Financial Impact

The greatest objection to delaying the construction of the extension of Seneca Street has been the consistent refrain that future construction will cost more than the immediate construction of the extension of Seneca Street.  Staff has estimated the cost of constructing the extension of Seneca Street in five years to be at least $800,000 more than it would cost the developer, CenterCal, to build the extension in 2014.  While it is very likely that construction costs will be greater in five years, a complete analysis of the difference in the total cost between the immediate and future construction of the extension of Seneca Street must include thoughtful review of the following factors:

Accuracy of Estimate of Future Construction Costs

While there are difficulties in comparing CenterCal’s estimate for constructing Seneca in 2014 and the City’s estimate for constructing Seneca in 2019, one figure that does allow for a straight comparison is the contingency percentage, or the amount budgeted for cost overruns.   CenterCal’s estimate  uses a 10% contingency reserve, whereas the City’s estimate  uses a figure of 30%. Recalculating the City’s estimate for 2019 construction with a 10% contingency reserve reduces the overall cost estimate by more than $130,000.

City’s Construction Cost Estimate:  $667,537
                                                 x .30 Contingency     = $200,261
                                                 x .10 Contingency     = $  66,753
                                                     Total Savings         $133,508


Application of CenterCal Payment

The recently issued Public Facilities Decision requires CenterCal to pay the City $360,000 if the right-of-way for the Seneca extension has not been dedicated by April 1, 2014.  In other words, if the Council does not vote on January 12 to approve the immediate construction of the extension of Seneca Street, then CenterCal will pay the City $360,000.  For the purposes of calculating construction costs in 2019, we have assumed that this $360,000 will earn no interest over the course of five years.  The addition of this $360,000 to the savings from the revised 10% contingency reserve noted above reduces the overall difference between 2014 and 2019 construction costs by almost $500,000.

                      CenterCal Payment:        $360,000
Savings from Revised Contingency:      +  133,507
                            Total Savings:         $493,507


Indirect Costs of Immediate Construction

If Seneca is extended in 2014, the services currently located in the Council Building will be moved elsewhere.  Staff estimates that approximately 5,000 square feet of space will be necessary to accommodate those services in a new location.  While Staff has intimated that the services currently provided in the Council Building could be moved into existing City offices, Staff has also highlighted the numerous negative effects of an internal relocation.  As part its presentation to the Council, Staff estimated that the rental cost for the required 5,000 square feet of needed space (exclusive of tenant improvements and moving costs) would be between $500,000 and $630,000 over five years.  To factor in at least a portion of the tenant improvement and moving costs, this analysis utilizes the average between the high and low projections for rental cost, which produces a total five year rental cost estimate of $565,000.


Estimated Cost of Construction, 2014 vs. 2019

With the revised construction contingency, CenterCal payment and rental costs all factored in, the difference in cost between construction of the extension of Seneca Street in 2014 and 2019 is calculated as follows:

2014

2019

CenterCal Estimate[1]:               $824,000              City estimate[2]:            $1,468,356
Cost paid by CenterCal:             – 360,000         CenterCal payment:            –    360,000
      Five year Rent Cost:           + 565,000        
                  Total Cost:            $1,029,000                    Total Cost:             $1,108,356

While these are estimated costs and the actual total costs will certainly differ to some degree, if the same formula is applied to the total costs in each approach, then the projected amount of saving from immediate construction versus future construction in 2019 is less than $80,000.    In sum, the best result from a financial standpoint would be that if the extension of Seneca is to be constructed at all, then the construction of a replacement Council Building would occur prior to the demolition of the existing Council Building.  In that scenario, the rental costs would be eliminated and future construction cost increases would be offset by the $360,000 payment made by CenterCal to the City.

Opportunity Costs of Immediate Construction

CenterCal’s total Transportation Development Tax payment to the City has been calculated at $1,200,000.  Of this amount, $440,000 is estimated to be repaid to CenterCal as a credit for its cost of construction of the extension of Seneca Street in conjunction with the development of Nyberg Rivers.  Instead of paying this $440,000 back to CenterCal, the funds could be used for numerous other and arguably more beneficial transportation infrastructure projects in Tualatin, as outlined in the City’s recent Capital Improvement Plan and the Traffic Impact section of this website.  If the $440,000 is spent on the immediate construction of the extension of Seneca Street, then these other projects will not be funded until later years, if ever.


[1] The CenterCal estimate of $800,000 was prepared in March 2013.  To retain consistency with the annual 3% inflation multiplier used in the City’s estimate, the total cost of the CenterCal estimate was increased by 24,000 (3% of $800,000) to factor in construction beginning in May 2014.

[2] The City’s original estimate for construction costs was $1,410,339, using a 30% contingency.  Using a 10% contingency, the estimated cost is reduced by $133,507, producing a revised estimate of $1,276,832.  Using the City’s annual 3% inflation multiplier, the revised total estimated cost of construction in 2019 is $1,468,356.