Lake Oswego City Hall designs exceed budget by $24 million
Lake Oswego's year-long effort to build a new City Hall hit a signficant speed bump Tuesday, when staff and project contractors told City officials that the estimated cost of the proposed design substantially exceeded the project's $40 million budget.
"It was $64 million," Deputy City Manager Jordan Wheeler told city councilors, who also act as the Lake Oswego Redevelopment Agency board.
City staff and project architects explored a variety of ways to trim the design and cut down on costs, Wheeler said, but they weren't able to close to gap — meaning a large portion of the past year's design work has to be essentially thrown out.
The council was decidedly not thrilled by the news.
"We're not happy," Councilor Skip O'Neill told Wheeler and the contractors. "You came before us a year ago, and I warned you: Don't come up with something that's more expensive than we have a budget for. We were very upfront about what that budget was."
Councilors Joe Buck, John LaMotte and Jackie Manz all echoed O'Neill's comments, and Buck and O'Neill both questioned whether the City had any recourse to recoup part of the estimated $750,000 that had already been spent on the design work.
"Do Lake Oswego taxpayers eat all of this?" Buck asked. "How much more are we going to have to spend to get back to where we were before?"
The project was originally conceived as a new police station that would replace the LOPD's current cramped headquarters on the second floor of City Hall. The City acquired two properties adjacent to City Hall for the new building in 2015, and hired the design firm Mackenzie to begin architectural work.
But before the project advanced very far, a separate report revealed that a host of deferred maintenance issues with the existing City Hall building were more substantial than originally thought, and the cost of full repairs was estimated to be almost as high as the cost of constructing a new building.
In response, the council voted to pursue the construction of a new City Hall, and the project was folded into the already-underway police station project in order to ensure that the two buildings would complement each other. A series of public meetings was held to solicit feedback from Lake Oswego residents and further refine the design.
Over the course of the following year of design work, the two structures gradually evolved and merged into a single two-story structure along the northern length of the block, with a large public lobby area and state-of-the-art sustainability features.
Armed with a clear picture of what the new building would look like, Mackenzie and City staff brought on contractors DAY CPM and Howard S. Wright to provide a more detailed cost estimate for the project. That's when the bad news emerged.
"In terms of architecture, there has been a lot of work put into it," Wheeler said at Tuesday's council meeting. "It's disappointing to have gotten this far into the process, but the silver lining is we're not farther."
City officials intend to fund the project through the East End Urban Renewal District, and the $40 million spending limit represents nearly all of the remaining money that the district is expected to generate. So going over budget isn't an option.
Planners considered several ideas to bring the cost back down, Wheeler said, and then narrowed the list to two proposals. Representatives from Mackenzie and the two contractors joined Wheeler to present the options to the council on Tuesday.
Option A would be to build a new City Hall next door to the existing one, on the half of the block that was originally intended for the new police station. The new building would house the police department in a "daylight basement" that would be underground at the north end facing A Avenue, but at ground level on the south end because of the slope of the site.
Two additional stories would be located above the police station to house City Hall offices. The building would appear to consist solely of those two stories when viewed from A Avenue. The building would offer a total of 60,000 square feet of space, which is smaller than the 72,000 square feet in the previous design but still larger than the current building's 39,000 square feet.
Option A would bring the project's price tag down to $40.4 million, Wheeler said, while still retaining many of the key features from the previous design, such as a secure parking area for police vehicles, an earthquake-resistant home for the LOCOM emergency dispatch center and a small amount of space set aside to house the Lake Oswego Arts Council and Booktique.
"The advantage of this option is it takes care of the basic needs and the primary goals that we went into this project with," Wheeler said.
It would also present a redevelopment opportunity, Wheeler said; once the new building is finished and all police and City staff move over, the original City Hall could be repurposed or the property could be sold to an interested developer.
But there's a catch, Wheeler said: The new design doesn't include any parking other than the secure police facility, which means the new City Hall would have to use the existing parking area behind the current building.
"To stay within that target budget, we're not proposing any changes to the existing City Hall parking lot," Wheeler said. "We'd actually leave that side of the block alone."
That means the new City Hall would need to be designed with a rear entrance and a connection to the parking lot — possibly via a bridge to the existing building's rear parking deck — and any future developer of the original City Hall site would need to contend with the requirement of maintaining parking for City Hall.
City staff recommended that the council proceed with Option A, but Wheeler also outlined the alternative Option B, which would be to renovate and keep using the existing City Hall and build a new police station next door. In other words, go back to the original plan at the start of the project.
Option B would bring the price tag down to $39.9 million, but it would leave the existing City Hall vulnerable to damage from earthquakes. Some of the renovations would increase the building's seismic resistance, but the contractors stressed that no amount of retrofitting can fully match the strength of a modern building.
Most of the councilors stated that they preferred option A, but several said they weren't sure whether they could be confident in the estimates for either of the new options, given how dramatically off-target the costs for the first design were.
"I don't understand where the disconnect happened, and my fear is we're going to hit that same disconnect again," Manz said, "because I thought we were extremely clear the first time."
Howard S. Wright representative Bill Jensen expressed confidence in price estimates for the two options, particularly Option A, and said his firm had contacted several other suppliers and subcontractors to help calculate the prices.
Wheeler added that the past year of work resolved a lot of questions about the City's preferred design direction, and those answers are still valid and can be used to guide a more rapid design process the second time around.
Once the council chooses an option, Wheeler said staff and contractors would work to gather community input and bring back a final design for LORA board approval in the summer. Construction on either option would likely begin in late 2019, he added.
LaMotte said he didn't have enough confidence in the estimates to move forward with either option yet, and Buck said that while he was strongly opposed to renovating the existing City Hall, he was disappointed that Option A was the only alternative, due to its
"super wonky" parking concept.
Councilor Jeff Gudman urged his colleagues to move forward on Option A, arguing that delaying the decision would only result in additional costs. Manz, Mayor Kent Studebaker and Councilor Theresa Kohlhoff all agreed, and the council directed Wheeler and the contractors to take a few weeks to develop a clearer picture of how Option A would work, particularly with regard to the parking lot and rear entrance.