OLATHE, Kan. — Rising inflation and construction costs could have Johnson County, Kansas facing more than a $3.7 million shortfall on capital projects.
Thursday Assistant County Manager Joe Waters provided the Johnson County Board of Commissioners (BOCC) with a financial update on three major projects from the county Public Building Commission (PBC) including the Shawnee Med-Act station, Household Hazardous Waste Facility and Lenexa Med-Act station.
Waters said while the projects were included in the 2021 and 2022 county budgets, increased inflation will greatly impact what the total cost of each project will be.
“The [project cost] estimates were really built in 2019 and 2020 with escalation expectations for construction cost in the 4-5% [range] which has been our typical [range],” Waters said. “What we have seen is somewhere between a 33-40% increase in construction costs.”
Shawnee Med-Act station:
The BOCC approved $3.1 million for the Shawnee Med-Act station as part of the 2021 budget. The project would create a new Med-Act building at the northwest corner of Midland Drive and Bell Road in Shawnee.
Waters said the county is struggling financially with the project because of inflation and a change in programming needs for the Med-Act projects related to COVID-19.
To prevent the spread of communicable diseases, the industry standard has shifted from communal bunk bed style designs to individual sleep areas. Waters said while the change may be minor, it does increase the cost of the project and has a significant impact when paired with rising inflation.
The county is currently projecting the Shawnee Med-Act station project to be $1.5 million over budget.
Roughly half of the construction documents for the project have been completed. County staff will continue working on design and construction documents to put the project out for bid in July. Staff anticipate bringing forward a recommended construction contract for the BOCC to vote on in early August.
If the construction costs exceed what was originally budgeted for, additional funding will require approval from the BOCC.
Household Hazardous Waste Facility
The Household Hazardous Waste Facility (HHWF) project was approved by the board as part of the 2022 budget. The $3 million project will create a new hazardous waste recycling facility near U.S. 69 Highway in Overland Park.
The property was purchased for $1million earlier this year using general fund reserves with the assumption the PBC would reimburse the county with revenue from bonds to be sold in the fall of 2022.
County staff are now estimating the HHWF project to cost $1-1.4 million over what it was originally budgeted for. Waters said for both the HHWF and Lenexa Med-Act projects the shortfall is partially related to the size of the buildings on each property.
“We found existing buildings on properties that we could utilize. Those existing buildings were, in each case, bigger than what we were really seeking, but they were what was available in a geographic location that worked for us,” Waters said. “It is a very limited market for properties that could work for either one of these uses.”
According to county documents, the HHWF purchase was about 20% larger than what was originally planned.
The county is about half way through the process of preparing paperwork to send out bids for the new recycling facility. Similar to the Shawnee Med-Act station, staff plans to complete the construction documents and bid out the project sometime in July. County staff anticipate bringing a recommendation to the board in Aug. to award a construction contract for the project.
Lenexa Med-Act station
As part of the 2022 budget, the BOCC approved $3,858,000 to create a new Med-Act station in Lenexa.
Earlier this year the county used $1,250,000 from general fund reserves to purchase a building near 87th St. and Long St. Similar to the HHWF, the purchase was made with the assumption the funds would be paid back with revenue generated by the sale of PBC lease-purchase revenue bonds.
The project is expected to exceed the budget by $1.2-1.5 million. That shortfall was brought on by increased inflation and additional construction costs related to the overall size of the facility.
County staff plan to proceed with pre-development paperwork, collect construction bids and bring the project back before the board sometime in Oct.
Commissioner Michael Ashcraft asked if staff have considered pausing or delaying the projects due to the rapidly increased costs.
“At this point in time, the concern about pausing is the cost will continue [to go] up and we’ll just be in a deeper problem,” Waters said.
Commissioner Charlotte O’Hara said she was relieved the board was updated on the project shortfalls before its upcoming hearing for next year’s budget.
“This is jaw dropping, stunning. We are going to have to make some really hard decisions just like all the residents of Johnson County with inflationary pressures are having to make tough decisions. All of this is brought to you by government actions and COVID.” O’Hara said. “This is just unconscionable what we have done to our community, our state and our nation. Now the results and the impacts, they’re here.”
“This information should be no surprise to anybody, because these factors that have been in play for several years. This would not be the first time we’ve had to make challenging decisions,” BOCC Chair Ed Eilert said.
Eilert said the tough decisions made by county leaders during the 2008 recession helped set a precedent for handling financial disruption caused by inflation.
“Challenging decisions were made. Correct decisions were made. There were no tax increase when values went down. We made adjustments in workforce and we used our reserves so that we did not have a negative impact on county services,” Eilert said.
The land for all three projects was purchased using general fund reserves with the assumption that the county fund would be reimbursed when the PBC sold bonds for each project. Waters said the current strategy would be to ask the BOCC to forgo the reimbursement.
“Our strategy on each of these [projects], the first thing to do would be to not have the Public Building Commission reimburse the Board of County Commissioners for that property acquisition piece. That is effectively utilization of general fund dollars to support these projects rather than increase the bond sale, the bonding amount,” Waters said. “We could increase the bonding amount, but given the county’s cash position, it seems more wise to resolve these shortfalls with cash rather than sell more bonds, particularly as bond rates go up.”
The individual budget for each project were intended to cover the cost of property acquisition, design, construction and furnishing of the facility.
No formal action was taken on any of the projects Thursday morning. Any additional funding for the capital projects, beyond what was previously allocated, will require approval from the BOCC.