Put this one in the “lessons learned” file for Denver officials:
A convention center expansion slated to cost $261.5 million
ballooned to $310.7 million, leaving some officials chafed and
others nonchalant.
As Denver officials christen the expanded Colorado Convention
Center today, city leaders still must grapple with the question of
how the project landed nearly 19 percent over budget.
To boot, the Denver Metro Convention & Visitors Bureau is lobbying
for an increase of the city’s tax on hotel stays to pay for more
marketing of the center.
That’s the same tax that was hiked in 2000 to pay for the
expansion.
“It is a concern that it was so much over budget,” City
Councilwoman Kathleen MacKenzie said. “Not only was it over budget, but it was not on time,” said Don
Holmstrom, an attorney for the Front Range Economic Strategy
Center, a union- backed group in Denver.
Key to the budget problems was a relatively new contracting method
that valued a faster start to construction over accuracy of the
cost estimate presented to voters. Another factor was the delayed
purchase of an adjacent building to make way for the expansion.
If Denver learned from the experience, what might the city do
differently now to contain the costs of massive projects such as
the $355 million convention center hotel and a proposed $300
million-plus justice center downtown?
The suggestions from city leaders past and present are many:
Involve the builder earlier in the design process to get a better
idea of costs. Make a more informed estimate of the costs early.
Charge a single project manager with ensuring the budget is not
blown. Discourage late additions.
Even so, some people involved in planning the convention center’s
expansion say the extra costs were worth it to ensure the best
project.
“They’re only overages if you believe the original budget had the
capacity to deliver the program that we promised,” said Fabby
Hillyard, director of the city’s theaters and arenas division until
last year. “And it didn’t.”
The expansion project got its go-ahead in 1999, when voters
approved the sale of $261.5 million in bonds to finance it. To pay
off those bonds, voters separately approved hiking the city
lodger’s tax on hotel rooms by 1.75 percentage points – raising
that tax to 13.55 percent of visitors’ hotel bills – and diverting
portions of the city’s tax on rental cars and prepared meals.
Some critics point to the early estimate of the project’s cost as
the problem. Much of that difficulty resulted from the city’s using
a new “design-bid” contracting method for the project.
That method called for the city to develop a basic design of the
building, derive an early estimate of costs from that and send it
to voters. The design was limited because, at such an early stage,
voters had not approved the bond sale that would finance a more
in-depth analysis.
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| Post / Lyn Alweis |
| Scott Paine, supervisor of Reidy Metal Services, buffs escalator trim Saturday at the convention center expansion.
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As consultants came up with the initial estimate, the early- stage plans left much to assumption. However, the design-bid method
allowed for construction of the project to begin sooner that it
would have under earlier methods.
“There are all these variables that, until you sit down with an
architect and contractor, you really don’t know,” Hillyard said.
“So they came up with the best numbers they could.”
Traditionally, the city used a “design-bid-build” contracting
method that took longer to complete. That method called for
architects to design the entirety of a project before it went to a
public vote, thus providing voters a clearer picture of the cost.
If voters approved, contractors were hired and construction
started.
That method had drawbacks. It forced the city to pay for a full
design before voters had approved the project. Also, it delayed
construction as the costs of labor and materials rose in the
interim.
In handling the convention center expansion with the new design-bid
approach, city officials had only 30 percent of the project
designed when they came up with the $261.5 million cost presented
to voters.
“The question is, was that … the most economical way to go about
it?” asked former Councilman Ted Hackworth, a vocal opponent of
the expansion’s escalating costs. “Or would we have been more
constrained if we had said, ‘This is the building plan, build it
and that’s it?’
“With politicians, it’s so easy to add on. And (design-bid) made
it easy to add on.”
By today, the project’s total tab has climbed to $310.7 million.
How can the city foot that bill when voters authorized selling only
$261.5 million in bonds? Several methods were used.
The city began collecting the voter-authorized lodger’s tax
increase in 2000 – more than a year before the sale of the bonds.
That early tax collection gathered about $12.5 million in extra
revenue that was applied to the extra costs.
After the bonds were sold in 2000, most of the proceeds were put in
the bank until contractors were to be paid. The money produced $26
million in interest as political wrangling and planning issues
delayed the start of construction. That, too, went to pay extra
costs.
Among the other infusions were $1.2 million from the Regional
Transportation District for the light-rail station; $1.1 million
from a concession contractor for custom equipment; and $2.5 million
diverted from the city’s maintenance fund for theaters and arenas.
City officials also issued a $6 million certificate of
participation, or COP, to fill a gap in the project’s budget. A COP
is a form of municipal debt that does not require a vote of the
people. The city earmarked revenue from public parking in the
convention center’s covered garage to pay off that debt.
Ultimately, city officials face a Catch-22 in estimating a cost for
voters on such massive projects, said Cathy Reynolds, a former
councilwoman who now sits on the board of the convention center
hotel.
“When you’re selling something to voters, you have to be careful
of what number you put on the table,” Reynolds said. “If it’s too
big, they won’t buy it. And if it’s too small, you won’t have a
good project.”
Staff writer Kris Hudson can be reached at 303-820-1593 or
khudson@denverpost.com.
$15 MILLION Cost of the 15-story Terracentre building, which the city bought
and razed to make way for the convention center’s 5,000-seat
auditorium; the price more than doubled in the 18 months city
leaders were wrangling over whether to buy it
$14.8 MILLION Higher-than-expected insurance costs, provisions for adding another floor in a future expansion, cleanup for the demolition of the adjacent Currigan Hall and adding a covered
light-rail station
$12.5 MILLION Extra revenue that came from a lodging tax increase in 2000 before the sale of bonds a year later
$26 MILLION Interest accumulated after selling bonds in 2000 as political wrangling and planning issues delayed construction
