Lebanon Municipal Building

Watchdog Indiana Home Page Watchdog Lebanon Home Page Lebanon's FAILED "Vision"

On August 25, the Lebanon City Council, following the Mayor's lead, voted unanimously in favor of a $6.5 million bond issue for a new municipal building project. The proposed municipal building project is not sufficiently results-oriented because its over-built extravagance overshadows the good result of a public safety building. The proposed project is not sufficiently compassionate and fiscally conservative because the unnecessary bond issue will undoubtedly lead to utility rate and property tax increases. In spite of the August 25 setback, all is not lost until the bonds are actually issued. The City Council can reverse its decision and decide to build a no-frills municipal building whose cost is capped at $3 million using available cash without a bond issue. There is only one thing that might convince the City Council to act responsibly - election pressure. If the November 4 challengers for contested Lebanon City Council seats speak out against the municipal building project, then the City Council members up for re-election may change their vote. You need to convince the following November 4 City Council challengers to publicly oppose the over-built and extravagant municipal building: Freddie J. Crane (crane@in-motion.net or 483-0569), Jeremy Lamar (jlamar@gennaro-lamar.com or 482-4662), Jerry L. Trapp (482-1900), Eric D. Hungate (483-0854), Richard J. Robertson (dicksand@in-motion.net or 482-9079). If these challengers receive at least 75 E-mails and phone calls, they will count three votes per contact and realize active opposition to the municipal building will mean the difference in a close election this November.

NOTE: Much of the following information was included in an August 25, 2003, speech to the Lebanon City Council. 

Mr. Mayor, Council Members, My name is Aaron Smith. I am a homeowner who resides in Lebanon. Thank you for this opportunity to express my opinion regarding the resolution to issue bonds for the municipal building project.

When I did the research for my prepared remarks week before last, the bond issue was for $6.9 million instead of the current $6.5 million. Therefore, some of the cost figures in my presentation will be a little higher than they should be.

Municipal building project bonds should be issued only if the answers to the following questions are "yes": (1) Is the project sufficiently results-oriented? (2) Is the project sufficiently compassionate? (3) Is the project fiscally conservative?

First of all, is the project sufficiently results-oriented? The project is really two projects in one. It is a good thing that a new municipal building will allow this existing municipal building to become a much-needed public safety building. The problem is that the proposed municipal building is over-built and extravagant.

That the project is over-built becomes apparent when the square footage of this existing municipal building is compared to that of the proposed building after taking realistic Lebanon population growth projections into consideration. The portion of this existing one-story building occupied by municipal and utility employees totals 11,000 square feet. The proposed building, which some think to be adequate for only the next 40 years, would total about 33,000 square feet in two stories and a basement. The proposed building would be three times larger than this building.

Now let's consider realistic population growth projections. From 1960 to 2002, Lebanon's population grew 49 percent from 9,523 to 14,231. Today, about 14,475 Lebanon citizens are served by this existing 11,000 square foot building. Put another way, 1.31 citizens are now served by each square foot of this building as compared to about 0.86 citizen when first occupied about 40 years ago.

Recent single family building permit data can be used to realistically project Lebanon's population growth the next 20 years. Lebanon's infrastructure can only be efficiently improved to accommodate about 77 new single family dwellings per year. At this rate, Lebanon's population will increase 33 percent from 14,475 to 19,355 in 20 years. The proposed 33,000 square foot building would serve 0.58 citizen per square foot 20 years from now. If Lebanon's population were to grow another 33 percent from 2023 to 2043, the proposed building would serve 0.78 citizen per square foot 40 years from now.

Let me sum up all this building size comparison data. Forty years ago when new, this existing municipal building served about 0.86 citizen per square foot. Today this building serves 1.31 citizens per square foot. Put another way, the citizens served per square foot 40 years in the future by the proposed building will be 40 percent less than served now in this existing building. This existing building when new 40 years ago served more citizens per square foot than the proposed building will serve 40 years from now. This is a classic example of government delivering less with more.

The proposed municipal building project is not only over-built, it is also needlessly extravagant.

I suspect I am like most Lebanon citizens in that I take pride in our beautiful courthouse. The Boone County Courthouse cost $265,000 to build and furnish in 1911. It was renovated in 1989 for $3 million. In today's dollars, the cost to build, furnish and renovate the courthouse was $9.4 million. Our majestic courthouse, with its huge Indiana limestone pillars and ornate dome, satisfies what desire I have for an extravagant local government building.

I would prefer that Lebanon follow the responsible lead of the county and Zionsville when constructing a new municipal building. The modestly furnished Boone County offices on the square provide efficient service without architectural extravagance. Zionsville, which could certainly afford more, recently moved into a new town hall that cost only $1.8 million. The county and Zionsville clearly place a greater value on prudent spending than government ostentation when it comes to municipal buildings. Lebanon's new municipal building does not need extravagant pillars, a $343,849 plaza, and a $115,000 extension of Superior Street to provide a grand entrance.

Some Lebanon residents apparently believe an over-built and extravagant municipal building will somehow help prevent political change. Of the seven current Boone County Council members, four have a Lebanon address and two have a Zionsville address. Three of those with a Lebanon address were elected at-large. One theory seems to be that a magnificent municipal building will help convince well-paid professionals to live in Lebanon instead of Zionsville. This will, in turn, enable Lebanon's population growth to keep up with Zionsville's so political change can be prevented. This belief is illogical.

Many well-paid professionals have purposefully moved to the southeast quadrant of Boone County to create and participate in a privileged environment such as the Zionsville school system in which only 3.5 percent of students receive free or reduced-price lunches. By contrast, 24 percent of Lebanon students receive free or reduce-priced lunches. The fundamental differences between Zionsville and Lebanon will not be overcome by something as simple as an ostentatious municipal building. In any event, enough population growth has already taken place in southeast Boone County that the number of voting precincts there will enable Zionsville politicians to gain greater control of Boone County's Republican Party whenever they muster the political will to do so.

A belief that the proposed municipal building will in some way help economic development is also illogical. This plain-Jane municipal building we are in now does not seem to have hurt one bit the economic development at Enterprise Boulevard. When it comes to economic development, the occupants of a municipal building are important the building itself is irrelevant.

The bottom line for the first question is that the over-built extravagance of the proposed municipal building project overshadows the good result of a public safety building. This brings up the second question: Is the project sufficiently compassionate? The answer to this question is tied closely to the question of fiscal conservatism. The primary criteria for a municipal building project to pass the compassion test is that it not take more money than necessary out of citizen pockets.

As indicated in the following two tables, the total estimated cost for the proposed municipal building project is $13,612,518.97, including $5,156,202.97 in interest payments. 

Summary of Estimated Project Costs and Funding

Lebanon Municipal Building Project

(2-story with basement; 30-35,000 sq. ft.)

(compiled August 17, 2003)

Costs

Total

Building
Corporation

Lebanon
Utilities

COIT
Reserve

Construction (about $154 per sq. ft.)

5,008,871

5,008,871

Contingencies

136,693

136,693

Land Acquisition

300,000

300,000

Architect/Engineering Fees

588,236

275,769

312,467

Construction Manager

350,276

350,276

Project Administration

31,137

31,137

IT, Phone, AV

500,000

15,000

485,000

Furnishings

285,000

285,000

Site Area B

343,849

343,849

Superior Street Extension

115,000

115,000

Bond Issuance Costs

180,000

180,000

Allowance (3)

172,500

172,500

Interest Earnings (1)

(29,859)

(29,859)

Capitalized Interest Expense (2)

474,613

474,613

Total Costs

8,456,316

6,900,000

300,000

1,256,316

Funding

Proposed Bonds (4)

6,900,000

6,900,000

Sale of Land

300,000

300,000

COIT Reserve

1,256,316

1,256,316

Total Funding

8,456,316

6,900,000

300,000

1,256,316

Source: Preliminary Draft prepared by H.J. Umbaugh & Associates on August 6, 2003.

Notes:

(1) Assumes 1.0% Interest Earnings for 12 months.

(2) Capitalized Interest Expense through and including January 15, 2005.

(3) Allowance for Underwriter's discount and bond insurance/Indiana Bond Bank fees (2.5%).

(4) Proposed First Mortgage Bonds, Series 2003.

 

Preliminary Schedule of Amortization

Lebanon Municipal Building Project

(assumes First Mortgage Bonds dated October 22, 2003)

(compiled August 15, 2003)

Bond
Payment
Date

Principal
Balance

Principal

Maximum
Interest
Rates

Interest

Total

Budget
Year
Total

Annual
Lease
Rental

01/15/04

6,900,000

88,922.97

88,922.97

88,922.97

07/15/04

6,900,000

192,845.00

192,845.00

01/15/05

6,900,000

192,845.00

192,845.00

385,690.00

07/15/05

6,900,000

110,000

2.85%

192,845.00

302,845.00

01/15/06

6,790,000

115,000

3.35%

191,277.50

306,277.50

609,122.50

615,000

07/15/06

6,675,000

115,000

3.35%

189,351.25

304,351.25

01/15/07

6,560,000

115,000

3.85%

187,425.00

302,425.00

606,776.25

612,000

07/15/07

6,445,000

120,000

3.85%

185,211.25

305,211.25

01/15/08

6,325,000

120,000

4.20%

182,901.25

302,901.25

608,112.50

614,000

07/15/08

6,205,000

125,000

4.20%

180,381.25

305,381.25

01/15/09

6,080,000

125,000

4.55%

177,756.25

302,756.25

608,137.50

614,000

07/15/09

5,955,000

130,000

4.55%

174,912.50

304,912.50

01/15/10

5,825,000

135,000

4.90%

171,955.00

306,955.00

611,867.50

617,000

07/15/10

5,690,000

135,000

4.90%

168,647.50

303,647.50

01/15/11

5,555,000

140,000

5.15%

165,340.00

305,340.00

608,987.50

614,000

07/15/11

5,415,000

145,000

5.15%

161,735.00

306,735.00

01/15/12

5,270,000

145,000

5.30%

158,001.25

303,001.25

609,736.25

615,000

07/15/12

5,125,000

150,000

5.30%

154,158.75

304,158.75

01/15/13

4,975,000

155,000

5.45%

150,183.75

305,183.75

609,342.50

615,000

07/15/13

4,820,000

160,000

5.45%

145,960.00

305,960.00

01/15/14

4,660,000

165,000

5.60%

141,600.00

306,600.00

612,560.00

618,000

07/15/14

4,495,000

170,000

5.60%

136,980.00

306,980.00

01/15/15

4,325,000

175,000

5.70%

132,220.00

307,220.00

614,200.00

620,000

07/15/15

4,150,000

175,000

5.70%

127,232.50

302,232.50

01/15/16

3,975,000

180,000

5.80%

122,245.00

302,245.00

604,477.50

610,000

07/15/16

3,795,000

190,000

5.80%

117,025.00

307,025.00

01/15/17

3,605,000

195,000

5.90%

111,515.00

306,515.00

613,540.00

619,000

07/15/17

3,410,000

200,000

5.90%

105,762.50

305,762.50

01/15/18

3,210,000

205,000

6.00%

99,862.50

304,862.50

610,625.00

616,000

07/15/18

3,005,000

210,000

6.00%

93,712.50

303,712.50

01/15/19

2,795,000

215,000

6.10%

87,412.50

302,412.50

606,125.00

612,000

07/15/19

2,580,000

225,000

6.10%

80,855.00

305,855.00

01/15/20

2,355,000

230,000

6.15%

73,992.50

303,992.50

609,847.50

615,000

07/15/20

2,125,000

240,000

6.15%

66,920.00

306,920.00

01/15/21

1,885,000

245,000

6.25%

59,540.00

304,540.00

611,460.00

617,000

07/15/21

1,640,000

255,000

6.25%

51,883.75

306,883.75

01/15/22

1,385,000

260,000

6.30%

43,915.00

303,915.00

610,798.75

616,000

07/15/22

1,125,000

270,000

6.30%

35,725.00

305,725.00

01/15/23

855,000

275,000

6.35%

27,220.00

302,220.00

607,945.00

613,000

07/15/23

580,000

285,000

6.35%

18,488.75

303,488.75

01/15/24

295,000

295,000

6.40%

9,440.00

304,440.00

607,928.75

613,000

Totals

6,900,000

5,156,202.97

12,056,202.97

12,056,202.97

11,685,000

Source: Preliminary Draft prepared by H.J. Umbaugh & Associates on August 6, 2003.

Note: Actual Lease Rental will be based on final Project costs,
actual interest rates and term required to maximize efficiency.

The exorbitance of these costs is apparent when one considers perfectly acceptable alternate proposals that can be built using available cash without a bond issue.

One alternate proposal could be to construct a one-story, 150-foot by 110-foot municipal building directly adjacent to Meridian Street between Elm and Superior Streets. A 66-space parking lot (32 spaces more than currently available for this building) could be put between the new building and East Street.

As shown in the following table, the total funding for the alternate proposal is $2,831,136, a savings of $10,781,382 (including interest) from the current proposal.

Summary of Recommended Project Costs and Funding

Lebanon Municipal Building

(1-story; 16,500 sq. ft.)

(compiled August 17, 2003)

Costs

Total

Lebanon
Utilities

COIT
Reserve

Construction ($112 per sq. ft.)

1,848,840

1,848,840

Contingencies

68,346

68,346

Land Acquisition

300,000

300,000

Architect/Engineering Fees

205,882

205,882

Project Administration

15,568

15,568

IT, Phone, AV

250,000

157,500

92,500

Furnishings

142,500

142,500

Total Costs

2,831,136

300,000

2,531,136

Funding

Sale of Land

300,000

300,000

COIT Reserve

2,531,136

2,531,136

Total Funding

2,831,136

300,000

2,531,136

Furnishings, IT, Phone, AV, Project Administration, Contingencies are 50% less
and Architect/Engineering Fees are 65% less
than the above H.J. Umbaugh & Associates Summary of Estimated Project Costs and Funding

Construction cost for the alternate proposal is $112 per square foot instead of $154 because there are no frills, no excavation, and no elevators. In addition, $343,849 is not spent on a plaza, there is no unnecessary $115,000 Superior Street extension, $352,500 is saved on various up-front bond costs and fees, and a net $444,754 is not used for capitalized interest expense. Finally, the alternate proposal is straightforward enough that a general contractor can construct the building without wasting $350,276 on a construction manager.

The money for the alternate proposal can come from what amounts to a $300,000 donation of the land from Lebanon Utilities and $2,531,136 from the COIT capital development fund. The $300,000 left in the CIOT capital development fund can be combined with the already-budgeted $500,000 of next year's COIT revenue to bring the $1.25 million public safety building project back into line with the previously indicated cost of $750,000. If the spending is still deemed necessary, the $250,000 in the COIT capital development fund earmarked for the sidewalk project and the $553,000 earmarked for miscellaneous city capital projects can instead be allocated from the almost $1.4 million general fund cash balance. It would also appear the $710,000 City of Lebanon investments cash balance is likewise available to make up any perceived short-term spending shortfalls caused by building a modestly priced municipal building without incurring bonded debt.

The 16,500 square foot building that could be constructed next year under the alternate proposal would be 50 percent larger that this existing municipal building and would serve 0.89 citizen per square foot. In 20 years 1.17 citizens per square foot would be served. The building could then be expanded with a 1-story addition built over the existing parking lot. Another parking lot can be put on the adjacent city lot across Meridian Street. The addition can be paid for in cash partly by setting aside some of the necessary funds after the TIF bond is paid off in 2014.

Of course, the alternate proposal I have just discussed is not necessarily the best possible alternate proposal. Any municipal building project under $3 million that is constructed without a bond issue would avoid the fiscal danger presented by the current over-built and extravagant proposal.

The fiscal bottom line for the current proposal is that the unnecessary principal and interest bond payments will create a financial hole that almost certainly will be overcome with eventual utility rate and property tax increases that will be an added burden to the cost of home ownership in Lebanon.

The bond payments will start in 2004 and conclude in 2024. Money for the bond payments will come from leasing the new municipal building to the city for an average of $615,000 annually. The city will use COIT revenues to make the lease payments. To offset some of the COIT revenue loss, the city will sub-lease the new municipal building to Lebanon Utilities for about $369,000 annually.

Lebanon Utilities' estimated average annual net margin from 2001 through 2003 is $1,472,933. The $369,000 annual sub-lease payment will use up 25 percent of the annual net margin available for the various utility capital project reserve funds. Lebanon Utilities cannot afford to lose any money earmarked for its reserve funds. At the end of 2003, it is estimated there will be $8,559,695 in the utility reserve funds. Lebanon Utilities has a 2004 through 2008 capital projects wish list totaling $26,207,533. The Lebanon Utility reserve funds only have enough money available for 32 percent of its capital projects wish list the next five years.

Lebanon Utilities' General Manager plans to ask for a sewer rate increase next year. In one form or another, this is where the money for the $369,000 annual sub-lease payment will come from. A reduction in utility operating expenses is the only other alternative. While a permanent $369,000 reduction in his annual $17,323,870 operating expenses is entirely possible per capita electric, water and wastewater operating expenses have increased at a rate 4.39 times more than inflation the past five years I don't think any of us will hold our breath waiting for Lebanon Utilities' General Manager to cut his operating expenses 2.13 percent.

The city is also likely to eventually increase the property tax levy to replace the net annual expenditure of about $246,000 in COIT revenues to lease the new municipal building. To realize why this is true, one needs to recognize the financial challenges that will confront the city in the coming years.

Using the best available estimate, about $665,00 in annual Boone County manufacturing inventory tax will be eliminated starting next year. Assuming 75 percent of this manufacturing inventory tax is paid by Lebanon businesses, the city will loose about $500,000 in annual revenue. If this revenue loss is divided equally between the TIF district and the general fund, the city will have to keep from spending $250,000 in COIT revenue each year to avoid a property tax or personal income tax increase. Another alternative to replace the lost manufacturing inventory tax revenue is a state tax credit. If you are interested, I have a model resolution this council can use to support a manufacturing inventory tax credit bill State Senator Jeff Drozda will submit in the next session of the General Assembly.

Starting in 2007, the remaining inventory tax will be eliminated. What this means is that Boone County will lose about another $1,550,000 in revenue. Assuming 50 percent of this inventory tax is paid by Lebanon businesses, the city will loose $775,000 more in annual revenue. If this revenue loss is divided 65/35 between the TIF district and the general fund, the city will have to keep from spending $271,250 more in COIT revenue each year to avoid a property tax or personal income tax increase.

Paying off the Enterprise Boulevard TIF bonds in 2014 will most likely not free up a great deal of money for spending or tax relief. If growth trends are allowed to continue, Lebanon will not have enough water. Increasing the water supply may require miles of new water lines from the north part of the county. If so, much of the Enterprise Boulevard tax revenue will be needed for water system infrastructure.

To sum up, the inventory tax elimination will necessitate $521,250 in annual COIT spending restraint to avoid property tax and/or personal income tax increases. It appears the city has not spent $472,500 of its COIT revenue in this year's budget. All of this money and $50,000 more will be needed each year to offset the effects of the inventory tax elimination. Unless the mayor permanently cuts general fund spending, the city cannot afford to spend $246,000 more COIT revenue for annual municipal bond payments without a tax increase. The major tax the city can increase directly is the property tax. Adding $246,000 to this year's $2,741,602 property tax levy would increase the levy by 8.97 percent.

In conclusion, the proposed municipal building project is not sufficiently results-oriented because its over-built extravagance overshadows the good result of a public safety building. The proposed project is not sufficiently compassionate and fiscally conservative because the unnecessary bond issue will undoubtedly lead to utility rate and property tax increases. An acceptable municipal building project is one capped at $3 million without a bond issue.

Your vote tonight will be one of my key considerations when I make my future election decisions. Please make your budget vote a roll call vote.

Thank you again for this opportunity to express my opinion regarding the resolution to issue bonds for the municipal building project.

Watchdog Indiana Home Page Watchdog Lebanon Home Page Lebanon's FAILED "Vision"

This page was last updated on 07/03/13.