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Marion County - Initial Pir.dings and Recommen~atio~s-Cou~ thou;e Syuare °roject August 8, 1996 - Page 2 - With these conditions, options and caveats in mind and based on our analysis as detailed in this memo, we recommend that the County proceed with the Project, using a disciplined process to constrain project costs while achieving the core project objectives. At the core of this project is its affordability to the County. The first question is whether the County can afford an increase in per square foot rental from the proiected $.90 per square foot, in 1999 to a targeted $1.20 or higher. Secondly, absent voter approval to finance the project with general obligation bonds, the County has contemplated using certificates of participation ultimately backed by the County's General Fund. The final element of affordability is what is the potential result, if the County does nothing. In the attached "Marion County Rent Comparison" we compare the annual rental costs of the Project, at $1.20 per square foot, versus the status quo over a 25-year period. By pursuing the Project, the County fixes its capital rent element. The cost of capital is conservatively projected to be 6.50% and we assume an O&M inflation rate of 4.25%. This demonstrates that if annual rents under the status quo rise at 4.25% or more over the 25-year term, the Project will be the more economical alternative. This does not take into consideration additional potential economies related to personnel availability, energy efficiency and the like. A second affordability test is contained in our attached "Capital Cost Analysis." Using Mr. Berry's "Best and Worst Cases," we assessed the financial impact of each scenario versus the targeted budget of $1,080,000. We then converted that shortfall to the reduction of capital cost required to meet the budget. While those potential reductions are meaningful, they appear to be manageable. Staff has projected F/Y 98-99 *ental costs #o increase approximately $657,000 if the County pursues the Project. Of that total increase, approximately $291,000 will be supported by the General Fund, and the remaining $366,000 will be supported by non- General Fund departments. This distinction is important in allocating project risk, To. this point, the assumption has been that the County would use Certificates of Participation ("COPs")to fund its portion of the Project. Use of COPs typically requires a pledge of the County's General Fund as additional security. Given the cost of the Project, the question arises as to the prudence of creating a contingent liability against the General Fund of this magnitude. Although it requires further exploration, it may be possible to reduce the contingency element by structuring at least part of the County debt as lease revenue bonds, supported entirely by non-General Fund revenues, and without a pledge of the General Fund. The County may elect to maintain the status quo. The increase in space requirements from the current 55,000 square feet tv the projected need of 75,000 square feet will have to be addressed. As noted above, if annual rental increases over the 25-year study period exceed 4.25%, the cost to the County will be greater than if it had pursued the Project.