Yes vote nets big payday for Johnson Controls
by TOM KLEIN, Cook/Orr Editor — The Timberjay — 19 Dec 09
School board approves higher levy — Consultant that developed restructuring plan expected to reap $12-$15 million in fees in wake of voter approval Johnson Controls Inc., which served as School District 2142’s consultant on the district’s restructuring plan and passage of a recently approved $78.8 million bond issue, will continue to provide services to the district as a result of school board action on Tuesday.
The price tag for those services will be significant; about $12-$15 million depending on construction costs, which are estimated to be about $65 million.
According to the agreement submitted by Johnson Controls, industry standard for such services, typically referred to as “soft costs,” is 18 to 20 percent of the construction budget, but board members insisted that overall costs should be under 18 percent.
As part of its motion, the board authorized the administration to sign separate remodeling and construction agreements for the school projects with Johnson Controls, pending legal review. Agreements are expected to be finalized no later than Jan 31, 2010. Until then, all work will be billed to the district monthly with a breakdown of services. Bond receipts would ultimately be used to pay for the services.
The agreements will cover standard design, engineering and commissioning services in addition to assistance with educational programming and development of a transition plan for schools during the construction phase. Other services include the development of detailed budgets and schedules for construction and remodeling of schools, and assistance with communication plans to keep the district’s administration, staff and residents informed.
Johnson Controls’ program support team would work with school district administration and personnel and citizen committees in setting and meeting management objectives.
Their directives would be filtered through a program manager, who will oversee teams responsible for different facets of the projects.
Kraus-Anderson has been retained to serve as construction manager for the building of two new schools in the north and south and remodeling of the Cherry School, while Johnson Controls will serve as construction manager for remodeling projects at Tower and Babbitt.
Actual construction work will not be covered by professional services and must be publicly bid as required by Minnesota statutes.
In related action, the board tabled a resolution to sell building bonds.
Joel Sutter and Kristin Hanson of Ehlers and Associates presented the different bond options available to the district. The choices boil down to tax-exempt bonds, taxable Build America bonds or a mix of both.
The taxable Build America bonds were created as part of the American Recovery and Reinvestment Act of 2009, according to Sutter, and offer a higher yield for investors as well as some advantages for the bond issuers, who qualify for a refundable tax credit equal to 35 percent of the interest expense. Sutter estimated the refund could translate into a savings of $2 million during the 20-year payback period of the bonds, which would lighten the tax burden on district property owners.
However, he cautioned that the bonds require additional paperwork to qualify for the tax credit, and penalties for failing to comply with bond regulations, policies and practices could be severe. In addition, he said, because the program is relatively new, there is some regulatory uncertainty.
As an example, he said, the rebate on interest could be reduced.
Sutter said there may be a greater advantage in offering a mix of both traditional tax-exempt bonds and Build America bonds, using the tax exempt issues for the first decade and delaying payback on the Build America bonds until the second half.
Several board members expressed reluctance to sell Build America bonds, saying the risks outweighed the rewards, but opted to wait until Jan. 11 when Sutter would have better numbers comparing the potential benefits of different bond issues. A study session, to begin at 9 a.m., will be held prior to the board meeting, which starts at 5 p.m.
If the board authorizes the bond sale on Jan. 11, Sutter said bonds could go on sale by the end of the month and the district should receive funds by the end of February. That would be in time to make the first payments on services by Johnson Controls as well as provide reimbursement for the district, which will have to tap its own funds to acquire land for the new schools.
A resolution approved by the board on Tuesday stipulates the expenditures that can be reimbursed from the proceeds of future bond issues. Those expenditures include work by Johnson Controls prior to the bond issue passage.