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Jail bid was about $4 million over initial projection

Supervisors might pay higher interest rate to get more money for project

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The amount of money that voters agreed to spend to construct a new jail last year was about $7 million, according to a presentation that was part of the bond referendum campaign that summer.

That figure is based on a chart county leaders used to show the breakdown of costs titled: “How much will it cost?”

“The estimated project cost for the jail is $8,950,000,” the presentation said. “This will include everything — construction (building and site), professional fees, furniture fixtures, cameras, security systems, locks/door controls and detention equipment.”

The portion assigned to construction accounted for slightly more than 75 percent of the total, according to the chart, or about $7 million.

The lowest bid the county received for the construction portion of the project was $10.9 million, or nearly $4 million more than the initial estimate.

Shive-Hattery, an architecture and engineering firm in West Des Moines that has helped guide the jail-building process, did not respond to requests from the Carroll Times Herald for the actual initial dollar estimate for the construction portion of the project cost. Instead, it provided the chart at the request of the county.

“These were represented as the final information material that was used before the vote in August 2018,” Mike Lewis, a team leader for Shive-Hattery, wrote in an email to the county. “As you know, the scope of the project increased during design.”

Lewis has attributed the higher-than-expected bid to unspecified “market conditions.”

The county Board of Supervisors is seeking to scale back the project to bring the construction costs down, but it also might, in essence, borrow up to $1.9 million more to pay for it.

Here’s how that would work:

If the county agrees to pay a higher interest rate — 5 percent, which is roughly double the current municipal bond rate — those who buy the bonds will pay the county an estimated up-front premium of $1.89 million.

Together, the proceeds from the bond amount and those premiums would be about $10.8 million, according to Nathan Summers, a public finance banker from Kansas City who is working with the county.

Such an arrangement is not uncommon and not illegal, Summers said. It is likely that investors would pay some up-front premium regardless of the higher interest rate. But the county will be able to get more up-front premium with the higher rate.

“It’s not free money,” Summers told the Times Herald.

That extra $1.89 million will be repaid with some additional interest, but Summers could not immediately provide those figures. Summers also did not have current calculations of what the county would pay if it borrowed the $8.95 million at the current market rate, as proposed for the referendum.

County leaders have touted the idea to borrow at the higher rate, in part, because it wouldn’t appreciably increase the amount of taxes that property owners would pay compared with what they voted on last year. However, the initial estimate was based on a projection of a 3.5-percent interest rate, which is higher than the roughly 2.5-percent current rate that they would pay if they weren’t agreeing to the higher interest rate.

“The actual levy is pretty much unchanged because of the increased construction cost and the decreased interest,” Summers said.

The so-called “true interest cost” — if the up-front premiums are included — is an estimated 2.8 percent, based on Summers figures. The total the county would repay would be about $14.1 million over the course of 20 years.

That number would change if the county chooses to use money from its cash reserves for the project, or if the county is able to refinance the debt after seven years to a lower interest rate.

The county plans to have firmer figures of the total project cost by Sept. 10. The supervisors have tentatively agreed to hire Badding Construction of Carroll, which provided the $10.9 million bid, to do the work if the costs come down and the funding is sufficient.

Supervisor Neil Bock said it is in the county’s best interest to move the project forward now, rather than incur the added costs of delaying it, especially if the new jail would be built away from downtown, as some residents and City Council members have suggested.

“Think of the cost to have a different jail engineered,” he said. “We’d have all those costs over again.”

The supervisors also have considered selling about 114 acres of county-owned farmland just north of Carroll to help fund the project, which they estimate could sell for at least $800,000. Supervisor Rich Ruggles suggested a wait-and-see approach.

“I don’t think we are going to get in that big of a mess, but there’s always the chance the cost that could go up,” he said.

Reporter Annie Mehl contributed to this article.

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