February 2020

As we head into 2020, we would like to give residents an update on where we are with the new municipal complex project.  The building is desperately needed, and we are working with EPIC, the Redeveloper, to finish it as soon as possible.  As of the week ending February 14, 2020, workers have reached several milestones. Please see the  “Project Status Overview” section below for details.

The project has encountered numerous unforeseen conditions, including but not limited to unsuitable soils, environmental concerns, and additional site work which only became necessary after commencement.  As a result, the project is approximately six months behind schedule.  The new building is currently scheduled to open this July, while the entire project – including demolition of the existing building and paving – should be substantially complete later in the Fall.  Here is some background that has led up to where we are.

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Background

Once excavation began for the salt dome and the surrounding area in August 2018, unsuitable soils, buried debris, and garbage were quickly encountered, which needed to be handled appropriately.  At approximately the same time, the first deposit of asbestos-containing materials (ACM) was discovered buried within the new Municipal Building footprint.  

Unfortunately, an underground deposit of hydrocarbons (petroleum materials) was also discovered in the building footprint in February 2019, followed by a second deposit of ACM which was uncovered during foundation excavations in April 2019.  As before, Langan Engineering supervised a thorough remediation and export of the materials and affected soils.  This was all subsequent to the January 2019 discovery and removal by a certified environmental firm of a leaking oil tank under the former Recreation Department offices on the project site.  

Residents can be assured that every precaution was taken to remediate these environmental conditions safely and per all State and Federal regulations.  While ten (10) borings and six (6) test pits were excavated around various sections of the project site prior to construction activities, none of the tests turned up any contaminants or debris. 

Another unforeseen situation which arose during the excavation and foundations portion of the construction was a potential water condition in the basement.  The test borings did not discover groundwater that necessitated an under-slab drainage system, but once construction was underway, water was observed in some areas of the basement elevations.  Out of an abundance of caution, a decision was made to install an underground drainage system so the building would not later develop a water condition that would only be more costly to remedy once the complex was opened.

The Township and the builder are still in discussions to determine the extent of responsibilities and the ultimate impact to the project in terms of budget.  We have already paid out of the shared savings and its contingency to address and remediate the conditions; negotiations will likely continue until near the time of project completion.

The Township began the project with “contingency” funds – pockets of reserved funds to help pay for unforeseen situations, change orders, and similar items.  As of February 1, 2020, the Township had $512,560 left it its contingency.

Because the project is now six months delayed, not only does EPIC, the Redeveloper, need more time to complete the project, but the contracts, or not-to-exceed limits for some of the other professionals on the job, also need to be extended. The costs associated with extending these contracts are now included in the overall project budget – utilizing some of the overall project contingency. These include:

  • MAST Construction Services, Inc. – Our project management company was originally slated to provide six months of preconstruction services beginning in September 2017.  But these professionals ended up taking on a much larger role – earlier – at the onset of the project than originally planned, during the “Pre-Construction Design and Development” Phase. In late 2017, it was determined that MAST’s expertise also would be necessary to manage the final design and construction of the new salt dome, as well as coordinating the bidding process for choosing a Redeveloper for the project.  These processes added five more months to MAST’s Pre-Construction services that were not originally budgeted.  MAST’s contract now needs to be extended through October 2020, when our current Town Hall building will be demolished, the parking lots are complete, and all other closeout items are substantially completed. 
  • Arcari + Iovino – Our architects; the majority of their time is currently related to the Redeveloper and general construction of the building.  They review product submittals, answer Requests For Information/Interpretation of the construction documents, review Applications for Payment to ensure the Township is only paying for work completed, attend project meetings, evaluate change order proposals, review the progress of construction, respond to requests from the Building Department, revise drawings for bulletins, coordinate with the Department of Corrections and Juvenile Justice regarding the detention area in the Police Department, are involved with providing bidding documents for AV/IT systems, and a number of other items.  They are in touch with MAST daily, coordinating with them regarding any issues or concerns at the site. Their work scales down significantly after building completion.
  • Langan Engineering – The environmental consulting company was brought in to deal with the asbestos, hydrocarbons, petroleum-tainted soil, and asphalt millings discovered underground.  Since their involvement was greater than anticipated given these unforeseen conditions, additional funds need to be budgeted to support their work.
  • Harbor Consultants – The site-civil engineer for the project, Harbor is responsible for all engineering outside of the building. As of the Fall of 2019, they are only brought in on an as-needed basis. Their services will be needed again once Phase 2 and the demolition of the existing structures begins.

The PILOTS

Under a PILOT Agreement, a redevelopment project is exempt from paying traditional real estate taxes on the project, once completed.  Instead, the owner of the redevelopment project is required to make a payment-in-lieu-of-taxes (PILOT). This allows a municipality to ensure that it is receiving sufficient tax revenue necessary to pay for the increased costs of municipal services (fire, police, roads, etc.) that may result from the project.  The municipality receives 95% of every PILOT dollar paid under a PILOT Agreement. By contrast, in Berkeley Heights, the Township only receives approximately 18% of each tax conventional tax dollar paid.  It is important to note that the PILOT only begins upon completion of construction.  Prior to that point, the redeveloper is always paying full conventional taxes on the property and improvements.

PILOT money from four of the redevelopment projects and municipal tax revenues from one of the redevelopment projects was planned to help offset the debt service on the $32 million Municipal Complex project:

  1. Stratton House (old King’s property) - PILOT
  2. Berkeley Terrace Berkeley (old Berkeley Theater property) - PILOT
  3. Woodcrest at Berkeley Heights (100 Locust) - PILOT
  4. Mill Creek (91 Lone Pine, near Chemtrade) – PILOT
  5. Hamilton Avenue (Toll Brothers) – Conventional Taxes

The Township has not and is not including any PILOT revenue from the Elite Berkeley Florist or Mondelli redevelopment projects in the amount of revenues available to offset debt service on the Municipal Complex Bonds. Nor is the Township assuming any increases in PILOT or tax revenue over 30 years.  However, all of the Township PILOTS are based on a percentage of redevelopment project revenues; meaning as the redevelopment projects increase rentals and other revenues over time, the Township’s PILOT revenue increases as well.

When the cost-per-taxpayer analysis was completed in 2018 to help residents understand the potential tax impact of the municipal complex project on them, the PILOT payments anticipated from the four projects listed above and the Hamilton Avenue municipal tax revenues were counted on as revenue to offset the debt service on the Municipal Complex Bonds. In the time since that analysis was completed in 2018, construction of the Municipal Complex is occurring faster than construction of four of the five redevelopment projects.  This means that the Township will begin paying debt service on the Municipal Complex Bonds prior to receipt of PILOT/tax revenues. In fact, we are about one year away from receiving PILOT payments from the Berkeley Terrace, an estimated 18 months from realizing PILOTs from Woodcrest at Berkeley Heights and Mill Creek and an estimated 18-24 months away from seeing Stratton House and Hamilton Avenue finished and PILOTs/additional taxes paid. These are rough timelines as construction can hit unexpected delays.  

Summary of Municipal Complex Debtpdf” is an updated stand-alone tax impact analysis showing the tax impact of the Municipal Complex project as of today.  The analysis accounts for all of the debt previously issued and to be issued in order to fund the full $32M cost of the Municipal Complex, and the $1.8M cost to acquire the Hamilton Avenue property.  The analysis also includes a revised timetable for receipt of PILOTs/taxes from the five redevelopment projects discussed above, with PILOTs/taxes not beginning in full until 2023.  

In short, the total tax impact is $50.90 per household; and all of the impact was already incurred in the 2018 and 2019 municipal budgets.  In other words, based on current expectations, the Municipal Complex will not cause any additional tax impact from this year forward if all PILOT funds are realized.  Further to the point, beginning in 2023, the five redevelopment projects not only pay for the entire cost of the Municipal Complex Bonds, but also produce additional revenue to the Township for its general use, ranging from $65k in 2023 to $243k in 2038 and $201k for the next 14 years thereafter.

In keeping with the methodology behind the aggregate tax impact analysis completed in January of 2017 and updated in June of 2018, the Township also updated the document labeled “Estimated Average Tax Impact Summarypdf.”  This document notes all of the changes in the project debt service and revenues from June 2018 to today.  As shown, the June 2018 aggregate tax impact assuming PILOT and Hamilton Avenue tax revenues was $3 to the average assessed value homeowner.  As of today, that aggregate tax impact of the municipal complex debt  is -$11 (negative $11). 

The tax impact reduction from $3 in 2018 to -$11 in 2019 is the result of four key changes to the project financials:  

  1. First, interest due on bond anticipation notes issued in 2019 are based on the actual interest rate of 1.35% and not projected interest rates of 1.80%.  At the same time, the analysis increases the assumed interest rate on future bond anticipation notes from 1.80% to 2.50%.  
  2. Second, interest due on the first of two series of bonds are based on the actual interest rate of 2.53% for the Series 2019 Bonds, versus the 2018 projected interest rate of 3.75%.  
  3. Third, the term of the overall financing of the Municipal Complex has gone from 27 years to 35 years.  
  4. Fourth, project revenues have increased by $8.48M since 2018 on account of (1) over $951k of original issue premium on the Series 2019 Bonds and bond anticipation notes paid to the Township for its use, (2) $1.073M in revenue to the Township, representing Union County’s share of the cost of the Township’s Salt Dome and (3) an increase in the aggregate amount of PILOT revenue received by the Township, to match the extended term of the financing for the Municipal Complex.

The net effect of all of these changes is an increase of $5.76M in total debt service for the Municipal Complex from 2018 to 2019, which is more than offset by an increase of $8.48M in total project revenue from 2018 to 2019.

Cutting Costs

In response to the project delays, almost $1 million in unanticipated soils costs, and the resulting need to extend some of our professional contracts, we have taken measures to cut costs on this project.  They include:

  • Only considering change orders that are unforeseen and absolutely essential to the project. A change order is work that is added to or deleted from the original scope of work of a contract, which alters the original contract and may or may not impact the project completion date. 
  • Our construction managers at MAST make all efforts to negotiate down every necessary change order required by the project or put forth by EPIC. Through negotiation, stringent analysis of submitted change orders, and referring back to the Redeveloper Agreement to allow for some change orders to end up as EPIC’s contingency items, MAST has saved the Township approximately $1.1 million (as of February 1, 2020).
  • The DPW moved certain items on and off site to reduce costs.
  • Eliminated non-essential plumbing in staff areas on the Lower Level in favor of using other areas and equipment in the building. 
  • The DPW will help us install additional cabinets, a sink, refrigerator, and counter space in the food pantry, to be used primarily by our seniors; this is less expensive than having the Redeveloper’s subcontractors do the added installation.
  • We are scaling back on the IT budget and moving some of those funds over to pay for the bad soils.
  • We are reducing the amount of new furniture being purchased to only what is absolutely necessary, and taking some of our current furniture with us.
  • We have greatly reduced the on-call participation of our site-civil engineering firm, when able.
  • We are looking for ways to involve our in-house professionals, or other contractors that may be less expensive, to do certain completion activities later in the project after the new municipal building is open. 
  • We eliminated $100,000 in antennas when we moved to Union County Dispatch.

Where We Go From Here

We will continue to be vigilant on this project, keeping a watchful eye on costs. We meet with the full team of project professionals biweekly, and, additionally, our administrator meets with MAST every week. We are in touch with MAST on nearly a daily basis. We have told our staff to begin identifying furniture they would like to take with them, to reduce the initial furniture buy, are looking at options for leasing phones or other equipment to reduce initial outlays, and are applying for grants in an effort to get some relief for the soil issues. 

Our project managers have suggested the Township budget an additional $2.5 million to complete the project to cover any “worst-case scenarios” including additional unsuitable soils, environmental issues, unforeseen conditions when demolishing the existing building, etc. But quite simply: we’re not willing to accept that yet.

We are going line-by-line when IT/AV and furniture pricing comes in, to eliminate anything not absolutely needed when the building opens. We are paying for some items - such as chairs for the police department - out of leftover money from our township operating budget. We are applying for grants for items like electric car charging stations. We have organizations in the community offering to help us move into the new building when the time comes. The bottom line is: we are doing everything possible to cut cost, to not go further into debt on this project. 

The good news? We’ve got a team of smart, creative, out-of-the-box thinkers working on this complex project! From the Project Manager, the Architect, our CFO, involved Council members and Mayor, Administrator, department heads and staff, we’re always coming up with ways we can control costs. 

Berkeley Heights Municipal Complex – Project Status Overview

  1. Basement Carpentry 
    1. Carpentry -  Interior Framing 95% 
    2. Electrical – Wall Rough-in & Wiring 100%, Above Ceiling Rough-in & Wiring 100%, Fire alarm Rough-in (no wiring) 10%, Security Rough-in (no wiring) 10%, Mechanical Connections 75%
    3. Plumbing – Sanitary system 95%, Storm system 100%, Domestic water piping 90%   
    4. HVAC – Ductwork 90%, VAV 90%, Hydronic Piping 75%
    5. **Masonry – 100%
       
  2. First Floor
    1. Carpentry - Interior Framing 95%:
    2. Electrical – Wall Rough-in & Wiring 95%, Above Ceiling Rough-in & Wiring 60%, Fire alarm Rough-in (no wiring) 10%, Security Rough-in (no wiring) 10%, Mechanical Connections 10%
    3. Plumbing – Sanitary system 100%, Storm system 100%, Domestic water piping 90%, Gas piping 100%
    4. HVAC – Ductwork Risers 85%, Ductwork mains and branch lines 0% but delivered today, VAV 0%, Hydronic Piping 80%
    5. **Masonry – 80%
  3. Second Floor  
    1. Interior Framing – 95%:
    2. Mehl Electric – Wall Rough-in & Wiring 15%, Above Ceiling Rough-in & Wiring 25%, Fire alarm Rough-in (no wiring) 0%, Security Rough-in (no wiring) 0%, Mechanical Connections 0%,
    3. AGP – Sanitary system 85%, Storm system 50%, Domestic water pipe 0%, Gas piping 50%
    4. ICC – Ductwork Risers 90%, Ductwork mains and branch lines 75%, VAV 0%, Hydronic Piping 80%
    5. **Masonry – 50%
       
  4. Building Exterior
    1. Exterior Framing and Sheathing – 95%
    2. *Exterior Wall Air Vapor Barrier – Prep work is 90% complete. What remains is spraying the substrate which is at 0%.
    3. **Masonry exterior wall block backup – 70%. End wall facing the existing building department building and the two intermediate walls between sectors 1 and 2 and 2 and 3 remain not complete.
    4. **Exterior brick veneer and cast stone – 0%. These activities would have started in the winter months. It was decided to hold off installing these finish veneers due to our of concern of having quality control issues that can occur when installing such finish veneers during the winter months.
    5. Windows are installed after the brick veneer and cast stone is completed. We will begin installing windows as the brick veneer and cast stone are completed. We are not waiting for the all of the brick veneer and cast stone to be finished before we start installing windows.
    6. Storefront and Curtain wall assemblies – Installed after brick veneer and caststone is complete. We will begin installing Storefront and Curtain wall assemblies as the brick veneer and cast stone are completed. We are not waiting for the all of the brick veneer and cast stone to be finished before we start installing the Storefront and Curtain wall assemblies.
    7. *The ice and water shield on the sloped roofs are approximately 40% complete. The product has temperature and moisture restrictions thus installation is impacted by weather. This barrier is installed below the roof shingles and makes the roof water-tight without having the shingles installed.
  5. The flat roofs are a concrete slab which receives a membrane roof. Since this area is concrete these flat roofs are water-tight without having the roof membrane installed. Any openings for mechanical equipment are temporary closed to limit water entering the building. The roof membrane would be installed as late as possible to avoid any damage while completing roof top work.

*All activities that are weather / temperature sensitive.

**All activities that are weather / temperature sensitive and impacted by overnight temperatures. i.e the day temperature maybe above freezing but if the upcoming overnight temperature is below freezing this product cannot be installed. 

Supporting documents can be found on Township website: https://berkeleyheights.gov/CivicAlerts.aspx?AID=129