Walker defends county's decision to lease
KINGMAN – Mohave County officials Wednesday explained the county's decision to lease its new administration building rather than own it.
County Manager Ron Walker and Finance Director John Timko explained the method of financing and construction oversight allowed by a 2000 law.
The "design/build" concept is better than the old way of "design/bid/build," Walker said.
The county manager said that because the concept was new and wasn't understood by county staff, there was "a lot of opposition" to it.
"We weren't that sophisticated.
We'd never done it before," Walker said.
"We're trying to educate people (that) we're following the letter of the law," Walker said, explaining the reason for the meeting, which was attended by at least five media representatives and others.
Under the design/build process, the county is not stuck with paying for construction change orders, which drive up the cost, Timko said.
With design/build, the developer finances the building and the county – through an independent corporation – leases the building from the developer and owns it after 15 years.
Walker said the process offers several benefits.
The building will not be worn out by the time the county owns it because the developer is responsible for its upkeep.
The building should be usable for 30 years or more, Walker added.
"With design/build, you don't have to have the entire building designed before you start construction," Timko said.
The design/bid process will save the county more than $60,000 as compared to the traditional design/bid/build process, he added.
Timko asked and then answered the question, "Why are we borrowing money when we have cash ($20 million) in the bank?"
He explained that even though the bonds that will be used to finance the project will cost 4.4 percent, and that the county is earning only 3.16 percent interest on the $20 million, the county still will come out ahead in the long run.
"The reason that we make money borrowing is because the amount borrowed as you pay it back is a declining balance.
This is because the county's 'principal' will decrease as annual lease payments are made," Timko said Thursday.
"The bond payments and the lease payments are one in the same," Timko added.
"The bond payments come from the lease payments.
That's what the lease payment is for."
Meanwhile, the county will earn interest on an increasing amount of cash in the sales tax building fund.
Walker noted that utilizing the design/bid process frees up the $20 million to be used on other capital projects, including $2.5 million in start-up costs in the current budget.
If the county used the $20 million to pay for the new county administration building, "We'd have to wait another five years before we could continue with capital investment and restructuring" projects, he said.
A seven-member working committee agreed to the specifics of the design/build process, Walker said.
He noted that former Mohave County Attorney Bill Ekstrom served on the committee.
Other committee members were Walker, Timko, public works director Mike Hendrix, assistant public works director Nick Hont, general contractor Ron Shimpa and Stone and Youngberg financial consultant Bob Casillas.
Lake Havasu City resident Ore Vacketta raised a question about a possible violation of the open-meetings law.
Vacketta represents a group known as Manager Review, Inc., a non-profit public service corporation.
After the meeting, District 1 county supervisor candidate Richard Basinger said the seven-person committee's actions violated open meeting laws.
Timko said that because state law requires confidentiality by the committee, its meetings were not open to the public.
Asked why none of the county supervisors was on the seven-member committee, Walker said, "They could have been on the working committee … but they weren't." He said the supervisors' jobs are more along the lines of "long-range strategic issues."
Walker said the county let the managing of the design/build process be handled by "the people who get paid to do it."
Timko said the design/build method "is something we will most likely use in future infrastructure projects, working side by side with the builder and property manager."
Walker said the design/build method would "most likely" be applied to a law and justice center the county plans on building in the future.
Timko said financing prison construction was the motivation for the state Legislature's approving the design/build method in 2000.
According to the official March 1 board of supervisors meeting minutes, the supervisors approved – by a 2-1 vote with Buster Johnson dissenting – the recommendation of the committee "for the construction of the county administration building at a cost not to exceed $20 million, and a financing rate not to exceed 4.5 percent, and authorize the board chairman to execute all necessary documents to complete this transaction, including a land lease and lease to own agreement."
At that meeting, according to the minutes, "Walker advised that this was a hallmark day for the county … since the board approved a design/build concept, and granted authority to proceed with the construction of the administration building, in July 2003." A quarter-cent county sales tax, which the county collects for its building funds, will be used to lease payments on the building.
The new sheriff's office cost $155.91 per square foot, while the new county administration building will cost $131.92 per square foot, Timko said.