional overruns could also emerge after the latest design bids from late last week, Stearns said.
The city council will review the situation at its regular meeting Dec. 7 and decide how to cover these unexpected overages.
The city hall portion of the project remains in line with historic cost projections, but the continued design of the parking structure has led to heightened expenses.
Stearns said a number of factors have led to the increased costs, including the exterior of the parking structure, a third elevator and increasing construction costs for steel, concrete and labor.
Another contributing factor is that Whitefish took a unique strategy for constructing the new downtown facility. Instead of following the standard of fully designing the structures before going out to bid and selecting the lowest offer, Whitefish chose its contractor — Martel Construction of Bigfork — first as a “construction manager at risk.”
This method involves a general contractor earlier in the process and can lead to expedited construction and a better product in the end, Stearns said.
By using this method, “I think we have more control and we’re getting a better building,” he said.
“A big incentive is you get a contractor on board earlier and cost estimating is better. That may be true, but right now cost estimating is coming in high for what we want,” he added.
In late October, crews began demolishing the historic city hall and embarked on a multi-year project to construct a new 18,000- to 21,000-square-foot building that will include municipal offices, a parking garage and retail space. Construction is expected to be completed by 2017.
In June, the council unanimously approved a $14.95 million budget for the project.
Faced with the cost overruns, the city’s subcommittee is seeking to reduce $229,128 worth of proposed features. The changes would include eliminating an elevator ($90,000), a skylight in the council chambers ($19,000), some outdoor canopies along Baker Avenue ($53,000), and oversized brick on the east side of the building ($7,085). It would also cut finishing the basement storage area and locker/bathrooms ($28,013).
The subcommittee is also seeking to borrow $162,000 from the TIF district by capitalizing on three years of lease payments from the retail space. The city’s realtor, Chap Godsey, said he believes the city could rent the 3,000-square-foot space at the northwest corner of the parking structure for $18 per square foot per year, which would result in $162,000 of revenue over three years, which would be repaid to the TIF district.
Martel Construction also believes it can find $181,194 in savings by altering its engineering plans without “affecting greatly the quality of the project,” Stearns said.
Also, the city budgeted for $1 million in ancillary costs for interim city hall costs and other expenses, and “there is probably at least $200,000 that will not be used from that budget and can be allocated to the design costs,” Stearns said in his memo.
These four separate proposals would cover $772,322.
Stearns said the remaining $227,687 could come from additional value engineering savings, other design cost reductions, an increase of the budget and increased contribution from TIF, and a use of the 5 percent contingency or private fundraising.
Stearns said the council will give city staff direction at Monday night’s meeting.
If the city council chooses to add money to the budget, those funds would most likely come from the TIF, Stearns said in his memo.
He added that some members of the community support revising the list of priority projects in the resort tax program and pay for the sidewalk and streetscape costs of the project using resort tax collections, but that concept has not had support of the elected officials on the subcommittee or city staff.
All costs of the project are paid from the accumulated savings of the TIF district and current year TIF appropriation, as well as a future Tax Increment Bond, and $750,000 from the approved $880,000 Special Improvement District #167.