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Rehoboth commissioners seek answers on City Hall overruns

Budget to be finalized March 6
February 25, 2017

At a recent meeting on the city budget, Rehoboth Beach officials had to face the music on more than $1 million in cost overruns and change orders pushing up the cost of the new City Hall.

At the city commissioners’ Feb. 17 budget meeting, City Manager Sharon Lynn said the total cost of the project, including expenses already budgeted and paid for by the city, is estimated to be $20.6 million. The bigger issue for the commissioners was nearly 70 change orders recommended by the contractors, of which 32 have been executed totaling $610,000. An additional 40 change orders are expected to cost $400,000, Lynn said. Many of the changes, said Lynn and Mayor Sam Cooper, were related to oversights during planning or changes that arose after construction began.

Change orders generally arise during the course of construction. Changes can range from using copper wiring instead of aluminum to termite treatment or installing foundation drains. In Rehoboth, change orders have been considered administrative actions and are not voted on by the city commissioners.

Cooper said part of the reason for so many change orders was the rushed nature of the project. He said the architects did not have a green light to move forward with creating plans until May 2015 with a timetable to finish the project by early 2017. In addition, Cooper said, the city had to wait for revisions to the stormwater management plan to be approved by Sussex County Conservation District. The management plan revisions accounted for the largest change order, costing $151,000.  The next largest was the foundation drain, which Commissioner Stan Mills said was planned to have been put in later in the project but had to be installed earlier, costing $83,000.

City spokeswoman Krys Johnson said, “Cost overruns for any major construction project are commonplace. Contingencies were built into the project, and it is important to note that any cost overrun is associated with the original scope of the project as it has been engineered and designed. The mayor and city manager attend all progress meetings associated with the project and its team of architects, estimators and contractors. Decisions are made regularly concerning credits returned to the city or additions that are necessary to complete a particular milestone.”

Complicating matters is funding for the project through a loan from the U.S. Department of Agriculture, which holds final approval over changes. Johnson said change order requests are also vetted by city officials and construction manager EDiS Co.
 
The number of change orders sparked discussion of whether they should be reviewed by the commissioners. Change orders are handled administratively because if every order requires public notice and a vote, it could slow construction to a virtual halt.  Mills said it is worth asking whether larger-cost changes should be approved by a commissioner vote and what dollar amount should trigger such a review. He did not offer a total, but said he would like to see periodic briefings on the project.
 
Former mayoral candidate Tom McGlone asked Cooper how he justified a project sold as being $18 million that is now $20.6 million and could go higher.
 
Cooper disagreed with McGlone’s assessment and after a brief exchange, Cooper said, “You have your opinion; we’ll let the people judge that.”
 
Budget to be finalized March 6
Other than the City Hall project, the commissioners are largely in agreement about the $28 million budget. City officials plan to finalize the budget at their Monday, March 6 workshop before passing the document Friday, March 17.
 
The commissioners’ last remaining bone of contention has been over the hiring of a public works director, which Lynn has said would oversee the streets, water and wastewater departments, and would have engineering expertise. Lynn said the position would allow the city to have someone on staff who could help save some money on outside consultants.
 
Several of the commissioners remained unconvinced, particularly Cooper, who has been outspoken throughout four previous budget meetings that the growth of city salaries over the years, with 3 percent raises every year and rising healthcare costs, is unsustainable. He said the city’s revenue sources - mainly parking meters, property taxes and transfer tax - remain flat. Cooper said transfer tax revenue is often unpredictable, although it has been good the last several years, while property taxes are not as good a source since the city’s last reassessment, which flipped property valuations from favoring the home to favoring the land, and the city is not adding more land to the rolls. Cooper said rental tax revenue has risen but only because the number of rental homes has increased.
 
“How do we have this natural growth in the budget each year without a natural growth of revenues?” he asked. “I love our employees and all, but can we afford 3 percent year after year after year?”
 
Commissioner Kathy McGuiness recommended a hiring freeze on new positions, until the city could sort out what it spends on employee benefits, such as pensions and hospitalization, which she said costs the city money it can no longer afford. Commissioners Patrick Gossett, Toni Sharp and Lorraine Zellers were among those not sold on a hiring freeze, particularly because the city’s workforce is aging, with three employees set to retire this year. They agreed to keep the public works director position in the budget but favored holding off on making the hire until the commissioners hold a discussion of its benefits package. The commissioners plan to begin quarterly budget meetings, where the package would likely be discussed, but nothing has been scheduled.

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