Still Building a Better City with Borrowed Money

Office of the Auditor Communications Division Denis Berckefeldt Sharon Bailey, Ph.D. City and County of Denver

Dennis J. Gallagher
Auditor

has had a positive impact on Denvers infrastructure and quality of life. And it has done so by accelerating the g completion of over 275 capital projects in just four years.
Denver has a long history of borrowing to build a better City. Since the turn of the century, citizens have authorized the issuance of bonds to undertake a variety of projects, which in turn have provided an improved quality of life. Denver voters have historically approved capital improvements for infrastructure (streets, sewers, etc.), libraries, cultural facilities, parks, and recreation facilities. The issuance of general obligation bonds are public decisions based on the vision of City leadership and economic, political, and social landscapes. Increasing taxpayer debt has always been subject to extensive debate, scrutiny of citizens and the media, controversies, and even struggles in the courts. That is part of the democratic process and why the undertaking of taxpayer debt is subject to the will of the people. In 2004, Mayor John Hickenlooper appointed a 115-member Infrastructure Task Force to examine and prioritize the Citys capital facility and infrastructure needs. In a process that lasted more than a year and included input from more than 1,500 residents, the taskforce developed eight separate ballot questions (the Better Denver Ballot Questions) authorizing debt in the aggregate principal amount of $549,730,000. In November of 2007, Denvers citizens passed the ballot initiatives that established this program and its bond financing. This program targeted City facilities, health and human services facilities, public safety facilities, cultural facilities, libraries, parks, and roads for improvement, preservation, and renovation. A separate but companion ballot question, authorizing a 2.5-mill levy on all taxable property, was also approved at the same election in order to fund the restoration, rehabilitation, refurbishment, and replacement of the Citys capital infrastructure. In January 2008, the City began implementing the program. In light of the economic downturn then occurring, Mayor Hickenlooper implemented an acceleration effort in October 2008 to begin construction projects and speed the flow of construction dollars into the economy. The Better Denver Bond Program responded by facilitating an aggressive contractor outreach program in November 2008. The City held a large event for potential contractors in December 2008 at the Colorado Convention Center. Over 600 people attended! This event, along with information on the Better Denver Bond Website, helped to stimulate awareness of and interest in the projects from the design and construction community. This in turn generated extraordinary competition, with many more bidders and proposals than projects typically receive. This competition drove competition, p , y down pricing which resulted in the $20 million of savings that enabled the creation of new projects. Those projects are set to complete by early 2014. This report summarizes the progress, accomplishments, and challenges of the Better Denver Bond Program. Overall, it is my observation and belief that the Better Denver Bond Program has stayed consistent with voter intent, was delivered on-time and on-budget, and is providing Denvers citizens with quality and value for their dollars. Additional factors contributing to the

overall success of the program include the commitment to communication, public outreach, transparency, and the management of risk. The program has also integrated opportunities for disadvantaged and small businesses, focused on sustainability, and incorporated public art into many projects. One of the Better Denver Bond Programs most significant accomplishments has been to accelerate the delivery of the vast majority of projects for completion in fou years instead of the originally anticipated five years. This is a four great improvement over the ten years it took to complete bond g projects approved in the 1990s. p The Better Denver Bond Program has allowed us to invest in our T infrastructure, beautify our City, improve our quality of life, and i aid our economic recovery. Over 290 projects were initially slated a for design and construction. However, because of cost savings f generated during Program implementation, funds were leveraged g by th B d E b the Bond Executive C ti Committee and Cit Council to complete 321 existing projects and create additional itt d City contingency funds within each Program category. The Better Denver Bond Program has had the added benefit of serving as an economic stimulus in this challenging economy. It has helped the City put people to work and pumped millions of dollars into the local economy. For companies working on these bond projects, it has been very welcome at a time when design and construction work was in short supply. Bond projects gave the local construction economy a much needed boost.

Over 290 projects were originally planned but cost savings allowed funding for 321!

JOBS
The City used a combination of the American Recovery and Reinvestment Act (ARRA) and the Association of General Contractors (AGC) calculations to establish the number of jobs generated by the Better Denver Bond erated y Program. Roughly 1,000 annual jobs are created or preserved for every $100 million of capital expenditure. Therefore, with a $500 million capital program, it is estimated that Better Denver Bonds provided for 5,000 jobs over the life of the program, or roughly 1,000 full-time equivalent jobs per year. This is the direct impact of the Bond Program. That impact extends and is multiplied throughout the economy with the work that the projects generate for contractors, subcontractors, suppliers, and workers. Based on the data from both the ARRA and AGC it is probably safe to say that the impact of the Better Denver Bond Program on the metro Denver area i 5,000 di is direct construction j b i jobs over the 5-year timeframe, nearly 7,500 when considering the beneficial impacts of related supply and manufacturing jobs.

COMPANIES
As of June 2012, the number of companies under direct contract with the City was in excess of 500. Additionally, those companies have subcontractors and suppliers. A conservative estimate suggests that over 1,000 companies have had opportunities that they would not otherwise have had as a result of the Better Denver Bond Program. Among those companies were ones that were minority- and/or woman-owned business enterprises (M/WBE). The City requires participation by MBE and WBE on City projects. With the Better Denver Bond Program, nearly $75 million worth of work went to MBE and WBE companies. g

There are more than 321 bond projects throughout the Denver Metro area that were made possible by the e Better Denver Bond Program. If youre a Denver resident, youve probably seen evidence of construction s throughout the City, but do you know how the Program is s benefiting your neighborhood specifically? The City of Denvers Better Denver Bond n official Better Denver Bond Program website provides information Questions authorized : on bond projects, maps, and the ability to search by neighborhood: www.denvergov.org/betterdenver funding totaling d The passage of the Better Denver Ballot Questions authorized e funding totaling $549.73 million for capital projects across the following eight categories:

$549.73 Million for Capital Projects!

Purpose 1 Ballot Issue F ,35 , ) Deferred Maintenance for Public Office Facilities ($10,350,000)
Denvers historic City and County Building, opened in 1932, has received exterior maintenance that included repair of front steps, replacement concrete, masonry cleaning, and exterior upgrades including replacement of windows and blinds for energy conservation and functionality. Projects also included the remodeling of restrooms, addition of exit lights, modification of existing bronze doors, repair of heating, ventilation, and cooling systems, and installation of a sprinkler system in the basement. Public office building projects were also funded at the Denver Permit Center and included repair of heating, ventilation, and cooling systems, upgrade of electrical systems, and repair of exterior concrete and sidewalks.

Purpose 2 Ballot Issue G ) Deferred Maintenance on Cultural Facilities ( ,54 , ($60,546,000)

The Botanic Gardens, Boettcher Concert Hall, and the Denver Museum of Nature and Science (DMNS) are a few of the Citys most prized cultural facilities in need of maintenance and repair authorized through two Better Denver Ballot Questions, 1G and 1F. That work included renovation and improvements to DMNS Phipps Hall and the Newton Theatre; The Botanic Gardens Greenhouse and Irrigation as well as ADA improvement; Boettcher Concert Hall had necessary repair work done.

Purpose 3 Ballot Issue B Health and Human Services ($48,583,000)

Bonds issued under this Better Denver Ballot Question have funded projects including the expansion of hospital facilities at Denver Health, and the renovation and repair of heating, plumbing, and electrical systems in five low-income child care facilities as well as Denver Cares Drug & Alcohol Treatment Center. Additionally a new Eastside Human Services Building and new Animal Shelter were built.

Purpose 4 Ballot Issue E Parks System Facilities ($93,387,000)

The construction of a new recreation center, refurbishment of existing park features, replacement of outdated irrigation systems, and attending to overdue park maintenance projects are some of the projects funded pursuant to this Better Denver Ballot Question. Projects included work at City Park, Sloans Lake, Ruby Hill Park, Berkeley Park, Parkfield Lake Park, and historic park facilities at Civic Center Park, Cheesman Pavilion, City Park Bandstand and Washington Park Boathouse. Funds were also used for land acquisition for a future Central Denver Recreation Center on Colfax.

Purpose 5 Ballot Issue I Public Safety ($65,195,000)

This Better Denver Ballot Question authorized funding for a new Crime Lab, a firing range, Traffic Operations Center and a Police Command Vehicle Garage for the Police Department. It also included the future Lowry Fire Station and the renovation of six existing fire stations. The new crime lab is state of the art and is a prime center for DNA testing and other laboratory procedures in the western United States.

Purpose 6 Ballot Issue D Streets, Transportation, and Public Works ($149,786,000)

Projects funded under this Better Denver Ballot Question are intended to increase traffic capacity in targeted areas and help make Denver more pedestrian-friendly and sustainable. Specific projects included construction and reconstruction of roadways and streetscapes, widening of sidewalks, improvement of pedestrian walkways, provision of access to transit lines, and facilitation of transitoriented development. The new Central Park Interchange at I-70 was constructed as part of this.

Purpose 7 Ballot Issue C Libraries ($5 ,883,000) ($51,883,000) 5 3 )

All 23 of the City library facilities (except for r Three new branch libraries e the Denver Public Library main branch) are t being improved under this Better Denver Ballot were constructed in underf Question. Improvements have included repair of served or high-growth areas , roofs, heating, ventilation and cooling systems, ork boilers, electrical systems, fire alarms, and network infrastructure in many locations Some funds locations. are also being used to bring libraries into compliance with the Americans with Disabilities Act. In addition, funding was provided for the construction of three new branch libraries for underserved or high-growth communities: Green Valley Ranch Branch Library, Sam Gary Branch Library (Stapleton) and the future West Denver Library.

Purpose 8 Ballot Issue H New Construction of Cultural Facilities ($70,000,000)

This Better Denver Ballot Question authorized overdue maintenance and repairs of each of the Citys cultural facilities, as well as both an extensive renovation and expansion of Boettcher Concert Hall and the construction of a new storage facility at the Denver Museum of Nature and Science. This ballot measure contemplated a public-private componentprivate funds were to be raised and then matched by bond funds for each particular project. In the case of Boettcher Concert Hall, there was to be $25 million in private funds raised. Unfortunately, due to the serious fund raising challenges presented by the economic downturn, this project has been deferred. The remaining authorized amounts in both 1G and 1H have not been issued, but the authorization is there and the bonds could be issued at any time for use on a project or projects y proposes to use that that would fit under the terms of the original bond authorization. The City p p bonding capacity for the improvement of City cultural facilities. Proposals have been solicited from cultural facilities for maintenance or construction projects. A review committee has evaluated those proposals and forwarded recommendations to the Mayor. (See Mayor Hancocks recommendations regarding the final projects to receive the remaining cultural bond funds from the Better Denver Bond Program on page 7)

Nearly all of the bonds approved in the 2007 election have been issued. The remaining authorization includes $3,533,794 for Parks and Recreation, $18,497,001 for refurbishment of cultural facilities, and $38,629,205 for new construction on cultural facilities. Under the terms of the bond authorization, City Council can move funds from one project to another, but the projects must be within the category approved by voters. For instance, bonds approved for Parks and Recreation can be moved from one project to another within Parks and Recreation but could not be moved to projects for cultural f ili i Human S i Services, etc. l l facilities, The Parks and Recreation money is for the Central Denver Recreation Center. Land acquisition and conceptual design work have been completed, however additional private funds must be raised before the bond money can be spent on construction. The Cultural Facilities bonds are discussed below.

Cultural Facilities Bonds

The economic downturn, which began at the same time that the City was preparing to issue bonds, negatively impacted the public-private component of the cultural facilities project. Private funds were to be raised and then matched by bond funds. In the case of Boettcher Concert Hall, the $25 million in private funds were not raised, so the demolition and reconstruction of this cultural facility did not move forward, and the bonds were not issued. Now, however, the City has decided to reauthorize this remaining bonding capacity. The City is required to reauthorize this remaining bonding capacity within the original purpose approved by voters. Question G related to deferred maintenance for City-owned cultural facilities, and the remaining amount is $18,497,011. Question H related to financing the cost of new construction of City-owned cultural facilities, and the remaining amount is $38,629,205. The proposed allocation of proceeds of this bonding reauthorization will be $53, $53,526,000 toward projects and $3,600,000 toward Bond Program management. 53,526 During this past summer, a Cultural Facilities Steering Committee, appointed by the Mayor and comprising individuals from the public and private sectors and nonprofits, was convened to request proposals from City cultural facilities for projects that might be done with the proceeds from the bonds, to review and evaluate the submitted proposals, and then forward recommendations to the Mayor for final selection. The eligible applicants were required to: Demonstrate that the project proposed is for a cultural facility within the context of the voter-approved 2007 ballot issue; Demonstrate that it is a City-owned facility; Demonstrate that it may complete its proposed project within the time and financial constraints of the Better Denver Bond Program; and Respond sufficiently to each question contained in the subject Request for Proposals.1
1 Source: Office of the Mayor, 2007 Better Denver Bond RFP Process, Presentation to Denver City Council- Government and Finance Committee, 8/22/2012.

The Mayor has now selected the projects that will go forward. City Council must approve ordinance changes to allow the bonds to be issued and the proceeds used for the specific projects selected. The projects selected are listed in the table below.
CITY OWNED CULTURAL FACILITY
Boettcher Concert Hall - Improvements Denver Performing Arts Complex - Champa Street Bridge Denver Art Museum - Ponti Building Denver Botanic Gardens - Caf & Restrooms and Science Pyramid Denver Center for the Performing Arts - Deferred Maintenance Denver Museum of Nature and Science and the Denver Zoo - Parking Levitt Pavilion Amphitheatre McNichols Building - Improvements Red Rocks Amphitheater - Water Supply and Concession Total $17,332,000
Better Denver Bond Program
5% 14% 3%

QUESTION G
$6,700,000

QUESTION H
$10,075,000 $2,500,000 $3,000,000 $6,619,000

TOTAL
$16,775,000 $2,500,000 $3,000,000 $6,619,000 $9,932,000 $4,400,000 $2,000,000 $5,500,000 $2,800,000 $53,526,000

$9,932,000 $4,400,000 $2,000,000 $700,000 $4,800,000 $2,800,000 $36,194,000

Expenditures To-Date By Type

Construction, Eqt, Materials Planning, Design , Pro Svcs Land Program Management

78%

Expenditures To-Date E di T D

78 percent of Better Denver Bond expenditures have been for construction, equipment and materials.

Description Construction, Eqt, Materials Planning, Design , Pro Svcs Land Program Management Public Art

Amount $ 332,512,137 $ 58,260,584 $ 22,225,511 $ 14,964,972 $ 1,619,172 $ 429,582,375

% 78% 14% 5% 3% 0% 100%

Components of Program Management Costs Description Program Management Agency Staff & Office Exp Legal Services Tech Services Signage $ $ $ $ $ $ Amount 11,651,584 2,072,719 693,954 477,015 69,700 14,964,972 % 78% 14% 5% 3% 0% 100%

Better Denver Bond Program

Millions 150 130 110
Post Program

Estimated vs. Actual Expenditures By Year

90
120

121

29 3

Current Estimate Actuals

70 50 30 10 2008 2009 2010 2011

44 82

71 62 33

2012

2013

2014

Source: Better Denver Bond Program Financial Update November 2012 g

Over the life of the program, the Better Denver Bond Program has continued to meet its financial objectives: Total savings from projects completed by the end of 2010, when the economy was struggling, of $20 million have been re-invested in other projects consistent with the original ballot measures where the savings were generated. As of Q4 2012 (thru Dec.) $451 million (89%) of Bond Program funds have been contracted or committed and financing is complete for authorized projects. Financing is complete for authorized projects. Denvers financing techniques, and AAA credit ratings from all three credit rating agencies (Standard and Poors, Fitch, and Moodys ), have resulted in lower interest rates, which have resulted in savings of over $19 million on debt service. The City would have had to pay approximately $10 million more in interest if it moved from an AAA to a Baa investment grade issuer. The Citys financial team has continued to explore alternative means to finance the Bond Program and drive down long-term costs of bond issuance and debt service. The combined Commercial Paper and General Obligation (G.O.) bond program has provided flexible, cost effective financing. Debt service interest costs were substantially reduced by the use of the Commercial Paper Program. The Better Denver Bond Program utilized a financial modeling system that allowed the City to issue debt just in time. Schedule and cash flow were analyzed for each project; commercial paper was issued to cover costs on a quarterly basis, with G.O. bonds being issued annually in arrears to pay off the commercial paper. This technique saved taxpayers millions of dollars in interest over the traditional method of issuing G.O. bonds in advance. In response to the tax exempt financial markets facing significant challenges during the Great Recession, the U.S. government instituted the Build America Bonds (BAB) program as part of the American Recovery and Reinvestment Act (ARRA). State and local issuers of BABs receive a 35% direct federal subsidy resulting in lower borrowing costs and a broader group of investors than normally invest in tax-exempt bonds. In 2010, Denver issued $312 million of BABs for the Better Denver Bond Program.

Better Denver Bond Program Sustainability Achievements

Better Denver Bond Program projects have incorporated green design and construction approaches that use energy efficiency, recycling, and wise use of land, water, and other materials. In coordination with Denvers Sustainability Committee, each project was assessed for sustainability opportunities. Projects were reviewed for energy efficient improvements related to heating and cooling, lighting, waste management, recycling, water quality, and conservation. These design and construction approaches have saved capital, operations, and maintenance costs.

Where practical and possible, the Better Denver Bond Program has pursued opportunities to build and design its major new vertical construction projects to achieve LEED certification. Project managers have continued to identify opportunities to incorporate sustainability into their projects. New construction and major renovation projects have aimed for a minimum of LEED Silver certification from the U.S. Green Building Councils Leadership in Energy and Environmental Design (LEED) program. The Denver Animal Shelter has received Platinum certification and the Museum of Nature and Science Education and Collections facility has Platinum certification pending. The Green Valley Branch Library, the Sam Gary Branch Library, the Central Park Recreation Center, the Police Traffic Operation/Firing Range, the Museum of Nature and Science facility Phipps Exhibit Hall and other facility renovation have each received Gold certification. The Eastside Human Services Building and the Crime Laboratory have Gold certification pending.

Public Art

Public Art Bond Projects Overview

Denvers Public Art Program was first established in 1988, directing 1% of any projects over $1 million to be set aside for the inclusion of artwork. The art program applies to new construction or improvements to a building or structure, road, streetscape, pedestrian mall or plaza or park or any other project that includes finished space for human occupancy that will be available for public view. The Better Denver Bond Program has incorporated public art into qualifying construction projects that are part of the Bond Program. Each project has its own Selection Panel. The Selection Panel ranges anywhere from 7 to 15 participants, including community members, an artist, an arts professional, the project managers, design team and a City Council representative. Art is incorporated in a variety of ways in the projects: as a standalone piece, an architectural feature of a building or facility, or incorporated i landscaping. Approximately 30 bond projects qualified for inclusion in the Public Art i d into l d i i Program. In many cases art was envisioned to be integrated into the project structures or area grounds. The number of bond-related Public Art Projects completed to date and the cost of these projects: 17 bond projects have been completed, resulting in 28 original artworks. The total cost of these projects: $1,223,782. The number of Public Art Projects in the contracting phase: Currently 4 artists are in contracting, 8 artists are involved in active projects. The number of local artists who have received commissions to complete these Public Art Projects: 20 local artists out of 34 total have been commissioned for Better Denver Bond Program-related Public Art Projects.