04/16/14 — Opinions differ on schools

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Opinions differ on schools

By Steve Herring
Published in News on April 16, 2014 1:46 PM

Wayne County Attorney Borden Parker and Interim County Manager George Wood Tuesday evaded direct responses when asked whether Wayne County commissioners' decision on how to build and fund two new schools is binding on the county Board of Education.

Commissioners by unanimous vote Tuesday morning accepted Wood's recommendation that the county use the design/bid/build method to construct new high-performance middle schools in the Grantham and Spring Creek communities.

The decision could set up a showdown with the school board that will meet at 4 p.m. Thursday to consider action on its preferred method of using a capital lease.

"I think what the motion was is that they (commissioners) accepted the report, and they wanted it forwarded to the Board of Education for them to consider in their deliberations about which way to go," Wood said following Tuesday's meeting. "So they will make a decision and send it back to us to look at it again."

"The board of commissioners has to agree to the (capital) lease," Parker said.

In a nine-page memo to commissioners, Wood called school board architect Robbie Ferris' original proposal to build the schools "absolutely ludicrous."

Initially, Ferris wanted the county to use an operating lease agreement in which he would build the schools, then lease them back to the county. After five years, the county would be able to buy the schools.

However, the North Carolina Local Government Commission said that was not a viable option and what was actually being proposed was a capital lease.

An operating lease is considered renting, in which payments are considered operational expenses and the property being leased is not on the balance sheet. A capital lease is more like a loan, and as such the property is treated as being owned by the lessee, so it stays on the balance sheet.

Wood wrote as well that the capital lease method outlined in the proposal is the "worst option" to use, and would cost $3.4 million more than the traditional design/bid/build method to construct the exact same schools.

Also as worded, the contract would allow the developer's compensation to account for up to 26 percent, or $10.1 million of the estimated cost of $38.7 million to build the two schools.

Concerns were voiced as well that the capital lease would not allow the county to be reimbursed for any sales tax associated with the project.

The capital lease method is untried, and has been repealed effective July 1, 2015, Wood said.

Nor is there any  guarantee that the N.C. Department of Revenue would rule that the estimated $1.2 million of sales tax associated with the projects would be reimbursed to the county, Wood said.

"We know, and are certain, it (reimbursement) is legal using the design/bid/build method," he said.

Along with the design/bid/build method, Wood recommended that the county issue certificates of participation, basically a mortgage on the property,  "or a similar debt issuance" to pay the debt service.

During the Tuesday meeting, Wood painted Ferris' proposal as being heavy on fees designed to benefit his company at the expense of the county.

Commissioner Steve Keen made the motion to accept Wood's recommendation. But before the vote could be taken, Commissioner Joe Daughtery offered an amendment that the board instruct Wood to forward his report to the Board of Education for its consideration.

"A lot of good points have been made here, and I think that we need to forward it on to the Board of Education as they consider and vote on their preferred method of building these schools," Daughtery said

Keen said he would simply include that in his motion that was unanimously approved.

The school board met Monday night and instead of adjourning, recessed its meeting until 4 p.m. Thursday. It will be held in the board's meeting room at the schools' central office building on Royall Avenue.

The school board did not discuss its plans Monday, but Chairman John Grantham responded to a Sunday News-Argus article quoting Wood's comments about them.

"For people not aware of the process, we have been talking, not just talking about, we have had a building plan for 12 years," Grantham said. "This isn't just something that we came up with last year. This capital lease scenario that we have right now is not something that we came up with last month that we should be making somebody jump through hoops trying to get through by next month.

"We came up with this last fall, and we have been debating it ever since. We have tried for years and years to get county commissioners to fund school projects. We didn't really make any headway at all."

The school board ran into one delay after another, and it was Ferris who came up with idea of high-performance school, Grantham said.

If not for the developer the school board would not be talking about the schools at all, but would still be going down the same road it had been on for the last 12 years talking about the need to build more schools, he said.

Ferris showed how the school board could use its own funds to do the work and pay for the schools, and all the commissioners would have to do is enter into agreement, Grantham said.

"We can't legally borrow the money," he said. "We just wanted them to agree to let us use our money to make the payments for the schools. It looked like we were well under way, and the process was going to happen, and we had different county commissioners that were interested in building schools.

"If you know anything about the process at all, development fees are not free," he said. "There is cost associated with that."

Delaying the project even by just a year could cost millions of dollars in interest, he said. Also, the cost of construction continues to climb, and could add $2 million over the course of a year's delay, he said.

Grantham said he had heard "through the grapevine" that if the county goes to design/bid/build using the existing plans that the schools could still open as planned in August of 2015.

That won't happen, he said.

Grantham said he could guarantee he has more construction experience than anyone on the board of commissioners or the county manager.

"I have been in it 30 years and have built projects all over America," he said. "The costs will happen and the schools will not open up. If you go to the (design/)bid/build process right now, first you have got to select a construction manager which is going to be a fee of anywhere from 3 to 5 percent. That is a couple million dollars there right off the bat.

"We feel like the way we have these projects laid out is the best way for us to deliver these schools."

However, during the commissioners' Tuesday meeting Wood said that the way the school board had proceeded had precluded the use of two of the five financing methods that had been available -- including design/build that was the commissioners' first choice.

"If the Board of Education would inform the board of commissioners that they were getting ready to seriously look at designing a school, and then you all work cooperatively on the design of it because under these different methods you have got to approve it anyway," he said. "Then it has to go to the LGC. If you do it on the front end then you don't preclude using the design/build method.

"If they go to full architectural plans, like they did here, it precludes using the design/build method. I simply wanted to make that comment looking to any future other schools. Two of the options were precluded because you were not included on the front end."