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City sets aside $500,000 for planned street work

By Staff | Mar 6, 2009

Rugby city officials shared thoughts about possible funding options for the planned District 1-2009 citywide street improvement project, and the consensus was a significant amount of infrastructure maintenance funds need to be earmarked for repairs.

At a special city council meeting on March 5, the council voted 7-0 to set aside $500,000 in built-up infrastructure funds this year toward the street work, taking some of the burden off property owners, who would be asked to pay special assessments.

The timing of the council’s decision to earmark infrastructure funds was somewhat puzzling to some attending the meeting, including Randy Malo, property owner.

The council has all along discussed setting aside infrastructure funds to pay part of the project’s costs, but why did that decision have to be made now?

Especially with the protest hearing still a week away, which will determine if there is sufficient protest to prevent the establishment of a special assessment district.

Malo is among a group of property owners who are leading efforts to protest out the project, preferring the city put the citywide repairs on hold for a few years. In the meantime, the property owners feel at this time the city should concentrate on making repairs to the streets in the worst condition and steadily build up the infrastructure fund to cover a larger amount of the costs of repairs.

That way street work will still be taking place and property owners won’t be tagged with such a high assessment fee.

Rugby Mayor Dale Niewoehner said it was important for the council to show citizens that the council is committed to setting aside a large amount of infrastructure money for the project, not only for this year, but also in the future.

Council members acknowledged that in coming years more infrastructure funds will be put toward the project, but some members want to make sure there still will be some funds available in the event there are other infrastructure needs.

Terry Wentz, Ward Four councilman, said funds need to be built up so that in eight or 10 years, when it’s time for a seal coat, those dollars will cover it. If the city is going to call on residents to pay a large share of the work, they shouldn’t be asked to fund the seal coat as well, Wentz said.

Project engineers Mark Lambrecht and Roger Grimsley of Advanced Engineering reported that after closer examination there were no discrepancies in the bid figures. The low base bid was from Bituminous Paving of Ortonville, Minn. Its base bid of $3.1 million was significantly lower than those of the other three bidders.

In addition to the base bid, there were four alternates. One included curb and gutter replacement; and three were for urban repairs to sections of three other streets.

Bituminous’ total bid, including the alternates, was $3.997,574.65. Once contingency and engineering fees are added, the probable project price tag is $5,408,174.47.

It was the engineer’s recommendation that accepting the low bid would be appropriate. Lambrecht said Advanced Engineering has worked with Bituminous in the past on a couple of projects.

Wentz questioned why there were just four bidders and expressed his disappointment the bids were higher than the engineer’s estimates.

Lambrecht said getting just four bids wasn’t surprising, and said with a project of this size, typically four to six bids is normal. He said given the variety of work in this particular project- mill and overlay, seal coats, curb and gutter replacement, reconstruction – it requires many different contractors. As a result, there are only a few companies comfortable bidding as a general contractor for a project like this and then sub-contracting the different areas of work needed to be performed.

As far as the bid, Lambrecht said engineers look at data from past projects and prices of materials in getting estimates. It’s not an exact science, but it’s the best approach. Although the bid was higher than the engineer’s estimate, it wasn’t significantly higher.

Bill Hartl, Ward Three councilman, was also hopeful bids would come in lower and wondered if it would have been better to break up the project, so to speak: Bid separately for the mill and overlay work; bid for the seal coat; and bid for the curb and gutter. Would that have attracted more bidders and thus lower costs? Lambrecht said that also crossed his mind, but whether that would have ultimately saved costs is debatable, given the added costs of advertising and preparing multiple bids.

In addition to setting aside infrastructure monies, council members did go over other possible funding options for the street work outside of special assessments.

One was increasing the current $3.75 infrastructure fee currently on monthly water bills. Some council members liked that idea, while others believed it was simply hiding costs for a street project in the water bill.

Another idea was changing the current one percent sales tax funding allocation. Right now the city receives 25 cents for infrastructure funds, and the Rugby Area Job Development Authority receives 75 cents for every $1 dollar collected. Some council members discussed setting up a 50-50 split. Some, however, were hesitant to change it and how it would adversely affect the JDA.

Monte Schneibel, Ward Four councilman, asked when the council could take action on changing the funding arrangement for the sales tax. Mark Butz, city attorney, suggested the matter first be reviewed by the city finance committee. Those members could look into how this would affect the JDA’s budget.

Another discussion point was adding another one percent sales tax toward funding the project, but most on the council were not in favor of that idea.

Steven Vogelpohl, attorney and bond counsel, was on hand to review how financing the project would occur using bonds. Vogelpohl said street projects across the state are primarily completed by establishing a special assessment district. Vogelpohl acknowledged the city could apply its infrastructure funds, and other discretionary funds, up front to essentially “buy down” the cost of the project and then borrow bonds for the difference.

Another possibility is to take some infrastructure funds annually and apply them to the project, reducing the special assessment obligation to property owners. Mark Butz, city attorney, asked what about those property owners who choose to pay off their assessment fees early, rather than pay for the duration of the 15-year project? They wouldn’t necessarily get the benefit of having some of their assessment fees reduced. Vogelpohl acknowledged there is no “perfect fairness,” but those owners are avoiding having to pay the interest.

Another funding option is after a pre-determined time period set by the bonding agency, the city could apply funds to the principle of the project. The city can explore these payment options with its municipal financial advisor.

Assessment fees will pay large part of project

Ultimately, the large percent of costs will need to be covered by property owners through special assessments.

Project engineers did provide raw calculations on just what the monthly assessment fees could be for completing street seal and mill and overlay work.

For the owner of a 50-foot frontage, the monthly assessment fee is $10.30 for seal coat work. The monthly assessment fee for mill and overlay work would be $24.54.

Of course, it’s up to the special assessment commission to determine the benefit to property owners in setting assessment fees. Another issue brought up is just how much will property owners be assessed when their particular street just had a seal coat completed? Those property owners are already paying assessments. Mark Butz, city attorney, said that is also an issue the assessment commission has to take into consideration.

Before the commission can meet, there is the matter of the protest hearing. That is scheduled for March 16 at 7:30 p.m. at the Otter Tail Power Co. community meeting room. A majority of property owners within the city must “protest out” the project to prevent the establishment of a special assessment district.

A protest hearing conducted last October yielded just under nine percent opposition.

If there is insufficient protest, the city could pass a resolution calling for an assessment district, and soon thereafter award the project contract to a bidder. The city has 60 days from the time bids are opened (March 2) to offer a contract.

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