03-24-21: Measure H1 Bond Program Budget Update

M E M O R A N D U M
TO: Board of Education
FROM: Randall Booker, Superintendent
DATE: March 24, 2021
RE: Measure H1 Bond Program Budget Update

I. SUPPORT INFORMATION

Thanks to Piedmont voters’ approval of Measure H1 in November 2016, the Piedmont Unified School District is modernizing and improving school facilities to better support its educational programs.  What follows is a history of the Measure H1 program, an overview of the completed and ongoing projects, and a program budget update.  

In summary, the District is accomplishing its key objectives but added and unforeseen costs added roughly $3.885 million to bond program costs. A significant portion of these costs has been offset through value engineering and deferrals that are not expected to impact students.  Nonetheless, the District faces a shortfall of roughly $1.6 million and this may rise before the final project, the Performing Arts Center, is completed due to on-going Covid-related expenses.  The District can complete the Performing Arts Center within budget by deferring additional features that will affect its functionality.  These deferred features can be added later when more funding becomes available, and planning for private fundraising to restore these features is underway.   

A. History of the Measure H1 Bond Program 

During 2015-16, the District assessed its facilities to determine whether they support changing educational programs and goals, and developed a plan to ensure that facilities enhance educational programs now and in the future. This “Facilities Master Plan” is intended to address current and future educational needs of students and ensure that facilities have the necessary capacity and functionality to support educational excellence.  (For more information about the development and findings of the Facilities Master Plan, and the work completed to date, see measureh1.org)  At the time the Plan was developed, in 2016, completing all work identified in the Plan was estimated to cost roughly $137 million.  

To address the most pressing needs identified in the Plan, the District proposed Measure H1 to the Piedmont voters.  On November 8, 2016, 74% of the voters approved the measure, authorizing $66 million in school construction bonds.  The total bond program budget is $67.6 million — $66 million in bond funds and roughly $1.6 million in interest earnings.   

B. Financial Overview  

The District issues the H1 bonds as needed.  Although high school construction did not start until 2019, bond funds were needed before then to pay for “soft costs” such as design, engineering, surveys, program management, and improvements to the middle school.  In addition to this cash demand, other factors considered in planning the bond sales included current interest rates, the potential for rates to rise in the near future, and the District’s bonding capacity (which depends on the assessed value of real property in Piedmont).  The first sale of Measure H1 bonds was in April 2017 for $26 million, and the second sale was in September 2019 for $30 million.  The bond funds are invested with the Alameda County Treasury, as required by the California Education Code.  The District will sell the remaining $10 million in bonds in 2021.  Based in part on the projected growth in assessed real property values in Piedmont, the District expects to fully repay the H1 bonds by 2049. 

C. Accomplishing Key Objectives

1) Modernization Goals

Measure H1 funds have made it possible for the District to complete the following:

  • Construction of a new high school STEAM building for the study of Science, Technology, Engineering, Art, and Mathematics, including:
    • 6 science labs
    • 4 computer science labs
    • 1 engineering lab with patio 
    • 7 general classrooms
    • 2 art rooms with patios
    • New PHS main office
  • Installation of highly-efficient ventilation and climate control equipment in 26 existing classrooms (in addition to the 20 STEAM classrooms), to prevent classroom overheating and improve the learning environment, making it possible to retire steam radiators and a failing, highly inefficient boiler.   
  • Relocation and upgrade of the District server room including new servers, switches, battery storage to protect against data loss that can occur in a power disruption, and underground utility connections.  
  • Improvements to the learning environment at the middle school, including the reduction of sound transfer in classrooms and improved climate control, and renovation of special education facilities and restrooms.
  • Installation of new safety and security features at the middle and high schools consistent with the District’s Safe Schools Plan. 
  • Refurbishment of old science labs and other spaces in the PHS 20s and 30s buildings for use as general classrooms and offices.
  • Conversion of two offices in the PHS 30s building into a computer classroom with 34 workstations.  

Over the next year, the District is on track to complete construction of a Performing Arts Center with a new Alan Harvey Theater (completion expected Fall 2021), including: 

  • 487-seat auditorium (459 fixed, 28 movable seats; the original Alan Harvey Theater had 442 seats)  
  • Green room with dressing rooms 
  • drama classroom  
  • Visual and Performing Arts Department office
  • conference room

The District expects to complete this work with the $66 million in Measure H1 bond funds and bond interest earnings, with some features (discussed below) deferred until additional funding is available.  

In the future, the District is eligible to receive an estimated $4 to $6 million in State funds for modernization of the middle and high school facilities.  The timing of receipt of this money is uncertain because it depends on the approval of a statewide school construction bond measure by State voters and the most recent statewide school construction bond measure (Proposition 13 in March 2020) was not approved.  As the timing is uncertain, these funds are not included in the program budget.   

2) Energy Efficiency and Sustainability Goals 

The District is dedicated to reducing energy consumption and promoting sustainability across all school sites.  This requires the assessment of energy use, investigation of and investment in new technologies, and re-engineering existing infrastructure.  Measure H1 funds have made it possible to significantly advance these initiatives.  

a) Zero Net Energy Goals

The STEAM building was designed to be a “zero-net-energy” (ZNE) facility, meaning that it would generate enough clean, renewable, solar energy to offset its energy consumption.  As discussed below, to offset added costs, the District deferred some but not all of the solar panels.  

When the STEAM building opens, roughly 58% of the solar panels will be in place and fully operational.  All infrastructure for the deferred panels is already in place so that, when the District secures funds to purchase the full array of panels, the panels can be added easily.  Once added, the STEAM building will be zero net energy.   

b) Reducing Consumption and Promoting Efficiency

Reducing consumption and promoting efficiency means, in part, maximizing the lifecycle and durability of facilities and minimizing maintenance costs.  For this reason, the “means and methods” of all Measure H1 construction are continually under review to ensure they are consistent with these lifecycle and durability objectives.  Both the STEAM and Performing Arts Center (PAC) buildings are designed to have a useful lifespan of 75 years or more.     

c) Reducing Operating Costs and the Use of Hazardous Chemicals

Measure H1 funds made it possible for the District to retrofit 26 classrooms with state-of-the-art climate control and ventilation systems.  Although air conditioning has not been a standard feature in schools in this region, the warming climate now makes it a necessity.  In warm weather, it is not unusual for classrooms with western exposure to reach temperatures of 80 degrees or more, and this interferes with teaching and learning.  In addition to improving the learning environment, these new systems reduce energy consumption and operating costs and eliminate the use of hazardous refrigerant chemicals, and timers and sensors ensure that heating and cooling are activated only when these rooms are in use.   

d) Promoting Sustainability and Protecting the Environment  

To promote sustainability of water resources and protect the natural environment, site work around the new STEAM and PAC buildings includes “bioretention” basins to channel and filter rainwater.  These basins direct the flow of rainwater away from impervious areas around buildings and walkways, and use soil, plants, and underground layers of gravel to drain and filter this water.  Bioretention helps prevent rainwater from overloading the City’s storm sewer system, contributing to flooding and damaging local streams. Bioretention naturally filters bacteria, sediments, and pollutants from rainwater, improving water quality as it flows underground and ultimately to the San Francisco Bay.   

D. Budget Update

The bond program budget of $67.6 million includes hard construction costs for the STEAM and PAC projects as well as soft costs (including architectural and engineering fees, State fees, consultant fees, work “self-performed” by the District, and staff costs), money spent or committed to date for other projects (see the “Accomplishing Key Objectives” list above), program costs, and contingency funds for unforeseen costs.  The District expects to complete the PAC on schedule, in the Fall of 2021, within the remaining funds.  Nonetheless, to remain within budget the District will defer certain features that will affect functionality.  These deferred features can be added later when more funding becomes available.  

1) Guaranteed Maximum Price

The District’s contract with Overaa Construction for the STEAM and PAC projects, which covers hard construction costs only, is for a “Guaranteed Maximum Price” (GMP) of $49,973,479 — $29,544,344 for the STEAM building and $20,429,135 for the PAC.   

a) Development of the Guaranteed Maximum Price

Cumming, the District’s cost estimator, originally priced the STEAM project at roughly $31.6 million.  XL Construction, the District’s first general contractor, priced the project at more than $33.4 million.  Discouraged by XL’s high price and lack of engagement in value engineering to reduce cost, the District changed contractors to Overaa and agreed to the GMP of $29,544,344.  It is worth noting that, from the outset, Overaa was able to attract multiple, competitive subcontractor bids for each category of work (such as mechanical, electrical, plumbing and roofing).  This competitive pricing is notable because of the difficulty that many public school construction programs have had over the last several years attracting any bids.  

The District achieved similar value with the PAC.  Cumming estimated the project cost at roughly $24.7 million and XL’s price was roughly $25.8 million.  Following value engineering, the District and Overaa agreed to a GMP of $20,429,135. 

Throughout the subcontractor bidding process and continuing throughout planning and construction, the District and Overaa worked with subcontractors to consider alternative “means and methods” of construction to reduce costs without compromising educational programs or the student experience.  

Also part of the effort to reduce overall cost, the District carved out as much work as possible to be performed by District maintenance staff or District-direct subcontractors.  This “District-direct” work has had the added benefit of helping to keep the projects on the very aggressive schedule necessary to complete the buildings in time for the start of the target school year.  For example, in the Summer of 2019, the District discovered that underground utilities (gas, domestic water, storm drain piping, sanitary sewer, fire alarm,  fire/sprinkler, tel/data/communications/fiber, and electrical systems) for all high school buildings were deteriorating and needed replacement.  Taking this on as District-direct work, the District (rather than Overaa) replaced these utilities.  This work also involved: excavation of trenches all across the Magnolia Campus; backfill and compaction of the filled trenches to avoid settling; work with PG&E to install a new transformer; and work with the East Bay Municipal Utilities District to upsize the fire sprinkler system for the entire Magnolia Campus.  This unforeseen work added both time and expense to the projects, but the District was able to contain the added costs and avoid delays by doing this work directly. 

By selecting Overaa Construction as the general contractor, engaging in rigorous value engineering in partnership with Overaa, and maximizing the work performed by the District, the District achieved good value in establishing the budget for the STEAM and PAC projects.  This was noted by the District’s Facilities Steering Committee in its report to the Board of Education concerning development of the GMP.  

b) Two Buildings, One Project, One Contract

The STEAM and PAC buildings appear to be separate structures although their solar, mechanical and other systems are interconnected.  For this reason, they are truly one project.  It would have been logistically complicated and legally risky to have different contractors complete each building, because it would have been difficult to establish where one’s responsibilities — and warranties — end and the other’s begins. For this reason, the two buildings were conceived  and bid as one project to be completed by one general contractor.  

The STEAM building was scheduled to begin one year ahead of the PAC project. The California Division of State Architect (DSA), the agency that oversees and regulates public school construction, approved the STEAM plans and permit before those of the PAC.  Ideally, the District would have had DSA’s final approval for both buildings before finalizing the contract price.  Nonetheless, the District could not delay entering into the contract with Overaa beyond March 2019 because of the construction schedule — to complete the STEAM building for the start of the 2020-21 school year, it was necessary to start demolition of the old Alan Harvey Theater in the Spring of 2019.  Other reasons to execute the contract then included the unusually large number of school bond programs in the region, leading to increased competition for and the dwindling number of qualified contractors available for public school construction.  

For these reasons, the District and Overaa signed a contract and began construction with the understanding that the contract price (GMP) would increase due to the expected DSA changes to the PAC.  To account for DSA’s post-GMP changes and other added and unforeseen costs, the District reserved $2.5 million in contingency funds for the STEAM and PAC construction.   

c) Added and Unforeseen Costs

The contract with Overaa, approved by the Board of Education in March 2019, generally limits Overaa from charging the District more than the contract price although there are exceptions.  As explained above, Overaa may — and was expected to — charge for post-GMP changes in project scope made by DSA and the District’s architect, HKIT.  Also, Overaa may charge for the unforeseen costs directly related to the Covid-19 pandemic.   

The added and unforeseen costs include:

  • DSA increases in structural steel, rebar, rock anchors, micropiles, structural concrete, bedrock excavation and backfill, and shoring that increased materials costs and required overtime labor to ensure STEAM completion for the start of the 2020-21 school year.   
  • Discovery and replacement of deteriorating underground utilities for all existing high school buildings, and discovery and repair of a dangerous underground void beneath the PHS breezeway.
  • Pandemic-related costs including a full-time health and safety officer at the construction site.
  • Relocation and upgrade of the District server room including new servers, switches, battery storage to protect against data loss that can occur in a power disruption, and underground utility connections.  
  • Lighting tariffs.

These items alone added roughly $3.885 million to the bond program costs, exceeding the $2.5 million in contingency funds.   

The District worked with Overaa and its subcontractors to offset some of these costs without compromising the life cycle of the buildings, educational programs, or the student experience.  Also, in consultation with the Facilities Steering Committee, the District deferred certain features including: solar panels; furnishings, fixtures, and equipment for the black box theater; and other items that can be easily added later when additional funding becomes available.  At the March 24, 2021 Board meeting, the Board will consider increasing the GMP to cover the added costs that have not been offset.

d) Strategies for Completing the Performing Arts Center Within Budget

The District still faces a shortfall of roughly $1.6 million, and this shortfall may continue to rise due to on-going Covid-related costs.  It is important to note that this is not a cash-flow issue –  final payments will not be due to Overaa until February of 2022.  

The Facilities Steering Committee recommended that the District proceed with two strategies for completing the PAC within budget:

  • The District has capital improvement funds that could have been used to pay for relocation of the District server room, heating and ventilation upgrades, and other costs that were not part of the original bond program budget but were paid for with bond program funds.  If authorized by the Board, the District could “reimburse” the bond program with these capital improvement funds.  Also, the District should consider other possible fund transfers and loans to help complete these projects.  
  • The District should defer features — such as the orchestra shell, rigging, drapes, carpet, and seating — that can be cost-effectively added later.  Although these deferrals would affect the functionality of the new theater until these items can be added, the timing of when the theater may open for performances is uncertain due to Covid-19.  For this reason, there is time to develop private fundraising and identify other funding sources.  

The Committee noted that, also due to public health concerns, public and private theaters are reevaluating seating, and many are moving to flexible seating systems.  For this reason alone, deferral of the purchase and installation of permanent seating is appropriate until more flexible seating plans can be evaluated.   

The Committee emphasized seeking out loan opportunities although, as noted above, this is not a cash-flow issue because final payments will not be due to Overaa until February 2022.  In reality, the District would be seeking a promise of a future loan if the budget gap cannot be closed before final payments are due.  

A group of community members and the Piedmont Education Foundation are developing a fundraising campaign to help complete the PAC without any further deferrals, and restore features that were deferred previously.  The aim is to raise this money before final payments are due to Overaa.