Memorandum

City of Lawrence

City Manager’s Office

 

TO:

David L. Corliss, City Manager

 

FROM:

Diane Stoddard, Assistant City Manager

Bob Nugent, Public Transit Administrator

 

CC:

Cynthia Wagner, Assistant City Manager

 

Date:

 

February 10, 2010

RE:

Consider Memorandum of Understanding with the University of Kansas to Partner on Joint Transit Maintenance Facility

 

Please place the following item on the agenda for the February 16, 2010 City Commission meeting:

 

Approve Memorandum of Understanding with the University of Kansas to Partner on a Joint Transit Maintenance Facility, if appropriate. 

 

Background:

At the City Commission meeting on February 9, 2010, City staff and KU staff provided an update to the City Commission regarding a joint transit maintenance facility.  With that update, staff provided a comprehensive history of collaborative efforts between the City and the University regarding transit activities, including the facility.  Additionally, the City Commission was provided information concerning the University’s process to issue an RFP for a transit maintenance facility, the analysis of the RFPs received, and the selected vendor and site.  Refer to staff memo and attachments from February 9, 2010 meeting. 

 

Proposed Memorandum of Understanding with the University of Kansas:

The Transit Planning Team is recommending that the City Commission proceed with entering into a Memorandum of Understanding with the University of Kansas.  The MOU envisions the City entering into a lease with the University of Kansas for a joint transit maintenance facility on the Timberedge site.  Additionally, the MOU indicates that the City would provide $2 million in ARRA funding toward the procurement of buses for the University.  These buses would be used on coordinated public transit routes. The purchase of the buses for the University frees up funding for the University to front the necessary capital costs for the financing of the facility.  The provisions of the MOU which address the proposed lease and the bus provisions are discussed in more detail below:

 

Outline of MOU provisions regarding proposed lease:

·         Facility Construction:  KU will construct a transit maintenance facility to be completed by approximately December 15, 2010.  The facility will be built pursuant to the RFP issued by KU.

·         Lease Term:  The term of the City-KU lease will begin January 1, 2011 and extend for ten years.  The lease may be extended up to an additional 15 years upon mutual agreement between the City and KU.

·         Lease Rates:

o   Base Rent:  Base rent will be set at $125,495 for the first five years.  For years 6-10, the base will increase 4% per year.  Should the lease be extended beyond year 10, the rate will adjust annually based upon the consumer price index. 

o   Allocated Costs:  The City and the University will share in certain allocated costs, such as utilities, grounds maintenance, snow removal, etc. based upon the average monthly mechanics hours and administrative hours spent on transit service delivery.  Currently, that formula requires the City to pay 48.38% of the allocated costs. 

·         Procurement of Buses for KU:  Utilizing $2 million in ARRA funds, the City will procure six (6) buses for the University’s use for public transit, in line with federal regulations.  This bus procurement will enable the University to free up funds otherwise designated for bus replacement to the maintenance facility construction.  This arrangement also avoids any federal funds in the facility construction, which would not have been allowed by FTA regulations since the University performs charter service.   If the buses are not procured for KU, the MOU includes an alternate base rent schedule that adds $250,000 annually to the base rent to compensation for the reduced initial contribution toward the project and in recognition that KU is taking full risk with the project.   It is also important to note that the City has plans to replace its fixed-route vehicles and paratransit fleet without relying upon the $2 million in ARRA funding proposed to purchase KU buses (see bus summary in the February 9 agenda materials).  Also, KU plans to utilize the procured buses on some of the joint routes operated with the City. 

 

Projected Cost Savings Over Current Facility Arrangement with Contracted Provider: 

 

The current facility is provided through the contractual arrangement with MV Transportation to operate the transit system.  The current MV agreement commenced in 2009.  This current arrangement requires the term of any facility lease to be concurrent with the transit system operational contract, which is currently a five year term.  In anticipation of some possible change regarding the transit facility, the agreement with MV Transportation includes a provision that requires MV to reduce its expenses in the contract that relate to facilities, with those changes in expenses becoming effective upon and after the date of relocation to the facility, should the City decide to no longer have the facility provided by MV.  Other provisions include formal notice to MV of any such change.  Such notice cannot occur unless the City Commission authorizes the MOU with KU. 

 

The City has received formal indication from MV quantifying the amount of reduced expenses should the City proceed with another facility alternative.  In order to illustrate projected savings that the City would enjoy under a lease arrangement with the University, staff has prepared a spreadsheet that annually compares what the City would have been paying to MV Transportation, versus what the City is projected to pay under a lease with KU. This demonstrates an overall projected savings of $806,588 over the ten year period. 

 

It is important to note that the projections of costs to the University assume that the facility will be exempt from property tax due to its function of providing a governmental service.  While City and KU staff are fairly confident the exemption will be granted based upon prior exemptions, the final disposition of the property tax exemption will not be known until the property tax exemption is authorized by the Kansas Court of Tax Appeals.

 

Should the City Commission authorize the MOU with KU, City staff would request authorization of the City Manager to sign a formal amendment to the contract with MV Transportation, reducing associated facility costs in the City’s service contract.  Additionally, the City would need to provide formal notice to MV regarding its intent about the facility.  However, this formal notice could wait until such time the City considers the lease with KU. 

 

Rebate Regarding Current Facility Costs: 

The current costs that both the City and KU are paying MV for the Haskell Street facility envisioned improvements to that facility, which were not realized.  In recognition of this, MV Transportation will be providing the City a credit of $105,543 dating back to January 1, 2009.  Additionally, it is likely that there will be a credit for 2010. This credit will be only modestly offset by moving expenses that MV will incur as a result of the move to a new facility, which the City and KU are required to pay. 

 

Next Steps: 

The KU-City Transit Planning Team recommends that the City Commission authorize the MOU with KU.  Should this MOU be authorized, staff will proceed on working with the University on a formal lease with the University, which will return to the City Commission for formal action.  Additionally, City staff would work on arranging the procurement of the buses for the University.  The University will continue to administer its contract with the vendor for the construction of the facility, to include the involvement and input of City staff, which is expected to be completed in December 2010.

 

Recommendation and Requested Action:

Authorize the Mayor to execute a Memorandum of Understanding with the University of Kansas indicating the City’s commitment to a formal lease arrangement with KU on a joint transit maintenance facility, and authorize City staff to proceed with the purchase of buses for the University with unallocated ARRA funds, and authorize the City Manager to sign a formal amendment to the contract with MV Transportation, reducing associated facility costs in the City’s service contract.