passed ordinance

*Authorize the Office of Management and Finance to negotiate and execute one or more lease agreements to facilitate the relocation of CityFleet’s Kerby Garage operations

transportation
budget finance
ordinance

Introduced by: Former Mayor Ted Wheeler
Status: Passed

Impact statement

Purpose & background

The purpose of this legislation is to authorize the Chief Administrative Officer, or designee, to negotiate and execute one or more lease agreements for facilities owned by others to relocate CityFleet’s Kerby Garage operations into a leased facility in accordance with Resolution No. 37017 and ADM 13.01.

Financial impacts

Entering into a lease for a relocated Kerby Garage will commit the City to ongoing costs of the lease and set the stage for beginning an improvements project to make the site a fleet garage and headquarters facility. The improvements project An estimated $53.1 million improvements project for the site would be funded by a combination of cash and debt. Cash would come in three forms to achieve the City’s goal of 5% cash financing for a bond funded project. Allowance from landlord Fleet reserve money remaining from the sale of a parking lot to Emanuel Hospital Fleet major maintenance reserve money No proceeds from the sale of the Kerby Garage are factored into this plan. There are four reasons for this: The timeframe for disposition is unknown; the net value is unknown; no ownership share with PBOT is available (the owner is only listed as the City, with CityFleet historically having full control of the upper garage and offices, referred to as the “Kerby Garage,” and PBOT occupying lower offices and storage spaces, referred to as the “Stanton Yard”); and it is unclear of PBOT’s long-term need for the facility (PBOT currently occupies the basement of the facility, i.e., the Stanton Yard). Debt financing would be in the form of full faith and credit bonds issued by the City with a term of 20 years. The debt would be issued in early FY 2025-26, with debt service payments starting in that year. The net additional costs Fleet would need to begin making lease and common area maintenance payments at the time the lease commences and this would be before construction of the improvements would begin. As per the FY 2024-25 Approved Budget this will be funded by PCEF for FY 2024-25; thereafter, bureaus will be responsible for all facility payments associated with this ordinance (see below). In FY 2025-26, and ongoing, Fleet will have net additional ongoing costs of $7,886,000. The following details these additional costs: Lease costs of $1,140,000 CAM costs of $260,000 Debt financing costs of $4,900,000 (for a period of 20 years only) Net additional O&M and major maintenance costs of $1,652,000; major maintenance costs are based on 3% of the value of the fleet-specific improvements being constructed in the facility. Kerby mothball costs of $158,000 Termination of CityFleet’s lease with ODOT for its remaining space under I-5 ($224,000). Major maintenance costs are based on 3% of the value of improvements Fleet is constructing in the facility. Fleet will terminate its lease with ODOT for space under I-5 and this provides an offset to some of the additional costs of the leased facility. An analysis of alternatives A present value analysis of alternatives was prepared. It shows leasing is less expensive than building new, even when accounting for the value of the asset the City would have under the build new option. The analysis of renovating Kerby calculated it to be less expensive than leasing. However, this alternative did not factor in the costs of temporary relocation space and/or construction sequencing that would allow Kerby to stay “live” in the facility during construction. This alternative also has low value because irremediable issues with the facility that constrain operations (size, layout) and create safety risks (sloped floors) would not be addressed. The impact on Fleet rates Additional annual ongoing costs of $7,886,000 will be funded by an increase in Fleet’s rates in FY 2025-26. Since the facility supports all Fleet’s programs, its costs will be included in all Fleet rates. These rates include the following: Fixed vehicle rates Fuel rates Parts rate Hourly rate Leased vehicle rates

Community impacts

Public Involvement in this transaction will be accommodated if and when the new location involves a change to any zoning code that involves public input. Should the new location be allowed per existing zoning codes, then no public involvement is warranted since it involves an existing city operation relocating to a new allowable location.

▸ Full text (the legislation as adopted)

The City of Portland ordains: Section 1. The Council finds: The Office of Management and Finance (OMF)'s CityFleet ("Fleet") is a comprehensive fleet management program that provides services including the acquisition, maintenance, repair, and surplus of all City-owned vehicles, except for Fire apparatus. Fleet is the largest municipal fleet in the state and maintains over 3,800 vehicles and related assets. Approximately 2,400 of these are currently serviced at the City-owned Kerby Garage (“Kerby”), including the majority of the City’s heavy-duty assets. Fleet’s remaining units are serviced at smaller satellite garages. Kerby was built in 1922 as the City’s original public works facility and in 1971 became Fleet’s headquarters. Today, it is functionally obsolete for the maintenance and repair of modern heavy-duty equipment due to its small size and inefficient layout. Kerby also lacks modern centralized fire and life safety systems, has outdated electrical and HVAC systems, sloped floors, and a failing roof. Its nearly 50-year-old electrical backbone precludes the facility from being able to serve as the primary maintenance and repair headquarters for a rapidly expanding green fleet. The building is showing signs of substantial deterioration, including the smoke damper skylights that serve as its original fire protection system. There is an ongoing risk of physical harm to employees and guests and a risk of significantly disrupting City operations should a fire occur or should Kerby’s aging structure or building systems fail. An estimated $43 million is needed to renovate the Kerby Garage, which is currently valued at approximately $8.5 million dollars. Replacing the roof and dampers will trigger code upgrades and require either a temporary relocation (the costs of which are not included in the $43 million figure), or an atypical and expensive construction schedule to ensure Fleet’s 18 hour/day operations are not impacted (also which has not been costed or included in the $43 million figure). A renovation would not rectify the building’s issues as per functional obsolescence, i.e., its undersized capacity and inefficient vehicle processing flow, nor would it address the building’s sloped and dangerous floors. Kerby cannot accommodate any additional growth in the City’s fleet generally, nor electric vehicle and renewable natural gas infrastructure development, specifically. It is imperative that Fleet relocate to a new facility that provides employees with a safe and functional workspace, and that enables the needs of a modern, growing, greening fleet. Rather than investing any money to rehabilitate Kerby, given its numerous irremediable issues, it would be more financially prudent to permanently relocate. The Division of Asset Management (DAM), within OMF, proposes to lease warehouse and associated office space to replace Kerby as the City’s primary fleet headquarters and maintenance facility. A lease long enough to cover the 20-year full faith and credit bonds that will be issued to fund the tenant improvements and other upfront capital costs, and that will include long-term renewal options to further benefit from the capital investment required to effectuate a move, is sought. Ongoing lease costs and common area maintenance costs are estimated to be $1.4 million. In addition, $53.1 million in tenant improvements, specialized equipment, and indirect costs have been budgeted, which are required before Fleet can occupy a new site. Debt service is estimated to cost an additional $4.9 million/year for a period of 20 years. A net increase in operations and maintenance costs of $1.59 million will also be incurred with this move, which predominately covers major maintenance to support the long-term upkeep of the tenant improvements being installed, which are unique to Fleet and required by Financial Policy 2.03, and mothball costs and property insurance for the vacated Kerby facility. City Binding Policy ADM 13.01 directs bureaus to locate their operations in City owned or controlled facilities when these facilities reasonably meet the business need of the bureaus. Resolution No. 37017 reaffirmed ADM 13.01 and directed DAM to work with bureaus to fully implement relevant policies by bringing City operations back into City-owned facilities when cost effective to do so, and to bring new leases or rental agreements or renewal of existing leases or rental agreements for facilities owned by others to Council for approval. OMF and Fleet have assessed the financial impacts of renovating Kerby and concluded that the site is functionally obsolete, and it is cost prohibitive to do so. OMF and Fleet have also strategically assessed the operational impacts that must be relocated, and have concluded, from a search of existing City-owned available properties, that there are no existing properties available to satisfy Fleet’s needs. OMF desires to support Fleet with identifying a replacement property and to negotiate commercially reasonable rental rates and terms. NOW, THEREFORE, the Council directs: Subject to Council approval and adoption of the FY 24-25 Budget, including the appropriation of funds for the relocation of Fleet operations, the Chief Administrative Officer or designee is authorized to execute one or more lease agreements for facilities owned by others necessary to accommodate the relocation of Fleet’s operations. All documents will be reviewed by the Office of Management and Finance’s Planning and Portfolio Management team, consistent with Section 1 findings, for commercially acceptable terms and conditions and approved as to form by the City Attorney prior to execution. Section 2. The Council declares that an emergency exists because the City will benefit financially from having the lease in effect July 1, 2024; therefore, this Ordinance shall be in full force and effect from and after its passage by the Council.

Tally

5 yea 0 nay