Some Brainerd City Council members said an upcoming utility project is a good return on investment, could accommodate future growth and will only cost more in the future if delayed.
Other council members have called the same project a disastrous, catastrophic wreck and want to see the project scaled back.
At a recent meeting, council members discussed issues that have come up during the planning stages of the airport utility project. They focused on two issues: how to finance it and whether all portions needed to be completed right away.
The Brainerd Lakes Regional Airport Utility project, scheduled for this summer, will bring Brainerd Public Utilities water and sewer service to the airport. Most of the project's funding will come from annual local option sales tax revenue from the city of Baxter. To fund the project's upfront costs, the city of Brainerd will need to issue bonds.
At a Feb. 22 special meeting, the Brainerd City Council on a split vote awarded the bid for the project to Tom's Backhoe Service, Brainerd, at a total project cost of $8,591,721. There was disagreement over whether to award the full project to Tom's Backhoe or to follow a staff recommendation to award one segment of the project to a different contractor.
In May, the city decided not to pursue legal action to recover a $7,000 accidental overpayment to Tom's Backhoe, which was part of a mediated settlement with the company following work on a 2012 Southeast 19th Street project. Also in 2012, the city assessed $11,000 in damages against the company after they missed a deadline to complete a South Seventh Street project on time.
A motion by council member Mary Koep to award the project bid for segment one to Meyer Contracting and to reject all the bids for the other areas failed on a 3-4 vote, with council members Kelly Bevans, Koep and Council President Gary Scheeler voting for the motion. Council member Chip Borkenhagen was absent, so Mayor Ed Menk was required to cast a vote to break the tie.
Council member Gabe Johnson's motion to award the bid to Tom's Backhoe for all four project segments passed on a 4-3 vote, with council members Dave Pritschet, Johnson and Hilgart voting in favor, while council members Bevans, Koep and Scheeler voted against. Menk cast his vote in favor of Johnson's motion.
This week, each council member, as well as Menk, explained why they voted the way they did on the different motions. They also discussed a variety of issues related to the project, including financing and scope.
Johnson said he supported the full project for multiple reasons, one of which was he likes awarding a contract to a local business when possible. Also, he preferred doing the full project instead of just a portion because the smaller project would have been insufficient.
"The one, in my opinion, was manufacturing a crisis for a future date," Johnson said.
Without segments two through four, increased water and sewer use would put the existing infrastructure overcapacity, Johnson said. Also, he said, it's cheaper to do the alternate segments now, as the cost will only rise as time goes on.
"I'm fully confident that it would all of a sudden be a crisis," Johnson said. "We all see it coming, let's just head it off right now."
Johnson said he has a lot of concerns about how to pay for the project. But, he said, the city was put in an unfortunate position when the state fire marshal told the airport it needed to upgrade its water infrastructure and fire suppression system in order to comply with state standards. Also, the city of Baxter offered local option sales tax revenue to pay for the project.
"Now here we are, and the citizens of Brainerd are left with the responsibility to actually see it through," Johnson said.
No one wants increased fees or taxes, Johnson said, but no one wants to see a crisis either.
Johnson said he's concerned about financing everything the city needs to do, not just upcoming construction projects. It's better to spend roughly $1 million on segments two through four now, he said, than $4 million in three years.
"It doesn't get cheaper," Johnson said. "You don't just ignore infrastructure upgrades."
Johnson said he's confident Tom's Backhoe can get the project done and is expecting them to complete it in the required timeline.
"The past is the past," Johnson said. "You can move beyond it."
Going into the meeting, Johnson said he was on the fence about doing segment one or the whole project. He seriously considered the recommendation to do segment one, he said, but also believed from the beginning doing all four segments was the right project.
"When the project started, when they did all the specs, when they did everything, it was just one project," Johnson said.
Hilgart said she voted for the full project for two reasons. One, the local contractor will create good-paying local jobs, she said, which will benefit the community.
"I had to vote that way because it was the right thing to do for jobs in our community," Hilgart said. "I couldn't in good conscience vote for a contractor out of the area for that reason."
Also, postponing the full project will only result in the alternate segments costing more in the future, she said, and Tom's Backhoe's bid for segments two through four was relatively small compared to the bids from the other contractors. It adds value to finish the whole project now, she said.
"At the end of the day, it is going to cost us less," Hilgart said. "Not to mention the intangible return on investment by the money staying in our community."
In regards to financing the project, Hilgart said she was concerned data on financing the full project wasn't available at the Feb. 22 meeting. It was frustrating, she said, that staff wouldn't think council members would consider all their options. Now, the city's bond counsel and financial staff are developing plans to finance the full project.
"We don't know all of the details so I would refrain from sounding the alarm until we see the full facts," Hilgart said.
The city is planning a sewer project on Southeast 13th Street in 2016 in conjunction with Crow Wing County, as well as a 2017 project on South Sixth Street in partnership with the Minnesota Department of Transportation. The process of balancing the three projects come from having good information from city staff to make decisions, Hilgart said.
Tom's Backhoe is being hired to complete this new project, Hilgart said, and it's up to the city to provide oversight to ensure issues like those in the past don't happen again. There could be multiple reasons for the overpayment or the missed deadline, she said, but with a project of this size, the city is responsible for making sure those issues won't arise.
Hilgart said she gave full consideration to the project management team's recommendation to only award project segment one. But there was support on the council to award the full project to a local contractor, she said, which helped form her decision.
"It was a split vote, very contentious and I'm sure there's still some upset people," Hilgart said. "But we have to go on."
The decision to support awarding the bid for the full project was a tough one, Pritschet said, and he was swayed by what Johnson said about awarding the full project. The project needs to be completed in order for Brainerd and the surrounding region to grow, he said.
"They need the airport to be successful, that's going to be a lifeline," Pritschet said. "If we can get it locked in and done at this price before it keeps going up, that's the best route, I believe."
It's possible the project can get state Legislature support from area legislators, Pritschet said, which could provide extra help in funding the project. Before getting into financing details, he said, it's important to look at all the possible financing options.
"'I have no idea how we're going to pay for it' is a different statement than 'We have several options, there might be some more options out there,'" Pritschet said. "We haven't decided which one we're going to take."
Just doing project segment one doesn't benefit the city, Pritschet said, because the whole project won't be finished. It's also helpful to get it done now before estimates for segments two through four rise, he said.
"By getting it started you're going to get it completed," Pritschet said.
It's important to keep other construction projects on the radar, Pritschet said, and not discount them. But the city will be able to manage, he said.
The city has done a lot of business with Tom's Backhoe, Pritschet said, and there have been some bumps along the way. But it's his understanding the quality of the work has been good.
Pritschet said he gave the staff's recommendation to award project segment one a lot of consideration and it wasn't an easy vote. There wasn't a clear right way to go, he said, but everyone who voted was doing so to improve the quality of life and conditions in Brainerd and the area.
"How we get to that, there might be some difference in viewing that," Pritschet said.
Borkenhagen, who was not at the Feb. 22 meeting, said he would have supported awarding the project bid to Tom's Backhoe for all four segments. It's not the popular stance, he said, and it may not get him re-elected, but it's the right thing to do to accommodate future growth at the airport.
"If we start hooking up other customers to the line, before you know it, we're going to have clogged pipes in town," Borkenhagen said. "And we're going to have to do it anyway."
Doing the entire project now neutralizes a future problem, Borkenhagen said. It's never a good time to spend a lot of money on "something as unattractive as sewer pipes," he said, but it's part of planning for the future.
"We have to be thinking ahead of ourselves, not where we are right now," Borkenhagen said.
Borkenhagen referred to the state fire marshal's mandate for the airport as an unfunded mandate. It's a requirement passed down from the federal or state government, he said, without a way to fund that requirement.
"We owe it to each other to all come together and figure out ways to make it happen," Borkenhagen said.
Borkenhagen is concerned about funding everything the city does, he said. But he said he's more concerned about making stopgap fixes to the city's infrastructure instead of more comprehensive upgrades.
"No one wants the taxes to go up, but we've got to get real," Borkenhagen said.
Borkenhagen said he's concerned about Tom's Backhoe, but "at some point you've got to trust somebody." Owner Tommy Thompson is a local resident with a lot at stake in the seeing the project done well, he said.
"I just want to believe that he's going to see the huge faith and vote of confidence that we've given him," Borkenhagen said. "And he will rise to the occasion and be our shining star."
Borkenhagen said he gave a lot of consideration to the staff recommendation to only award the bid for project segment one. But, he said, he was mystified by how the engineer's estimate was significantly different from the bids that came in.
"Whatever they have to say, I don't totally trust that either," Borkenhagen said. "To be that far off on their estimate as to what it would cost."
Borkenhagen has a lot of concerns about the project, he said, but he's also frustrated with the rut Brainerd is in.
"If the infrastructure crumbles underneath us and all we do is put Band-Aids on here or there," Borkenhagen said. "That's never going to solve the issue."
Menk, who cast deciding votes on both motions, said he was hoping to not have to vote on the motions. He supported the full project because he said he's learned via past experience doing two-thirds or three-fourths of a project results in future problems. Also, he said, interest rates are historically low right now, so it's a good time to issue bonds.
There were three council members who supported doing the whole project, Menk said, so he felt comfortable supporting the full project.
"If we're going to do it, we're going to do it right," Menk said.
While council members mentioned the benefit of awarding the project to a local contractor, Menk said, that shouldn't enter into the discussion when awarding bids.
"You have to award it based on merit," Menk said. "And the merit I felt was to do the whole project regardless of who's going to get the bid."
Funding is always a concern, Menk said, but in the past, the city has been reluctant to fund important projects. The airport is important to the community, he said, and bringing utility service to it could result in positive opportunities in the future. He specifically mentioned the growing sector of shipping via air as an option.
"There maybe, down the road, businesses that will locate in that area because of the airport," Menk said.
Segment four, lining a sewer main in the city of Brainerd, will extend that pipe's life for years, Menk said. Segments two and three will also have increased costs in the future if they're not done now, he said. Stubs along the trunk line on Highway 210 will allow other systems to hook up, which will be beneficial as the area expands, he said.
"There's going to be more housing out in that area, there's going to be more companies, whatever type of structures out there," Menk said.
Project costs will add up during the next two years, Menk said, but it's important to know the facts about bonding and financing before offering opinions and ideas.
"Until you have the facts by the experts and everybody knows the facts at the same time," Menk said. "You run the problem of maybe not having the correct information being interpreted."
Past issues on projects between the city and Tom's Backhoe can't enter into the discussion on the airport project, Menk said. The contractor bid and is bonded for the work, he said, so that's what the city has to go on.
"I'm going to say that's a legal question that at this time I can't address," Menk said.
Menk said he heavily considered the recommendation to only bid for project segment one, but felt more comfortable doing the whole project because of his aversion to only doing a project partially.
"I based it on my past experiences and my desire to do the project correctly rather than halfway," Menk said.
The project recommendation to do segment one first is partly driven by affordability, Koep said, as there's limits to the funds Brainerd will get from the city of Baxter's local option sales tax revenue. The LOST revenue will come in annually over a period of years, she said, so Brainerd taxpayers will be on the hook for the project cost initially.
"In the effort to minimize that, the project group decided wisely, I believe, to do it in phases," Koep said. "Thus, there would be much less impact on the taxpayers of Brainerd."
The project engineers told council members the project segment involving a lift station on E Street was non-essential, Koep said. If some of the added costs are approved, she said, it will put some residents out of their homes, as they won't be able to afford the increased tax burden.
"It's a catastrophe almost to the taxpayers of Brainerd," Koep said. "Many people are already hurting."
Koep pointed to Chapter 3, Section 49 of the City Charter, which outlines the circumstances under which the city can issue bonds. A sentence in that section reads, "No bonds except those mentioned in Subdivisions (1) and (3) of this section shall be issued or sold unless the city council shall have the first been authorized so to do by a majority of the electors of the city voting thereon."
Those subdivisions don't apply here, Koep said, which means this bond issue should go before the citizens as a referendum for approval. She said the city's bond counsel told her state law gives the city authority to override that stipulation, but she's dubious. She's worried city staff aren't including council members in discussions with the bond counsel, she said, and aren't providing enough information to council members to make informed decisions.
"This whole thing is getting murkier, smokier," Koep said. "I just feel that it isn't being done in the upfront, bright daylight that it should be done in."
The timing is right to do the Southeast 13th Street project, Koep said, because the county is tearing up the road this summer. The pipes underneath the road are old, she said, but it's worth asking if the repairs will last another 50 years, or if the repairs can wait.
"If we do have to do it, there's another load on the taxpayer," Koep said. "I don't know how we're going to go on, I really don't."
If the full project goes through, Koep said, she's confident there will be multiple change orders on the project which will add to the costs. A longtime member of the city council, she said she's never been involved in a project like this one.
"I feel a decision will be made that is not in the best interest of the taxpayers of Brainerd," Koep said, in regards to the upcoming vote on issuing bonds for the project.
Bevans likes the airport utility extension project, he said, as it's necessary in order to meet the mandate from the state fire marshal. It's also a tremendous funding opportunity to partner with Baxter by receiving their LOST funding, he said. Bringing water and sewer service options to the area between the airport and the city is also beneficial.
"I voted for the initial, defeated motion on the reduced scope of the project because I felt it needed to move forward for all the reasons that were given that night," Bevans said.
The alternate segments, needed to be completed to accommodate future growth, might not need to be done for another 15 years, Bevans said. If the project cost grew, he said, he felt those alternate segments could wait, especially because the city doesn't have the funds to pay for them right now.
Engineering issues came up during the meeting which led some council members to think about delaying the awarding of the bids, Bevans said. Those issues were mainly the depth of the pipe in the ground and the potential of installing a lift station at the airport. Some of those changes could have saved up to $1.5 million on the project, he said.
"Now that the project's been let, I don't know if we can change that," Bevans said. "I presume the winning contractor has some expectation to complete the project as bid."
Delaying the awarding of bids for two to three weeks was the smart move when city Finance Director Connie Hillman and Brainerd Public Utilities secretary/finance director Todd Wicklund both said they weren't sure how to pay for the full project, Bevans said.
"If it's not going to hurt us to wait to the next council meeting to answer some of those questions, then I want to wait," Bevans said. "It's a lot of money for the taxpayers, so I'd err on the side of caution."
Doing the full project now to accommodate the possibility of future growth is like installing wings on a car because someday you might have a flying car, Bevans said. The future growth may not overwhelm the existing system for another 25 years, he said.
"Some of that is going to be dependent on economic development along the corridor," Bevans said. "I don't know how fast that's going to go."
The city has to look at the big picture in regards to the airport project, the Southeast 13th Street project and the South Sixth Street project, Bevans said. The Southeast 13th Street project has already been delayed a year, he said, and needs to get done. There's also been ample time invested into the South Sixth Street project.
"With the excessive amount over projection, it might be best to wait and see if there's a better way to do things," Bevans said.
Bevans isn't concerned about working with Tom's Backhoe on the project, he said, and is happy a local contractor got the bid. But the local contractor benefit is a small part of the larger discussion, he said, notably the $5-8 million difference between Baxter's LOST revenue and the total project cost, which the city will need to fund.
"I'm not sure I like Tommy (Thompson) that much," Bevans said.
The recommendation to only bid project segment one made common sense, Bevans said, and he agreed with it. The recommendation could have been driven by the fact project segment one could have been completed without spending additional money, he said.
"There's still no end result as to how we can cover the money without raising water (collection fees) or raising tax levies," Bevans said.
Scheeler supported awarding the bid for project segment one because of the differences between the engineer's estimate and the bids that came in. Because of the rising costs, he said, it was important to only do the essential portion of the project. Segments two through four might not need to be done for 15-20 years, he said.
"We have other projects we could spend our money on that have more importance than (segments) two, three and four," Scheeler said.
Had the bids fallen in line with the engineer's estimate, Scheeler said, he would have supported going all four project segments. There was no reason for the bids to come in 25 percent off the engineer's estimate, he said, which means the engineers botched the situation.
The only reason the full project was awarded was because of a letter presented to the council members from Tommy Thompson, owner of Tom's Backhoe, Scheeler said. In the letter, Thompson wrote not completing project segments 2-4 "is just putting off the inevitable."
"If not done now the taxpayers of Brainerd will have to bear the costs in the very near future," Thompson wrote. "The infrastructure is old and will it handle it? I think all the areas were bid for a reason."
Scheeler said he felt it was unfair Thompson's wife and brother spoke on the behalf of Tom's Backhoe at the Feb. 22 meeting. Thompson emphasized the need to complete all four segments because it made him the low bidder, Scheeler said.
"They did a dog and pony show without the other contractors there," Scheeler said.
Completing project segment one provides fully functional water and sewer service to the airport, Scheeler said. The other portions are necessary to accommodate full development at the airport, he said. He's worried about the added costs related to the pipe going 10 feet deeper in the ground, in order to avoid building a lift station at the airport.
The city has yet to determine how to finance the full project, Scheeler said, which means they have put the cart before the horse. The project should have been halted in order to determine financing before awarding the bid, he said.
There wasn't supposed to be any additional funding from Brainerd in order to pay for the airport project, Scheeler said. It was supposed to be fully funded by the $8 million contribution from Baxter's LOST revenue, he said.
"Every inch of this project as we move forward, we're going in the wrong direction," Scheeler said. "It's getting more disastrous as we go forward."
Scheeler said he thinks Tom's Backhoe can complete the airport project, but there have been a lot of issues between the city and the company in the past. Because of that history, he said, there will be concerns about this project.
It was going to be tough to even award project segment one, Scheeler said, and he felt it should have been rebid when the bids came in higher than the engineer's estimate.
"This should not go forward, this train is headed for a wreck," Scheeler said. "It is right now, we don't have the funding."
The project is broken into four different segments, with the first segment comprising the bulk of the work. The first segment alone is designed to provide full water and sewer service to the airport.
The cost breakdown for each segment of the accepted bid from Tom's Backhoe is as follows:
• Segment one: $7,777,775.
• Segment two: $175,702.
• Segment three: $426,028.
• Segment four: $212,214.
The project management team recommended awarding the bid for segment one to Meyer Contracting, Maple Grove, at a cost of $7,331,662, and rejecting all bids on the other project areas.