DOCUMENTS AND ANALYSIS RELATED

TO THE PROPOSED SALE OF 82 IONIA

June 30, 2017

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BACKGROUND 82 Ionia was originally constructed in 1932, with a major renovation in 1979 which included construction of a four-floor atrium to connect the original structure with an adjacent building. This created a singular 153,000 square foot building, of which 128,000 square feet is considered “usable.” In 1998, in order to reduce the size and scope of the proposed “new” Courthouse, the County began leasing about 60,000 square feet for the Criminal and Juvenile divisions of the Prosecutor’s Office and Circuit Court Probation. Friend of the Court (FOC), which was leasing other space downtown, was relocated to 82 Ionia at this time, as well. In 2005, the County exercised its right to purchase the building, after an analysis showed that it would be less expense to purchase the building than to continue to lease. The Family Division of the Prosecutor’s Office, which up until this time had been house at 415 Franklin with the Department of Human Services, relocated here to free up space in that building. Community Development was also moved into the facility from leased space in 2005, and Veteran’s Services relocated there in 2010. In need of a more customer-friendly and visible location after passage of the Veteran’s Millage, Veteran’s Services moved to the Fuller Campus in 2015. Although portions of the building had been leased out in the past, only the 61st District Court Drug Lab continues as a tenant, and the required security screenings of visitors to FOC and Circuit Court Probation have made it difficult to attract new tenants. Today, the County occupies approximately 84,400 of the 128,000 useable square feet of workspace in the building (25,340 is used for common space, circulation area, design elements, etc.). The 2015 Space Needs Study (Appendix 1) identified significant excess square footage in the downtown area and recommended the sale of 82 Ionia as a high priority, citing its under-utilization, the inefficiency of the layout for County functions, and the need to refurbish Friend of the Court and Circuit Court Probation offices after more than 15 years since their initial move there. Relocating these offices to a new building on County-owned land at the Fuller complex would allow the County to construct a “right-sized,” efficient building with lower operating costs, reduced employee parking expense, and provide easier access and visibility for these visitor-intense services. According to Progressive AE’s Jim Horman, who conducted the Space Needs Study, “the basis for the recommendation to sell 82 Ionia was to leverage the financial gain of releasing more than 100,000 square feet of well positioned, high market value office space with appropriately reduced, operationally less expensive, and improved office space at the Fuller Campus.” The 2015 Space Needs Study further recommended that the Criminal and Juvenile divisions of the Prosecutor’s Office be relocated to the County-owned building at 320 Ottawa in order to take advantage of its on-site parking and proximity to the Courthouse. Under this plan, the IT Department, which currently occupies 320 Ottawa, would be relocated to the new building at the Fuller complex, as would the Family Law Division of the Prosecutor. These recommendations also took into consideration the estimated value of the two buildings based on their size, age, and location. The building at 320 Ottawa was constructed in 1964 and was extensively remodeled in 1980 and 2000. It has a much smaller footprint than 82 Ionia (approximately 16,500 square feet), and while 82 Ionia’s value was estimated at $8 to $10 million, 320 Ottawa’s value was estimated closer to $2.8 million. Revenue generated from the sale of 82 Ionia would more than cover the remaining debt and be able to reduce the amount of funding needed to build a replacement facility with lower operating costs.

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Based on these factors, a Request for Proposals (RFP) for the sale of 82 Ionia was issued in July 2015. At that time, there were still several unknowns: the exact scope and timing for construction of the replacement building, what costs the County might incur for temporary relocation and staging of employees based on the successful bidder’s requirements for possession, and the actual sale price. After receiving a bid within the expected range, the County began negotiations around the terms of the offer, and the bidder conducted additional due diligence. While the bid received was within the expected price range, the bidder was ultimately unable to use the building as intended and the sale was not closed. The Board of Commissioners held two work sessions and received additional information regarding the recommendation, and a second RFP for the sale of the building was released so that the potential revenue generated by the sale could be considered. Three responses to the second RFP were received by the County. The first was from Franklin Partners, a developer from Chicago that owns numerous properties in Grand Rapids, for $3.4M. Two other proposals were within the anticipate range: West Michigan Housing Alliance proposed an offer of $10M for the building, with some conditions and terms, including review and approval of survey, environmentals, inspections, etc., and a lease-back provision. If this bid were accepted, the County would receive $9.2M ($10M - $600,000 fees and first/last month rent). The proposal is then for the County to lease back the facility at approximately $99,000 per month (which includes utilities) for 18 months. Rockford Construction proposed an offer of $7,075,000 for the building. Upon acceptance of this bid, Rockford would provide the County with a performance bond for the purchase price. The County would continue to own and occupy the building while replacement space is arranged, with a closing between July 1 and December 1, 2018. As part of their proposal, Rockford requested the use of 10 spaces in the parking ramp upon acceptance of their bid. Both of these proposals have some terms and conditions that impact the bottom line. Staff has not yet conducted any due diligence or negotiations with the proposed bidders, but have estimated that the final revenue will be in the $7M – $7.5M range. Following receipt of the responses, Finance and Physical Resources Committee Chair Diane Jones appointed Commissioners Roger Morgan and Jim Talen to join her to form an 82 Ionia Review Subcommittee. The charge to the Subcommittee was as follows:

Recommend to the Finance and Physical Resources Committee whether to move ahead with plans to liquidate 82 Ionia based upon the proposals received on May 2, 2017 and if so, to recommend a funding strategy for replacement of the facility.

ANALYSIS OF OPTIONS There are four options the Subcommittee requested be vetted:

A. Retain 82 Ionia and maintain/refurbish for current uses B. Retain 82 Ionia and refurbish/remodel for expanded use C. Sell 82 Ionia and relocate offices housed there into existing County space D. Sell 82 Ionia and relocate offices housed there to 320 Ottawa and a new facility to be

constructed on the Fuller Campus

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Option A: Retain 82 Ionia and Maintain/Refurbish for Current Uses Capital Costs. This option represents the minimal approach, or what would commonly be called the “do nothing” option. However, while the County has over the years upgraded and maintained the building’s infrastructure – heating and air conditioning, fire monitoring, security systems, lighting, and parking lot repair and maintenance – the office spaces have not been renovated or updated since first occupying the building almost 20 years ago. In addition, much of the infrastructure existing at the time the County took over, and the investments made at that time, are at or will reach the end of their expected life within the next few years. Over the past three years, significant portions of the building have been vacated. The entire 8,000 square feet on the basement and first floor previously occupied by Diversions is vacant, as well as various locations on the first and second floors. In addition to the loss of tenants, Veteran’s Services has moved out, and once Community Development and Housing relocates to the Human Services Center, the entire third floor will be vacant. This space will need to be at least minimally secured and maintained. As a result, if the County decides to continue use of the building, the “do nothing” option is not viable. Facilities Management estimates that over the next 20 years, the County would likely need to invest approximately $8-9 million. This number is based on capital expenses required since County ownership, and the standard, scheduled replacement of capital items as they age. This figure includes maintenance and repair of the parking deck, which will need to be addressed sometime in the planning horizon. This figure does not include any items to significantly reduce operating costs or maintenance during or following the 20-year period. The County has made and will continue to invest in efficient mechanical and operating systems. 82 Ionia is a very well-maintained building, however there is little opportunity to reduce maintenance costs in a building of this size and age (more than 80 years old). Operating Costs. The layout of 82 Ionia, including the atrium and open floor plan, results in quite a bit of unusable space. This space, and the underutilized/vacant space, while less expensive to maintain due to low wear-and-tear, still incurs costs to heat and cool. Total operating costs for the facility are budgeted at $616,000 annually. Operating Costs – Parking: 82 Ionia currently houses approximately 240 workers; 52 are State employees for whom we do not provide parking, resulting in a parking need of approximately 190 spaces. The building has 126 on-site parking spaces in a two-story ramp. The County uses 75 of the spaces and rents out the remaining 51 at $128 per month, per space (most of which were leased when the County first purchased the building). Employees who do not require on-site parking are accommodated in non-County owned sites currently ranging in cost from $41 - $48 per month at a cost of approximately $93,000 annually. Net parking costs at the building are approximately $15,000 annually. If the County does not reduce its downtown workforce by 2021 when its lease for the Midtown Ramp expires, it will likely be required to use the leased parking spaces, reducing its revenue (and increasing required General Fund support) by approximately $40,000 annually. Customer Service: Visitors to 82 Ionia have indicated that the facility is challenging to park at/near, and inconvenient to navigate internally; this was validated by comments following the County’s decision to relocate Veteran’s Services to the Fuller Campus. All customers – with or without handicap accessibility – are on their own for transportation and parking. There is no on-site visitor parking. On-street parking is limited and all visitors must pay to park either on-street or in nearby ramps. There is a bus stop approximately 100 feet from the building entrance at Ionia and Fountain streets.

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Operational Efficiencies: The space has been retrofitted to accommodate the current uses, but the design and structure of the building presents some challenges for operations, as well as filing and storage. The space occupied by the Prosecuting Attorney Offices contains expansive hallway areas and, due to the “C-shape” of the building construction, flow throughout the office is considered somewhat “maze-like” as opposed to efficient. The area in 82 Ionia currently occupied by the Friend of the Court (FOC) has tight hallways; FOC also suffers from the same concerns as the Prosecuting Attorney Offices due to the C-shape design of the building. The FOC has also shared that this layout provides challenges to collaboration and customer service. 82 Ionia’s close proximity to the Courthouse fulfills a key requirement for the Prosecutor’s Office, and the building’s size allows all divisions to be co-located. FOC attorneys and staff also benefit from close proximity to the Courthouse, although their interaction is less frequent and more concentrated. Retaining the “status quo” would allow IT services to continue to be delivered as they are now. Currently 320 Ottawa houses the County’s primary Data Center (DC-1; DC-2 is housed on the Juvenile Services Campus near Fuller and Ball avenues), and 38 staff and contractors. There are also two IT staff positions located on the Fuller Campus that support the Kent County Sheriff’s Department. The trade-off for these efficiencies, however, is continued maintenance and operation of an oversized facility. Facilities Management estimates that a newly-constructed, “right sized” facility to house the services and programs displaced by the sale of the building could be maintained and operated at approximately 45 percent of the cost of continuing to operate 82 Ionia. These savings do not include continuing parking expenses, which would average additional savings of at least $15,000 annually over the planning horizon, a figure not adjusted for inflation or supply/demand.

Projected Operating Costs 82 Ionia/320 Ottawa Fuller/320 Ottawa Cost/(Savings)Annual Building Operations 616,000$ 388,000$ (228,000)$

Repair and Maintenance (annualized) 440,000$ 50,000$ (390,000)$

Annual Parking (net) 14,664$ - (14,664)$

Projected Operating Cost Comparisons

Total Projected Annual Operating

Costs/(Savings) 1,070,664$ 438,000$ (632,664)$

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Option B: Retain 82 Ionia and Refurbish/Remodel for Expanded Use Capital Costs: As discussed earlier, while the County has made some upgrades over the years, the offices currently located at the building need refurbishing, and parts of the buildings infrastructure would also need to be repaired or replaced; Facilities Management has estimated approximately $8-9 million would be required for these purposes during the planning horizon. While there are currently no identified County uses projected for the vacant space, renovation of that would be an additional expense. Depending on the specific use, retro-fitting and renovating these areas (including area previously leased by Diversions, Lucre and other private entities, as well as the spaces vacated by Veteran’s Services and Community Development and Housing), would add an additional $4-6 million to the project. These figures are, however, somewhat hypothetical as the 2015 Space Needs Study did not identify any County departments or services that should be moved to the building. Operations, Customer Service, and Efficiencies: Absent an identified County occupant, the discussion of operational costs, customer service, and efficiencies associated with Option B are similar to those for Option A. Operating costs would be expected to increase slightly as vacant space would now be maintained as occupied (e.g., higher heating and cooling, increased janitorial), the increases would possibly be offset by reductions elsewhere in the County’s space inventory, or additional revenue (e.g., grants that would accompany a new service or program). Due to the building design, there would still be portions of the building that would remain unoccupied and continue to incur operating expense, albeit at a lower cost. It should be noted that any employees relocated to the facility from outside the downtown Grand Rapids area would result in additional parking expense of approximately $41-$48 per month. IT Relocation to 82 Ionia: Subcommittee members and several other Commissioners have asked about the potential impact of relocating IT Department to 82 Ionia. Capital Costs: Initial cost estimates for renovation to vacant space at 82 Ionia to accommodate the needs of the IT Department range in the area of $2 million. If the decision was made to relocate IT to 82 Ionia, and sell 320 Ottawa, these costs could potentially be offset by sale proceeds. A 2016 Broker’s Opinion of Value for 320 Ottawa was $2.8 million. Operating Costs: The most significant difference in operating costs would be the loss of 40 on-site employee parking spots. Replacing this parking in the downtown area would require an estimated $22,000 annually (2017 prices). Efficiencies: Relocating IT to 82 Ionia would still leave approximately 20 percent (20,000 sq. ft.) of 82 Ionia vacant. IT services could continue to be substantially delivered as they are now, including co-location with the primary Data Center and remote staff located at the Fuller Campus. The facility at 320 Ottawa still has considerable remaining life, is very cost effective to operate, and its on-site parking does/would support the majority of the staff assigned there. Costs to relocate are substantially the same as the potential profit from sale of the building. The increases in operating costs compared to those associated with a move to 82 Ionia would ultimately consume the difference over the 20-year planning horizon.

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Leasing Unused Space at 82 Ionia to Non-County Tenants: Subcommittee members and several other Commissioners have asked about the potential for additional non-County tenants in 82 Ionia. Over the years, the County has co-occupied 82 Ionia with others on a limited basis. In addition to Diversions, the National Labor Relations Board and Lucre previously occupied approximately 25 percent of the third floor. Since 82 Ionia was acquired with tax-exempt bonds, lease agreements with private entities are limited to a certain amount of the building as long as the bonds are outstanding. Also, when a tax-exempt owner of property leases space to a private entity, the space is then required to be taxed; this could reduce the net revenue available to the County. In 2005, it became necessary to add security screening to the building, which has proven to be a deterrent to several potential lessees (e.g., Kent County Land Bank Authority). Although staff has not specifically marketed the space nor reached out to potential non-profit or other governmental users, the availability of the space has occasionally been discussed informally over the years with other public and non-profit partners. Staff has reached out to the Facilities staff at the local State of Michigan Office building, which confirmed that there are no current space needs nor any on the immediate planning horizon. However, current County policy restricts charges to non-profit and other public entities to be at a rate to cover County expenses, but not allow for profit. Essentially, the addition of tenants would not change the County’s net position. Separate and Sell a Portion of the Building: The current building is actually comprised of two smaller buildings originally located on this site. The Ionia side is constructed from wooden sub-structure with steel columns, while the Division side was more comprehensively renovated with additional construction of a steel and concrete sub-structure. Renovations to create a single facility in 1979 included the creation of the open atrium and substantial in-fill for floor space, and extensive work to the buildings’ infrastructure:

• There is one cooling system (chiller, cooling tower, and VAV components) which is sized to cool the entire facility

• The electrical distribution center (transformers and motor-control centers) are wired to operate as one facility

• Entry and egress were constructed to function for one facility as a whole

• The two elevator hoist ways are married to each other in one location, limiting elevator service to serve one facility

Reworking these systems to create separate facilities would be cost-prohibitive and inefficient, especially for a building of this age. Trying to do so while maintaining continuity of operations at the site during such a construction project would not be feasible, and temporary housing for the staff and services located there would add to the cost. Retain 82 Ionia and Build Additional Parking On-Site: The idea has also been raised to expand the parking at the site to reduce County’s parking expense. A very preliminary estimate suggests the site could potentially accommodate as many as 475 parking spaces (with the caveat that that number does not include any accommodations for traffic, ingress/egress concerns, planning and zoning restrictions, etc.) at a very rough cost estimate of $20,000 per space for an approximate cost of $10 million. Such a structure would still be at least 50 spots short of meeting the County’s current downtown offsite parking needs, and the cost to the County based on debt service alone (estimated at $662,000 annually) would be much greater than the costs of the current practice of leasing space ($182,000).

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In addition to additional cost/lost revenue during the construction period, the County would also incur higher operating and maintenance costs. Based on our current lease agreement with Ellis Parking for the Midtown Ramp, the County would incur $50 per month per parking ramp spot for operations and maintenance costs. Option C: Sell 82 Ionia and Relocate Offices Housed There into Existing County Space In completing the 2015 Space Needs Study, staff from Progressive AE conducted a high-level assessment of County facilities, focusing on facility health, workplace environments, and building area. A key finding of the Study was that overall, the County had excess building area (square footage). The Study also recommended multiple areas for workplace improvements (i.e., opportunities to increase facility and employee performance through updates, rearrangements, and/or enhancements) which may or may not allow for increased utilization at the various facilities. One area that the Subcommittee asked staff to more thoroughly address was whether the existing facilities, with the recommended worksite improvements or additional “compression” (i.e., reducing workstations and in-filling open work areas) would eliminate the need for new construction if 82 Ionia was eliminated from the County’s portfolio. Eliminating from the analysis those departments that have already re-located or plan to re-locate from 82 Ionia, as well as the small space leased to the 61st District Court, the sale of 82 Ionia requires replacement of approximately 58,000 square feet, accommodating the following number of staff and approximate office sizes (some departments may gain space efficiencies due to co-location):

Prosecutor

(Criminal and

Civil)

58 17,000

Primary 82 Ionia Occupants

Total 232 57,295

Prosecutor

(Family Law)22 5,000

Circuit Court

Probation52 17,295

Friend of the

Court100 18,000

DepartmentNumber of

Employees

Sq. Ft. Required

(Approximate)*

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While Kent County owns multiple facilities encompassing hundreds of thousands of square feet, many of those facilities are specifically designed for a single purpose (e.g., the Animal Shelter, Fleet Services, Juvenile Detention, etc.), are fully utilized (e.g., Human Services Complex, 63rd District Court) or otherwise not available for co-location with other County offices due to current or future planned use, or geography (e.g., Veteran’s Services, Sheriff’s substations). As a result, those facilities have been excluded from this analysis.

As shown above, even with renovation and remodeling of existing spaces, it is highly improbable that the County could relocate the departments currently housed in 82 Ionia into existing space. The affected departments would likely not be accommodated without splitting across levels or multiple buildings. Building additions and significant renovations may be necessary to accommodate this scale of departmental shift. Many support spaces, such as meeting spaces and conference rooms will likely be negatively impacted when increasing the occupancy rate of existing County facilities. While conference rooms are often unoccupied for long periods of time, they serve a vital function within the organization. Additionally, absorbing the County departments currently located at 82 Ionia would eliminate all the County’s “swing” space used to provide flexibility when extra space is necessary. From time to time, it is necessary to accommodate additional staff, vendors, or government officials in existing County office space for a defined period of time. For example, the A360 project necessitated staff from Fiscal Services and Human Resources be assigned to the IT building in order to develop and populate the system.

Health

Department78,000 5,500 23,400 (30%)

Vacant space in 3 areas, the

largest of which is 3,700 sq ft on

the garden level and not easily

accessible to the public.

Existing vacant space is mostly

heavily used conference rooms,

expanded work areas

MSU Extension 11,029 3,860 5,514 (50%)

Total (w/o 82

Ionia)172,136 19,360 47,367

County

Administration66,000 8,000 9,900 (15%)

Much vacant space currently

occupied for A360 project.

Planned relocation of Data

Center will provide 1,220 sq ft

IT Building 17,107 2,000 8,553 (50%)

Potential Sq. Ft.

Available Through

Compression and

Reconfiguration*

*Estimated with no due diligence; would require additional programming review

Comments

Includes space to be vacated by

Community Development in

October

Largest area is 500 sq ft; vacant

space includes entry area from

Plaza, storage, conference

rooms, and vacant workstations

82 Ionia 108,000 35,000 64,800 (60%)

FacilityTotal Square

Feet

Current Sq. Ft.

Available

Current Status - County Facilities with Space Available

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Compression to the level required to absorb the offices into existing space would also remove any flexibility for minor staffing increases or temporary fluctuations. An additional factor to consider is the customer service issues that will arise from a compacted and disparate County workforce. If County departments become split across multiple facilities, a citizen may be forced to travel to multiple facilities in order to solve one issue. New work processes will have to be developed for departments spread across multiple facilities and will likely result in greater inefficiency and will make collaboration between employees more difficult. Significantly compressing existing workspace is likely to negatively affect employee morale and the County’s ability to recruit and retain employees. Finally, 82 Ionia currently provides on-site parking for approximately 75 employees, and receives rental income for an additional 51 spaces. If the County were to liquidate 82 Ionia, the 75 employees would need to be accommodated in the location their departments are reassigned, which, if downtown, would reduce the savings associated with no longer operating 82 Ionia. Further consideration of absorbing the County Departments currently housed at 82 Ionia into existing facilities or to develop cost estimates to do so, would require that the Space Needs Study be expanded to identify, program, and redefine space, adjacencies, and work styles. In light of the space needs and availability identified above, staff has not invested in the additional research. Move Prosecutor’s Office into Leased Space Within Desired Proximity of Courthouse: A question regarding the potential of renting space for the Prosecutor’s Office was raised. Class A office space within two blocks of the Courthouse would cost approximately $23 per square foot modified gross (i.e., all operating expenses except electric and custodial). Depending on whether the County leased space for the entire office (23,000 square feet) or just the Criminal and Juvenile divisions (17,000 square feet) prices would range from $391,000 annually to $529,000 annually. Generally speaking, landlords will include a base allowance for remodeling for lease terms of seven to ten years, however, the County would still likely be required to incur as much as $200,000 in one-time costs for technology and some furnishings (anticipating that existing furniture could be used in most offices). Over the duration of the planning horizon, this cost would be considerably more than the other options available. Plans for the Spectrum Health Community Hospital Building: Originally constructed in 1922, with additions in 1955 and 1971, this County-owned building is a six-story, 236,076 square foot structure. The operation of the hospital was transferred to Spectrum Health in 1999, and the building is part of a long-term lease. The current lease term ends in 2019 and is renewable for at least another ten years. Spectrum Heath has indicated that while they are evaluating options for the facility, they have no plans to vacate it in the near term. Due to its age, and design and construction as a medical care facility, the structure would require extensive remodeling to be usable by the County.

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Option D: Sell 82 Ionia and Relocate Offices Housed There to 320 Ottawa and a New Facility to Be Constructed on the Fuller Campus

Capital Costs: The basis for the 2015 Space Needs Study’s recommendation to sell 82 Ionia was to leverage the financial gain of releasing more than 100,000 square feet of well positioned, high market value office with appropriately reduced, operationally less expensive, and improved office space at the Fuller Campus, an asset owned and invested in by the County. Specifically, the Study recommended relocating the Prosecutor’s Office Criminal and Juvenile divisions to 320 Ottawa, and to move IT from that building, along with the remaining occupants of 82 Ionia to a newly-constructed facility on the Fuller Campus. Facilities Management has competed initial programming and design work and estimates that the remodel of 320 Ottawa, including relocation of DC-1 to the Courthouse, will cost $3 million and the construction of a new, “right- sized” building of approximately 84,000 square feet will cost $20 million. These costs would be offset by sale proceeds of 82 Ionia, which based on the pending responses to the recent Request for Proposals for the facility, would be in the range of $7- $7.5 million dollars. If this option is pursued, it is anticipated that the County would bond for at least a portion of the required funding. Depending on the recommended funding strategy, bond payments (currently estimated at $1.25 M) would be partially offset by savings from reduced operating expenses (approximately $650,000 annually) and for the first eight years, by $319,907 by defeasance of the existing bonds on 82 Ionia. Preliminary calculations project that the net additional cost to the County for years 1-8 would be $302,288 and $622,195 for years 9-20. It should be noted that these figures are estimates. The exact size of the building and cost figures will be adjusted as the design process continues. Building layout, economies of scale for meeting space, storage, utilities, infrastructure, etc., may result in some adjustments; similarly, interest rates at the time of issuance, timing of the sale of the building and the use of any existing resources will also need to be refined prior to the preparation of a bond resolution for consideration by the Board. Anticipating that the final figures will be close to the projections, it is estimated that at the end of 20 years, the County will have paid an additional out-of-pocket cost of approximately $8.3 million dollars for a more efficient, 20-year old building with considerable remaining useful life. A comparison of the costs of Option A and Option D is shown in Attachment 1. This information will be more fully vetted, updated and incorporated into a bond resolution that would be brought back to the Board at a later date if this option and the financing strategy is approved. Operating Costs: Based on current cost/square foot operating costs at 320 Ottawa and the County’s more recently constructed buildings, Facilities Management estimates that operating costs at 320 Ottawa and the new facility at Fuller to be $388,000 annually. An additional $1 million for infrastructure and building repairs/replacement has been included in the budget, based, again, on expense history at similarly aged county facilities. Operating Cost – Parking: On-site surface parking construction and maintenance has been built into the above expenses. No additional out-of-pocket costs are anticipated for employees or customers at that location. Parking for the Prosecutor’s Office employees located at 320 Ottawa will be provided through a combination of on-site parking and off-site parking. It is expected that County-owned sites will be able to absorb most - if not all - of the Prosecutor’s staff.

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Customer Service: Situated near the I-196 corridor, the Fuller Campus is accessibly situated within the County, close to both the I-196 east-west corridor and the US131 north-south corridor on land owned by the County. The site has been the location of various County services since the 1950s, and currently houses the Correctional Facility and Sheriff’s Offices, Health Department Administrative and Offices and Clinic, the Animal Shelter, Community Mental Health (N180), Veteran’s Services and MSU Extension. In 2004, the County completed a Fuller Campus Master Plan (Appendix 2) to guide the placement of future facilities, expansions and improvements on the campus, and subsequently bonded for approximately $7.4M in investments at the site. These investments provided improved access and circulation, ensured expansion capabilities, improved facility infrastructure and provided adequate parking. Specific improvements included a new circulation drive from Fuller Ave. to Ball Ave., a turn lane off Fuller Ave. into the campus, and an added set of traffic lights on Fuller Ave.

On-site parking will be available, as will be handicapped parking. The campus is served by public transit. The current bus stops in the area (Route 13 on Fuller Ave., and Route 14 on Ball) both fall within one-quarter mile (950 feet) of the proposed building location, which is standard for transit bus stops, although it may present challenges for certain individuals, particularly those with mobility limitations. Current route patterns may limit expansion of service to/at the site. Since the buildings will be designed and constructed to accommodate the needs of the occupying departments, it is anticipated that County customer service standards will be incorporated.

Operational Efficiencies: As mentioned above, since the buildings will be designed and constructed to accommodate the needs of the occupying departments, it is anticipated that the offices will be built to incorporate substantial internal operational efficiencies – both in programming and in operations.

While providing the required proximity to the Courthouse for the Prosecutor’s Office, the 320 Ottawa building will not accommodate both divisions. As a result, this option includes moving only the Criminal and Juvenile divisions to 320 Ottawa and relocating the Family Law Division to the new building proposed for the Fuller Campus. While it would be preferable not to split the office across two locations, the Prosecutor has indicated it is more important to have the Criminal and Juvenile divisions located downtown than to have all the staff in one facility. Relocation of the Friend of the Court to the Fuller Campus will also increase travel time for staff required to conduct business at the Courthouse, however, since the FOC’s appearances are primarily regularly scheduled half-day blocks, the impact is expected to be minimal. Use of temporary, satellite workstations at the Courthouse and 320 Ottawa will be explored to minimize the loss time due to travel, if necessary.

The relocation of IT to the Fuller Campus will cause a significant change in how IT services are delivered and IT staff interaction with the other departments located in the downtown area. Response time for technology problems or requests of employees at downtown locations that cannot be handled through remote access will more than likely not change, since it is anticipated that at least one and possibly two staff will be relocated to the Courthouse rather than Fuller. This staff, however, will not be the same individuals who would work on or respond to a problem with the data center servers. Access to the data center currently requires about a minute; that will increase to a minimum of 20 minutes, for both routine activity/maintenance and responding to issues. The additional time to travel downtown could delay response to an issue that could cause a widespread service outage. It has also been noted that collaboration opportunities will be fewer because there will be no “pop across/down the street” sessions as occur regularly today. Alternatives to mitigate and/or minimize the impact of the move will continue to be investigated and incorporated as the planning process continues. Given current staffing levels and the need to leverage existing resources across departments, facilities and functions, and to maintain internal collaboration, the IT Director does not believe that additional decentralization/remote office assignment is a viable option.

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Facilities Management and Administration acknowledge these issues and their impact on departments and operations countywide, but also recognize that the improved customer service opportunities, long-term operational saving to the County and needs of the Prosecutor’s Office to be in close proximity to the Courthouse warrant consideration of the move.

DISCUSSION/FINDINGS Much of the Subcommittee’s discussion approaching the recommendation focused on the benefits of the Fuller Campus, including its existing identity with Kent County residents as a main hub of County services in which the County has heavily invested. County services that currently exist at the Fuller Complex include the Health Department, Mental Health Services, Veteran’s Services, the MSU Extension, the Correctional Facility, the Sheriff’s Department, and the Animal Shelter. Discussion also included the fact that the complex has adequate, close, and free parking and provides handicapped parking near various facilities. It was noted that the County completed a Master Plan for the Fuller Campus in 2004 and as result of that plan had invested in the site to ensure adequate access and circulation, building sites and infrastructure for future development. The Subcommittee discussed other benefits of consolidating County services at the Fuller Complex, including its convenient location near both US-131 and I-196 and its co-location with exiting bus stops. Locating a new building at the complex would allow the County to fully take advantage of previous investments, including the recent addition of the circulation drive and sidewalk infrastructure. Locating a building at the complex would also allow the County the future flexibility needed to address potentially unforeseen changes in staffing levels over the coming 20-40 years. During the Subcommittee’s review of the financial recommendation (Attachment 1), it was noted that current interest rates on municipal bonds are exceptionally low and are likely to increase in the near future. The County’s current debt service rate is 1.5 percent of the County’s State Equalized Value (SEV), which is extremely low, and that the County’s investment in its facilities and infrastructure has been praised by the rating agencies and among the reasons the County receives the ratings it does.

RECOMMENDATION The members of the Subcommittee voted 2-1 to sell 82 Ionia and construct a new office building at the Fuller Complex. The Chair asked that a work session on the recommendation be scheduled, and that a report incorporating the information discussed by the Subcommittee and any additional information that has been requested be prepared and disseminated prior to the meeting.

Difference82 Ionia/Ottawa Fuller/ Ottawa Cost/(Savings)

Projected operating cost: (1)

Annual building operations 616,000$ 388,000$ (228,000)$ Repair & maintenance (annualized) 440,000 50,000 (390,000) Annual parking 14,664 (2) (14,664) Total projected annual operating cost 1,070,664 438,000 (632,664)

Projected annual net debt service years 1-8 319,907$ (3) 1,254,859$ (4) 934,952$

Projected additional expenses in years 1-8 302,288$

Projected annual debt service years 9-20 -$ 1,254,859$ 1,254,859$

Projected additional expenses in years 9-20 622,195.00$

Projected operating cost and debt service over 20 years:Projected operating costs over 20 years (1) 21,413,280 8,760,000 (12,653,280) Debt service (8yrs. 82 Ionia/New Facility 20 yrs.) 2,559,258 (3) 25,097,178 (5) 22,537,920 Total projected operating costs and debt service over 20 years 23,972,538$ 33,857,178$ 9,884,640$

(1) Projected cost savings provided by Facilities Management and not adjusted for inflation

(2) Net of parking revenue ($93,000-$78,336).

(3) This debt service payment is eliminated by defeasance of the bonds as part of the sale of 82 Ionia.

(4) Debt service is based on a $19.2 million 20-year bond with level debt service.

(5) It may be possible to reduce the borrowing amount with the use of strategic capital ($812,500 GF and $657,000 CIP).

Note: Debt service cost per million based on current projections is $65,358 annually.

Projected Costs Associated with the Sale of 82 IoniaCounty of Kent, Michigan

June 5, 2017

New Facility Construction 20,000,000$ 320 Ottawa Renovation 3,000,000 Total Construction/Renovation Cost 23,000,000 Cost of Issuance and Contingency 1,000,000

82 Ionia Sales Proceeds 7,000,000$ (1) Less: Cost to Defease Outstanding Bonds (2,195,761) (2) Net Ionia Sales Proceeds (4,804,239)

Net Cost to Construct/Renovate Replacement Facilities 19,195,761$

(3) Project Borrowing Rounded 19,200,000$ (4) Level 20-Year P&I Debt Service Incurred Due to

Sale/Replacement 1,254,859

20-Year Total Debt Service (P&I) 25,097,178$

(1) Projected to decrease to $1,953,450 after 12-1-2017 payment.(2) Assumes that there no other costs to be taken from sale proceeds.(3) It may be possible to reduce borrowing amount with the use of strategic capital.(4) Projected debt service provided by Baird.

Projected Borrowing Costs Associated with the Sale of 82 IoniaCounty of Kent, Michigan

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SUPPLEMENTAL INFORMATION During and following the Subcommittee’s work, additional questions were raised by Commissioners. Some items were briefly discussed during the meetings, but were not incorporated into the analysis document; many required additional time to prepare a complete response, and are included in this section of the Report so that Commissioners will have as much information as possible available to them in document. To that end, also attached is information prepared for previous work sessions. 1. How much space do we need to build? How much vacant space are we building for anticipated

use? What departments/groups will be relocated to the new building? During the due diligence/negotiation period with Kendall College of Art and Design (KCAD), the County contracted with Tower Pinkster to do Programming and Schematic Design for a new building to house the departments which would be displaced by the sale of 82 Ionia, with the exception of the Prosecutor’s Criminal/Juvenile Divisions which were being planned to go to 320 Ottawa. Representatives from Tower Pinkster and Facilities Management met multiple times with each affected department (including IT) to develop programming needs. This information was developed into Schematic Design(s) which were comprehensive enough to estimate the total space needed (83,879 sq. ft.), and professional estimates for construction.

The bulk of this work was completed between January and July 2016, and stopped when KCAD decided they would not acquire the building. Subsequently, plans have been made for Community Development and Housing to merge with ACSET and re-locate to the Human Services Complex; the building at 1565 Cedar (former Haven) was vacated and remodeled for use by the Juvenile Services Staff and the Data Center. Space allotted to these areas totals 9,727 sq. ft. and would be available for future use or reducing the size of the building. This would be done in the next phase of the project (Design Development) if the project moves forward.

Department/Division Employees Current Sq.Ft. Friend of the Court 98

Family Law Division 22

Circuit Court Probation 52 17,295

IT Department 37 15,000

Community Development 10 3,927

61st District Court Drug Lab N/A 1,914

Operations & Support 15,180

Data Center N/A 1,200

Juvenile Courtside 8 4,600

Shared Conference Area 2,160

Total 219 83,906

22,630

New Building - Programming

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2. How much renovation will need to be done (cost) to 320 Ottawa to transition the Prosecuting Attorney’s office to that building? Is it true there is more parking there to accommodate that staff? Renovations to 320 Ottawa are estimated to cost approximately $3 million. This includes relocating the data center (approximately 1200 sq. ft.) to the Courthouse. Excluding the Family Law Division, there are 46 individuals who now park on-site at 82 Ionia and 36 who park in DASH lots. Those who park in DASH lots will continue to do so. There are 37 on-site parking spaces at the building, which will accommodate all the attorneys; nine staff will park in the North Monroe Lot or DeVos Place.

3. Even though we are only financing the building over 20 years, we know from experience that the

building will stay in service much longer and have a much longer life. What savings are associated with the building over 30 or more years? In preparing various analytical models for the County’s options related to 82 Ionia, staff reviewed repair and maintenance costs at the 82 Ionia building for the past 20 years and projected that figure forward to estimate future costs. Based on that, it is expected that maintenance and repair at 82 Ionia will be between $8-9M. Most of this expense is associated with the parking deck. It is very difficult to predict repair and maintenance costs beyond a 20-year planning horizon. Once the parking deck is repaired/replaced within the first few years, it is not likely to require additional extensive repair/replacement until years 20-50. Electrical systems, HVAC, normal wear and tear will require investment in any building. And while anecdotally, it is believed that buildings with older design and materials will cost more in upkeep, repair and maintenance, it is difficult to quantify. Staff can, however, predict with some certainty that operating costs of a new building at the Fuller Complex would be approximately 37 percent of 82 Ionia. Looking solely at this differential in operating costs, a new building would provide at least $6.8M in savings over 30 years and $11.4M over 50 years. If the figures are adjusted for inflation (2 percent annually), the savings increase substantially: the savings would be $9.2M over 30 years and $19.2M over 50 years. In this scenario, the building pays for itself through operating savings alone in 31 years.

These figures are conservative in that they do not take into account older building materials, retro fit design, or higher operating and repair costs associated with the parking deck vs. a surface lot, and the cost of leased parking.

0% Inflation 2% Inflation 0% Inflation 2% Inflation

20 Years 12,320,000$ 14,967,180$ 7,760,000$ 9,427,379$

30 Years 18,480,000$ 24,989,937$ 11,640,000$ 15,740,415$

50 Years 30,800,000$ 52,100,911$ 19,400,000$ 32,816,808$

82 Ionia/Ottawa Fuller/Ottawa

Cumulative Operating Expense Projections

2017 est: $616,000/year 2017 est: $388,000/year

0% Inflation 2% Inflation

20 Years 4,560,000$ 5,539,800$

30 Years 6,840,000$ 9,249,522$

50 Years 11,400,000$ 19,284,104$

Cumulative Operating

Savings Projections

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4. What is the potential increased costs to the project due to increases in interest rates (quarter percent increments up to 2 percent more than current rates)? Every 0.25 percent increase in interest rates between now and issuance will cost the County roughly $25,000 in annual debt service, or approximately $600,000 over the 20-year life of the issue. A Two (2) percent increase could cost an additional $4.8 million over the life of the issuance.

5. Though interest rates are low, building costs – especially in MI – are at an all-time high. How much

has the cost of the proposed new building increased over when we got the estimates a year ago? The current cost estimate of $20M was prepared in May 2016, and included a design contingency of $1.8M. Last week staff contacted TowerPinkster, who prepared the original estimate, and they suggested adding $800,000 (approximately 4 percent) to the cost estimate, assuming that the project would be bid in early spring 2018.

6. Since this is a government funded project, would we have to pay prevailing wage costs for the

construction of the building? No. Prevailing wage requirements only apply to certain State- and federally-funded projects; this is being constructed with County funds.

7. What are the debt issuance fees? $135,700 8. What is the anticipated interest expense over the full term? $5,897,178 9. What is the specific allocation of proceeds from the sale of 82 Ionia?

Revenue from the sale is being estimated at $7M and is planned to be used first to defease (pay off) the existing bonds on 82 Ionia, the next principal payment of which is due December 1, 2017. If the sale takes place before that date, we would plan to use $2,195,761 of the proceeds to do that; if we close after that date, so the payment has already been made from existing budgeted funds, the number drops to $1,953,450. The remainder of the proceeds would be used to decrease the amount of debt issued. If the County chose to pay the defeasance from existing resources, then additional proceeds would be used to further decrease the amount of debt issued.

10. How much do we spend annually on parking costs for county employees in the downtown area – across all departments? Kent County requires approximately 646 spots for downtown employee parking; 307 are in parking spots we own (including 103 in the Midtown Lot), and 339 are in “leased” space (DASH, DeVos). Excluding the maintenance/operation agreement with Ellis for the Midtown Lot (estimated at $60,000/year), we are expecting to pay $222,450 for downtown employee parking over the next 12 months. We do have some spots at 82 Ionia and the North Monroe Lot that we lease out, so the net expense is $132,714.

11. What would be the cost of building parking on site? Why are we not considering building expanded parking on the site and using those revenues to offset our costs? A 2003 study by the County that estimated a parking ramp on the site could hold approximately 474 spots. Construction costs at the time were estimated at $20,000 per spot, so a planning figure of $10M was used when this issue was first raised by Commissioners in 2016. Subsequently, staff consulted with the City of Grand Rapids who shared that recent construction estimate for supported parking placed the figure closer to $27,000 per spot or $12.8M for the entire structure (excluding engineering, demolition and several other “soft” costs). Financing this amount at current rates for

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20 years would cost approximately $877,570 per year. Also according to the City, operations and maintenance costs are budgeted at $50/spot/month; this number is similar to the amount the County pays for operations and maintenance at the Midtown Ramp and DeVos, and would allow for annual preventive maintenance and repair, but not replacement. In total, financing and operation of a ramp with 45-55 years of useful life would cost $1,162,000 per year (not adjusted for inflation). City of Grand Rapids Parking Services also provided an estimate of operating revenues, using industry standard/local experience to estimate the number of monthly parkers to day/hourly users, turnover of day/hourly spots, special event and evening parking. Based on City of Grand Rapids Parking Services projections, the ramp would generate approximately $870,000 annually in revenue, with the bulk of the revenue ($745,457) coming from monthly parking. If the County were to use the monthly parking spots for employees housed at 82 Ionia and the Courthouse, it would reduce the annual income by $745,457. The City’s proforma included estimates for event and evening parking and day use revenue, estimated at $124,000 annually. Based on the City’s proforma, the ramp would not generate revenue in excess of expenses for 17 years, and would not pay for itself for 22 years. At that time, the County would still be limited to charging a fee that was based on actual costs, which could include debt service, operations, maintenance, central services cost allocation and a set aside for replacement at some point in the future.

12. Have we investigated reducing the footprint of the existing building and adding on-site parking for employees and customers (i.e., allowing for a portion of the right-sizing construction costs to be covered by parking revenues, and/or be covered by a public private partnership)? (A similar question from another Commissioner: What would be the cost of tearing down the wood structure and building a parking structure attached to the remaining building? Staff approached two architectural firms familiar with the building with these questions. Both indicated that they would need to do additional study (for a fee) before providing an estimate, citing the complexity of the building’s structure and infrastructure, in part due to the 1979 renovations that combined the two original buildings. At a very high level, construction costs on this site would include demolition and increased “layout” or staging expense, due to the lack of open surrounding area. The County would also incur additional expense in temporary relocation costs during an approximate two-year construction period. If the County were to enter into a partnership – either public or private – for parking at the site, it is reasonable to estimate that that the County would be required to make some contribution to the capital costs – either in-kind or cash – and at a minimum be required to pay operating and maintenance costs of $50/spot/month on any parking it used on the site. At 2017 rates, this is more than the county currently pays for downtown parking.

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13. Would it be feasible/economically advantageous for the County to partner with a private developer whereby the County would convey the property to the private developer to construct a multi-use/tenant building that includes 84,000 sq. ft. and sufficient parking built to our specifications that would be deeded back to us (condominium) at the conclusion of the project? (I.e., work with a developer who would “oversize” the building from our needs - reducing the overall cost/sq. ft. for us – and creating revenue/income for the developer?) Staff asked TowerPinkster to provide insight on this scenario, since that firm had worked on the Programming and Schematic Design of the new building and therefore had familiarity with our needs and the cost estimates. They identified two different concepts that would fit on the site, but did not think they would be feasible for the County, given our security and operational needs.

“In our opinion, neither of these concepts creates a “win/win” for the County or the developer. Additionally, the county will need to include 200 parking spots into the arrangement with the developer; either supplying additional capital to help offset the parking spaces used or renting parking spaces from the developer. The economy and scale of a large building with the Kent Co offices as a portion, will require the county to compromise some security and operational control of their spaces. The economy and scale of creating a freestanding building on the site will burden the developer's proforma and future earnings.”

14. What is the costs of the surface parking proposed at Fuller? How does that compare to

“downtown” parking costs. The preliminary plans for the new building at Fuller include a 215-spot employee lot and a 95-spot visitor lot for a total of 315 spots. Construction costs are estimated at $3,500 to $5,000 per spot resulting in an estimate of $1.1M to $1.58M. These costs are included in the $20M estimate for the building.

15. Are there existing structures at the Fuller campus that we could add to for those being displaced? No. The surrounding topography, and building design and layout would not support adding on to existing buildings. The 2004 Fuller Campus Master Plan evaluated the campus for expanded use and identified several sites for new construction; additions to current structures were not recommended.

16. Has anyone fully evaluated what it would cost to transition the Kent Community/Spectrum facility, which is county-owned, into office space and what has Spectrum done in the last 5-10 years on building upgrades? When is their lease up on this building? As mentioned earlier in the report, the original hospital building was constructed in 1922, with additions in 1955 and 1971. The current building is a six-story, 236,076 sq. ft. structure. The operation was transferred to Spectrum in 1999, and the building is part of a long-term lease. The current term ends 2019, and is renewable in five-year increments. Spectrum uses the hospital to provide three types of care: long-term acute care, long-term care, and short-term rehabilitation. Earlier this year, the transferred the long-term acute care to another facility. According to Spectrum staff, the building was not designed for the type of services that are now being delivered there, but they have not yet developed a plan for how to address that. County and Spectrum staff have remained in contact regarding the facility and Spectrum has made the County aware that it is looking at multiple options which may or may not include continuing to lease the facility. The building’s structure and age would require a minimum $10-15M investment if it to continue to be used – by Spectrum or the County; most of that investment would go toward building infrastructure. The building is extremely oversized for County use.

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Spectrum has indicated that if they terminate the lease, they would not do so until several years into the next renewal period.

17. Have we looked into other existing buildings to potentially purchase for our needs? Staff has been in contact with a local broker who monitors new listings and potentially available building for our needs. Nothing in the size we need is currently on the market.

18. Have we looked into renting space rather than building new space if 82 Ionia is sold? Staff has been in touch with a local real estate agent on this issue. Currently there is nothing available in the size we need, and the challenges associated with our security needs make finding suitable space even more challenging. Rental rates in the downtown area would not make renting an economically viable option.

19. What is in the Data Center and how much room do they need? If we moved them, could the whole Prosecutor’s Office work out of 320 Ottawa? The County has two Data Centers – one primary (DC-1) and one back-up (DC-2), that are housed at different locations. The DC-2 was recently re-located from the Juvenile Detention Facility to 1565 Bradford (former Haven), when that building became available. If IT vacates 320 Ottawa and moves to Fuller, the DC-1 will be moved to the Courthouse. Data Centers are basically temperature- and security-controlled rooms that house servers and storage for the County’s computing needs. They require about 1,200 sq. ft. each. As was the case at Juvenile Detention, moving DC-1 from the IT building provides for additional flexibility in design, but the additional space resulting from the move is minimal.

20. Could HR be moved out of the Admin building to accommodate the other portion of the Prosecutor’s office? It would be difficult for the Family Law Division to fit into the space allotted to HR, and impractical for HR to be housed separately from the rest of the Administrative Services Departments, especially Fiscal Services. Both the Space Needs Study and the programming for the new building, identified benefits to adjacency for the Family Law Division with Friend of the Court.

21. Did we assess space that is owned by the county but we lease out to others that we could terminate for space utilization? Are there outside groups leasing at the courthouse as an example? The County leases very little space to others. We lease 1,812 sq. ft. at the Courthouse to the Legal Assistance Center, and a building in the Sparta area to Headstart.

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22. How will this plan help my constituents and tax payers? What are all the ways we are saving tax payer money, finding efficiencies and improving customer service with a new building and the sale of 82 Ionia?

• Long-term savings. A new building will be roughly 40 percent less expensive to operate. As prices increase (inflation, fuel, parking) the actual dollar gap will be greater. The County finances new construction over 20 years, but the building will have useful life for more than 50. The building will be able to efficiently accommodate future expansion over the long-term, if necessary.

• 82 Ionia is already more than 80 years old. It will be at the end of its useful life soon, or will need significant investment to retain. Addressing the problem now allows the County to take advantage of very low interest rates and current credit rating to save taxpayers money.

• The location takes advantage of previous investments in the Fuller Campus. Consolidating offices to one campus creates efficiencies in maintenance, snow removal, etc.

• The new building will provide better customer service. Not only will there sufficient, free and handicap accessible parking on site; it is on a bus route. The interior of the building will be designed to address customer service needs. The current building is retrofitted, and can be difficult to navigate internally. Citizens who visit these offices are often experiencing personally challenging and stressful issues, and an updated and modern building can provide a more aesthetically pleasing and calming environment. These items are difficult and expensive to achieve at 82 Ionia.

• The layout of the offices at 82 Ionia are retrofitted from manufacturing space and are inefficient for staff interaction. A new building would be laid out to maximize staff efficiency, including adjacency for staff that collaborate frequently, and share information, resources or clients. We have the ability to start with a clean slate to design a building from the ground up to focus on customer service and service delivery efficiency. Detailed programming will be done to identify and address the specific needs of the departments.

• Surface parking lots are cheaper to repair and maintain than parking decks or parking ramps.

• Selling 82 Ionia provides revenue to help offset the costs of the above efficiencies and customer-service improvements.

23. Though the Prosecutor says it is “ok”, is it wise or prudent to split up his department when we’re

going to turn around and build a new building? If so, please explain – how does it increase service for our constituents? The main benefit to the Prosecutor to have all the divisions of the office under one roof is for supervision/reporting purposes. Prosecutor Becker has stated that the interaction required for that purpose can be managed from the separate locations of downtown and the Fuller Campus. Many reporting relationships in the County are not co-located: Health Department and Veteran’s Services are on Fuller Campus but report to the Administrator’s Office; IT is in a separate building; The Health Officer has staff at multiple clinics and sites, as does the Facilities Management Director. For many years, prior to the County leasing 82 Ionia, Family Law was not housed with the rest of the Prosecutor’s staff. A more important consideration in determining where the Family Division is located is customer service and adjacency to the Friend of the Court, since the customers of the Family Division are frequently also customers of Friend of the Court, and the two agencies often work together. The

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Family Division has the highest amount of public interaction and office visitors. The benefit derived to those clients by being co-located with Friend of the Court and all the previously stated customer service benefits of a new building on the Fuller Campus support their being located there. The long-term savings associated with this move will allow the County to operate more efficiently and less expensively and re-invest those savings into other areas (e.g., technology) that will benefit not only the Prosecutor’s Office, but other County services, as well.

24. Throughout the report, there are multiple mentions of square footage being utilized for files. How much square footage are we accommodating – countywide – for files that could be transferred to electronic records? I would like to see a plan / proposal / budget for transferring to an electronic records system and would like to see this included in the space needs issue. Kent County has been investing in electronic document management since 2006. The projects usually involve more than just scanning a paper file, and include workflow changes and electronic-only document production to reduce paper copies. One of the earliest and widest-reaching projects involved the accounts payable system in 2006-7. As a result of that project, most invoices are received and stored electronically by Fiscal Services; departments are electronically notified of invoices and authorize payment electronically. Those invoices received in paper form are scanned and then discarded. This has eliminated significant paper storage of invoices, approvals and payment receipts in each department’s “front office,” freeing up considerable space throughout the County and in Fiscal Services. There is no single, pre-defined “plan” for OnBase projects, since each project varies according to the business objective. Projects are continually proposed and are evaluated and prioritized based on several factors, including availability of staff resources (IT and departmental), cost of implementation, and benefit. Over the past several years we have increased the amount of resource available for document management projects because of the benefits the County achieves. In-house projects currently underway include work for the 63rd District and Probate Courts, Administrator’s Office, Prosecutor’s Office, and Purchasing. There are also projects under way using some outside resources for electronic warrants and the Specialized Business Docket of the Circuit Court. Of note for this report is the work that has been done for the FOC. This was a multi-year project first started in 2006 that has resulted in more than 800 cubic feet of file space being freed for staff offices, and a reduction in basement storage. The 2015 Space Needs Study recommendations recognized the County’s efforts in digitizing records, noting that “technology continues to decrease the demand for physical space, primarily in the area of digitizing paper files.” Completed and potential projects were discussed during interviews with departments as part of the study and also in preparing the preliminary programming for the new building.

25. How much rent do we pay at the Community Archive and Research Center (CARC)? Could this be relocated? In 1999, the County agreed to collaborate with the City of Grand Rapids and the Public Museum on construction and operation of a community archives and research center (knowns as the CARC) to be located on the site of the old public museum in Grand Rapids. The goal of the project was to bring together under one roof the off-exhibit collections of the museum, the archives of the City,

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and the public records of the County so that researchers, students, and the general public may access all of them in a “one-stop shopping” setting. Between 2000 and 2001, the County contributed $3.5 million to the project through the CIP. The building is maintained and operated by the City Facilities Management Department. The County agreed to the terms of the lease with the City of Grand Rapids in September 2000, but the lease did not begin until August 1, 2005, when the facility was completed. The term of the lease is 40 years and expires in 2045. The total building is 143,751 sq. ft. The County leases 24,942 sq. ft. of the building. Of that, 13,566 sq. ft. is used for document storage. The remainder of the space is the County’s allocated portion of public service, processing and work, and staff areas. The County’s lease covers 17.4 percent of the building, and the County pays 17.4 percent of operating costs. The County share of operating expenses averages about $69,000 per year.

26. The Space Needs Study also recommended condensing and selling other properties – what have

we done with these recommendations? Are any of those recommendations part of the new building plan? As with any multi-year report or study, it is necessary to prioritize implementation. Recommendations where the County could incur additional expense, where a structure needed immediate attention, or projects that would have a domino impact on others were identified for earlier implementation. Some of the other projects are also underway with existing resources (e.g.: Improving storage on the 5th floor of the Courthouse, Reconfiguration of work stations at the Health Department), and others are still in the evaluation and planning stage (e.g., North County Complex).

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OFFICE OF THE COUNTY ADMINISTRATOR

MEMORANDUM

TO: Daryl Delabbio, Administrator/Controller

FROM: Mary Swanson, Assistant County Administrator

SUBJECT: 82 Ionia Work Session

DATE: October 31, 2016

_________________________________________________________________________________

Following the decision by Kendall College of Art and Design/Ferris State University (KCAD/FSU) not to purchase 82 Ionia, Commissioners have questioned if the County should reconsider its decision to issue an RFP for the building. Staff has also completed additional due diligence on the issue, and has prepared this memo to consolidate and update information from previous memos and presentations, as well as address additional questions which have been raised. Background

82 Ionia was originally constructed in 1932 with major additions and a thorough renovation completed in 1979. In 1998, the County began leasing about 60,000 of the approximately 153,340 square feet in the building for the Prosecuting Attorney Criminal and Civil Divisions and Circuit Court Probation, in order to reduce the size and scope of the proposed “new” County Courthouse. Friend of the Court, which was leasing other space downtown was relocated here, as well. In 2005, the County purchased the building, and subsequently moved Community Development and Housing and Veteran’s Services to the location. In need of a more customer-friendly and visible location after passage of the Veteran’s Millage, Veteran’s Services moved to the Fuller campus in 2015. Although portions of the building had been leased in the past, only the 61st District Court Drug Lab continues as a tenant, and the required security screening of visitors to the FOC and Circuit Court Probation have made it difficult to attract new tenants.

Today, the County occupies approximately 84,480 square feet of the 128,000 square feet available as work space (25,340 square feet is taken for common space, circulation area, design elements, etc.). 2015 Space Needs Study

The 2015 Space Needs Study identified significant excess building square footage in the downtown area and recommended sale of 82 Ionia as a high priority, citing its under-utilization, the inefficiency of the layout for the County functions, and the need to refurbish the Friend of the Court and Circuit Court

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Probation offices after more than 15 years since their initial move there. Relocating these offices to a new building on County-owned land at the Fuller Campus would allow the County to construct a “right-sized,” efficient building with lower operating costs, reduce the expense of employee parking, and provide easier access and visibility for these more visitor-intense services.

The Study further recommended that the Prosecuting Attorney Criminal and Civil Divisions be relocated to the County-owned building at 320 Ottawa NE, to take advantage of its on-site parking and proximity to the Courthouse. The IT department, which currently occupies 320 Ottawa, would be relocated to the new building at the Fuller Campus.

These recommendations also took into consideration the estimated value of the two buildings based on their age, size and location. The building at 320 Ottawa was constructed in 1964, and was extensively remodeled in 1980 and 2000. It has a much smaller foot print than 82 Ionia (approximately 16,500 square feet), and while 82 Ionia’s value was estimated at $8 to $10 million, 320 Ottawa’s value was estimated closer to $2.5 to $3 million. Revenue generated from the sale of 82 Ionia would more than cover the remaining debt and be able to reduce the amount of funding needed to build a replacement facility with lower operating costs.

Based on these factors, an RFP for 82 Ionia was issued. At the time, there were still several unknowns: The exact scope and timing for construction of the replacement building, what cost the County might incur for temporary relocation and staging of employees based on the successful bidder’s requirements for possession, and the actual sale price.

Although the accepted bid was within the range the County anticipated, KCAD was not able to use the building as it had originally contemplated and the sale was not closed. Additional questions and new information Subsequently, Commissioners have requested additional information regarding the feasibility of retaining 82 Ionia and using the existing or potential expanded parking there to minimize County parking expenses or as a supplement County revenues. Parking 82 Ionia currently houses 240 workers; 52 are State employees for whom we do not provide parking, resulting in a parking need of approximately 190 spaces. The building has 126 on-site parking spaces in a two-story parking ramp. The County uses 75 of the spaces, and rents out the remaining 51 at $128 per month, per space (most of which were leased when the County first purchased the building). Employees who do not require on-site parking are accommodated in non-County owned sites ranging in cost from $41 -$48/month.

In its current underutilized capacity, the building has a deficit of 64 parking spaces. Liquidating 320 Ottawa and its 37 spaces and relocating the IT employees here would result in the need to lease another 37 spaces at the $41 -$48/month cost, or $20,000/year. The expense escalates when also taking into consideration that the County’s condominium agreement with Ellis Parking for use of 103 spaces in the Midtown ramp for approximately $60,000 annually will expire in 2021.

Currently the County pays approximately $182,232 (net) for off-site parking. Using today’s prices, if the County were to keep 82 Ionia at its current occupancy, liquidate 320 Ottawa and its 37 spaces, and move the Midtown ramp parkers to other off-site parking, the County’s off-site parking expenses could increase by as much as another $53,000 annually. If the County were to liquidate 82 Ionia, move the Prosecutor to 320 Ottawa and build at Fuller, the County’s off-site parking expenses would be able to remain relatively flat, fluctuating only by the increase in rates. These projections are mostly for illustrative purposes: they do not allow for any additional workers at the Courthouse, Prosecuting

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Attorney, or County Administration; also, they are based on today’s prices and don’t take into account the fact that leasing space for downtown parking will likely become more expensive and challenging each year.

The idea has also been raised to expand the parking at the site to reduce County’s parking expense and/or as a revenue generator. A very rough, preliminary estimate suggests the site could potentially accommodate as many as 475 parking spaces (with the caveat that that number does not include any accommodations for traffic, ingress/egress concerns, planning and zoning restrictions, etc.) at a very rough cost estimate of $20,000 per space for an approximate cost of $10 million.

Such a structure would still be at least 50 spots short of meeting the County’s current offsite parking needs, and the cost to the County based on debt service alone (estimated at $662,000 annually) would be much greater than the costs of the current practice of leasing space. The County would also incur higher operating and maintenance costs, and the structure would eventually need replacement. In addition, there would be additional cost/lost revenue during the construction period, making the project less financially viable.

Finally, the County is restricted by law from charging a fee so as to generate revenue for other County operations. According to Corporate Counsel Tom Dempsey:

To be valid a fee must bear a rational relationship to the cost of providing the service or benefit. A tax is a means of distributing the burden of the cost of government without regard to specific benefit. Using parking revenue to defray unrelated costs of government (other departments) transforms that portion of the fee into a tax. In Bolt v. City of Lansing, 459 Mich 152 (1998) the Michigan Supreme Court ruled that the storm water service charge imposed by Lansing was unconstitutional and void on the basis that it was a tax for which voter approval was required and not a valid use fee. The Court established three criteria for distinguishing between a fee and a tax: 1) a user fee must serve a regulatory purpose rather than a revenue-raising purpose; 2) a user fee must be proportionate to the necessary costs of the service; and 3) a user fee must be voluntary—property owners must be able to refuse or limit their use of the commodity or service.

Timing and additional design work Commissioners will recall that Facilities Management has already completed some of the initial design and engineering work for a new facility, which has given us a better scope of the project and costs. As a result, we are more able to give a date certain for the close and transfer of the facility if it were to be sold, eliminating the need to negotiate for a temporary leaseback of the property. We also have a better cost estimate for the new facility. Attached is an updated comparative cost analysis prepared by Fiscal Services showing the financial impact of the two options of keeping 82 Ionia vs. building a new facility on the Fuller Campus. Admittedly, there is nothing imminently pushing us forward, except continuing to pay the higher operating costs at 82 Ionia, and the approaching need to invest in the building and the offices located there if we are to continue to operate it. There may also be an advantage to the County and any potential developers to act while interest rates are still low. It should also be noted that interest in the building from developers remains high; there have been seven separate inquiries into the availability of the building since the announcement of KCAD/FSU’s withdrawal of their offer. Staff will be prepared to discuss this information further at Thursday’s work session.

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OFFICE OF THE COUNTY ADMINISTRATOR

MEMORANDUM

TO: Daryl Delabbio, Administrator/Controller

FROM: Mary Swanson, Assistant County Administrator

SUBJECT: 82 Ionia Work Session

DATE: November 16, 2016

Following are the answers to additional questions posed concerning the potential sale of 82 Ionia and the

potential replacement facility proposed for the Fuller Campus for discussion at the November 17, 2016 Work

Session.

1. The response to the idea of expanding parking at 82 Ionia to generate revenue focused on what we couldn’t do (i.e. charge a fee that would generate revenue for general operations) rather than what we could do at the site. Is there any way to use the property as a revenue generator? As was previously discussed, a very rough, preliminary estimate suggests the site could potentially accommodate as many as 475 parking spaces (with the caveat that that number does not include any accommodations for traffic, ingress/egress concerns, planning and zoning restrictions, etc.) at a very rough cost estimate of $20,000 per space for an approximate cost of $10 million. Since the cost to the County based on debt service alone (estimated at $662,000 annually) would be much greater than the costs of the current practice of leasing space, the County could potentially consider continuing its current practice of leasing parking spaces for its employees while operating the new spots as an enterprise activity. We would still be limited to charging a fee that was based on actual costs, which could include debt service, operations, maintenance, central services cost allocation and a set aside for replacement at some point in the future. However, any rate would have to take into consideration the market. When replacement, debt service, cost allocation and the increased operating and maintenance costs of a multi-level facility is included, it may impact the ability of the rate to be competitive with other downtown parking, particularly that which is not multi-level.

That being said, once the bonds are paid off, the facility would more than likely have some useful life remaining. At that point, any excess revenue could be set aside to fund the eventual replacement of the facility, or to reduce the County’s General Fund contribution to pay for parking for its employees. Finally, if/when the County were to sell the facility, it should also generate some one-time revenue.

2. What might happen with the Spectrum Building? What are the plans for the Fuller Campus?

The original hospital building was constructed in 1922, with additions in 1955 and 1971. The current building is a six-story, 236,076 sq. foot structure. The operation was transferred to Spectrum in 1999, and the building

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is part of a long-term lease. The current term ends 2019, but is renewable for at least another 10 years, so any projections at this point would be somewhat speculative. In addition to the large amount of excess capacity it would present, the building would require extensive remodeling to be usable for office functions.

Attached is a copy of the Master Plan for the Fuller Campus, which identifies several potential areas for building sites and/or parking.

3. Have we fully vetted selling 82 Ionia and rebuilding a multi-level structure at 320 Monroe that would accommodate all the offices from 82 Ionia? The consolidation of the services from 82 Ionia and IT building involves approximately 230 full-time employees and approximately 75,000 square feet. An extensive programming effort has already been completed which identified many space- and service-sharing opportunities. Many of the program needs are based on adjacencies needed inside of departments and between departments. Splitting those adjacencies over multi-floors (necessary because of available footprint at 320 Ottawa) will decrease the efficiency of the building’s program and departments. With each additional floor, the project gains more circulation, restroom and building service facilities. Possibly up to 15 percent more program space may be needed, equating to 86,000 square feet of total program space.

Assuming that the 320 Ottawa site can fit a 14,000 square foot floor plate, the actual working program area for each floor would be around 12,000, once stairs, elevators, mechanical shafts and building structure are accommodated. This results in a need of seven stories for the office functions and another two stories of parking floors. The County did consult with Tower Pinkster, the architects who worked on the programming study, and they have estimated that while the cost of a multi-story building in the City of Grand Rapids can vary depending on site conditions, the typical cost of a mid-rise office building (5-10 stories), in Grand Rapids, can range from $250-300/sq. ft. If we use $275/sq. ft. as an estimate, seven floors at 14,000 sq. ft. /floor comes to $27 million. This would not include the parking structure, which they estimate could add another $3.25 million. Including project contingencies, service fees, and other soft costs the Total Project Cost could be as much as $35 million, and these numbers do not take into account the displacement cost (during construction) of the functions currently housed at the 320 Ottawa site (IT).

4. Why are we keeping 320 Ottawa? It is a small building and has very little on-site parking. Have we considered a condominium agreement with another downtown owner (public/private partnership)? The facility at 320 Ottawa still has considerable remaining life, is very cost effective to operate, and its on-site parking does/would support the majority of the staff which would be assigned there. Its close proximity to the Courthouse makes it ideal for the Prosecuting Attorney and similar space is limited and expensive. It would not provide any financial advantage to abandon a very serviceable, right-sized building which is situated on the “government square” for another location which would still need a build-out capital expenditure. Shared occupancy could also challenge our physical security measures and response.

5. If we do move additional offices to the Fuller campus, is there a plan to make it more transit friendly? Historically, The Rapids has been agreeable to discussing ways to make access to County facilities more transit-friendly, particularly where there is high demand/ridership. The proposed facility is only about one quarter-mile from the existing bus stops on Fuller or Ball Avenue. Planning would include making those connections pedestrian friendly as well as adding bus stop amenities and determining if stops on those existing routes could be shifted. Finally, while not optimal, anyone who cannot make it from any existing or potential bus stop locations because of a physical or mental disability would be able to take a GO!Bus from this location to any other location in The Rapid’s service area; staff at the facilities would continue to work to make clients aware of this service.

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6. What is the plan for if/when we need to vacate 300 Monroe?

There are no current plans to vacate 300 Monroe. While there has been discussion that “at some point” the City and County may need to relocate, we would want to vet the options available at the time in light of the operations and development trends at that time. Although relocation of 300 Monroe is not on our current planning horizon, we do try to make sure we are not limiting future options, which could include, but would not be limited to, one of the remaining building sites on the Fuller Campus, or a multi-level structure at 320 Ottawa.

7. Why aren’t we moving the Parks Department into the Fuller campus? There has been a long-standing plan to have the Parks Headquarters at the current site in Millennium Park. The building is part of the Millennium Master Plan, and construction has been delayed not by the need for a suitable location but rather for funding. There is very little interaction/adjacency requirements between the staffs and customers of the departments at Fuller and Parks to support moving the plan from the Millennium Park East Gateway to the Fuller Campus.

8. Can we see a pro-forma with positive numbers vs. the negative ones?

Projected operating costs (1) 82 Ionia/Ottawa Fuller/Ottawa Difference

Annual building operations 616,000$ 388,000$ (228,000)$

Annual repair and maintenance 440,000$ 50,000$ (390,000)$

Annual parking 84,000$ (84,000)$

Total projected annual operating costs/(savings) 1,140,000$ 438,000$ (702,000)$

Projected annual net debt service(2) (3) 324,764$ 1,224,596$ 899,832$

Projected annual additional total expense years 1-8 (4)

197,832$

Projected annual additional total expense years 9-20 (4) 522,596$

Projected operating and cost and debt service over 20 years (5)

Operating costs/(savings) over 20 years 22,800,000$ 8,760,000$ (14,040,000)$

Debt service costs 2,598,112$ 24,491,922$ 21,893,810$

Projected combined operating and debt costs 25,398,112$ 33,251,922$ 7,853,810$

Asset valuation @ 20 years (1) 13,000,000$ 24,000,000$ 11,000,000$

Net cost of asset (7,853,810)$

Projected positive/(negative) impact on net position 3,146,190$

Notes

(1) Figure provided by Facilities Management, not adjusted for inflation

(2) 8 years of 82 Ionia bond debt service remaining; expense would be eliminated by defeasance of bonds as part of sale

(3) New Facility at Fuller debt service based on estimated $18.5 million, 20 year issuance.

(4) Projected based on 2016 operating costs not adjusted for inflation and annual debt service estimates

(5) Projected based on building value and 2016 operating costs not adjusted for inflation

Projected Cost Comparisons of Continuing at 82 Ionia vs. a New Facility on the Fuller Campus