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0702198685 SPECIAL MEETING OF THE HARNETT COUNTY BOARD OF COMMISSIONERS, JULY 2, 1986 1 1 RECONVENED ROBERT MORGAN ADDRESSED BD. RE: LAW ENFORC CENTER The Harnett County Board of Commissioners reconvened in special session on July 2, 1986, in the Commissioners Room, County Office Building, Lillington, North Carolina, with the following members present: Lloyd G. Stewart, Rudy Collins, and Chairman Jesse Alphin presiding. Commissioners M. H. Brock and Bill Shaw were absent. Others present were Dallas Pope, Assistant County Manager; Vanessa W. Young, Clerk to the Board; Bob Jones, representing the County Attorney's Office; and Hollie J. Wade, Recording Secretary. Chairman Jesse Alphin reconvened the meeting at 12:19 p.m. and recognized Robert Morgan. Mr. Morgan addressed the Board as follows: E. "Mr. Chairman and Commisisoners Stewart and Collins - -Since the action that we are going to recommend that you take today is unique, innovative, and will have long - lasting effects, I would like to summarize where we are and what it is that we propose to do. As you know, in Harnett County as is in almost every other County and State in the Nation, overcrowding of jails and prisons has been a real problem. We have been aware of it here in Harnett County for a number of years and this Board has discussed on numerous occasions ways and means of trying to do something about the outdated and crowded jail situation in Harnett County. This is not unique with us. Today, jails in thirty -two states are being operated by the federal courts. When that happens, local officials no longer have much say as to how that part of their government is going to function. As you know, Harnett County has been sued, as well as each member of the Board of Commissioners personally, because of the alleged conditions of the Harnett County jail. So there is no need to discuss furhter the importance of doing something about our jail because the fact is we have to. That suit is still pending and no longer than yester- day we were in discussions and preparations for answering that law suit. Now, as I recall the history of Harnett County, we have never had a bond issue for a courthouse or a jail. We did have a vote on a bond issue to build a new courthouse. It was rejected and the County Commissioners finally renovated the old courthouse on a pay as you go basis. We have had three bond issues for construction of schools rejected in this County since 1955. You know those three votes are an indication of the fact that the voters of this county have historically not favored bond issues. I can recall only one bond issue being approved in my forty years of adult life in Harnett County. So if we are going to build a new jail, we are going to have to face the fact that the probability or likelihood of the voters of this county voting revenue bonds to finance a jail are almost nil. Nationwide, I can report from Government Financial Review, in 1983 - -which was the last year that we have statistics -- seventy -two percent of all bond proposals by local governments across the nation passed while at the same time sixty percent of all bond issues for jail facilities were rejected. If that happened nation- wide, where the overwhelming majority of bond issues have been passing, you can see what the likelihood would be here in Harnett County where we have not had a bond issue passed for education since 1954. So the Board recognizing that we should do something about our jail situation and recognizing that we most likely could not get the voters to pass a bond issue for jail facilities instructed the County Manager and myself as County Attorney almost two years ago to seek new and innovated ways to secure a jail and law enforcement facility for this county. You recall about that time I attended a conference in Washington on privatization which is a program or a method of obtaining resources for capital improvements for local governments. That was a result of the present Administration in Washington reducing federal funds for local governments that were available. Mr. Brock and I began to confer with the Local Government Commission that had never really given its blessing to anything other than a revenue bond situation. We began to explore with Mr. J. D. Foust, who represnets the Local Government Commission, means of trying to acquire a facility. Now, at that time, the federal tax laws were fairly favorable toward the private segment coming forth and funding such projects as this. But about this time last year, when we thought we had things ready to move, a great movement came about in Congress to enact a new tax law. Because of that, the financial institutions that had been interested in the past began to get nervous about it and began to with- draw any interest. Mr. Jones had conferred with the First Union National Bank out of Charlotte, which had done some similiar projects (lease /purchasing arrangements), and they were no longer interested because they could not anticipate what the federal tax laws would be. Southern National Bank was interested but when it looked like we were going to get a new tax law they withdrew interest. Central Carolina Bank from Durham was interested, also withdrew their interest. Because of that we were confronted with an almost crisis situation. Let me go back and note what this Board had already done. You had already employed the architctural firm of Williams and Associates from Matthews, which has probably done morejail and detention facilities than any other architectural firm in the State, They had been paid a substantial amount of money and they drew plans for a facility of 34,890 square feet that would house the entire law enforcement - 'center of Harnett County. Of that, 17,500 square feet would be the jail facility itself. Based upon that, we advertised for bids, asking at the time for bids, for construction and financing. We had a number of construction companies that had expressed an interest. Cox out of Sanford was one and of course, Davidson and Jones. I don't recall the others but when the final analysis was in the only bids that we had was from Davidson and Jones with a negotiated bid of $2,600,000. That was for 86 the construction of the facility, but we had no money to construct the facility, After exploring all possibilities of financing and continually conferring with the Local Governemnt Commission, we came up with the only possible solution -to simply buy the jail from somebody wo would build it. Simply like going into the market and buying any other piece of property but buying it on an installment basis and securing the payment with a deed of trust. In 1979, the Legislature by Section 160A -20 authorized cities and counties to purchase real or personal property by installment contracts which create in the property purchase a security interest to secure the payment of the purchase price. It also provides however that the proceedings must be approved by the Local Government Commission After having con- ferred with Mr. Foust and after many conferences, we all concluded that this was the logical and best way to proceed. What we are presenting to you this morning is a combination of -about one and half years of negotiations, in which we would buy from Davidson and Jones Development Company a law enforce ment facility for'Harnett County which would be built on land that we alreadyown. The land the Count owns would be conveyed to Davidson and.Jones Development Company on which the center would be built. When the building is complete, we will pay them the total purchase price of,$3056,865. No* if you will think on the proposal today as a purchase of this °facility from Davidson and Jones Development Company for a total of $3,056,865. Now, as good sound business men you want to know whether or not that is a fair price and how itwas arrived at, I think that is of importance to us but at the same time we have to recognize that if we want this building from Davidson and Jones we have to pay their selling price: Davidson and Jones arrived at their figures by taking what they bid as the construction cost about a year ago of $2,600,000 and adding to it an additional $65,000 as increased cost since the bids were originally let. At the last meeting we talked about their demand for $96,426. You instruct ed the attorneys and Mr. Pope, the Assistant County Manager, to negotiate as much as we could; and we reduced that down from the increase of $96,421 to $65,000, a.reduction of $30,000. Mr. Chairman, I am convinced this is as good as we can do, Mr. Pope has done some computations. The increase in the construction cost from the original bid over a year ago was two percent (2 %) while the consumer price index for the same period went up about 3.7 percent (3.7 %). Gentlemen, while we were reluctant to agree to any increase in cost, I think we have to recognize that going up two percent (2 %) was as close as we could get. So that is part of the way in which Davidson and Jones Development arrived at their price. The Development Company had to get someone to build the building for them. Of course, they are getting their own construction company. Now, they have added to their construction -cost some figures that frankly I do not completely agree on but here again it is like buying property from any indivi- dual owner. If you *ant the property, you have to pay their price, They included $7,500 legal fees which is the certification from independent lawyers to Certify the title and the legality of all the proceedings. Now Lean unstarid that. Title Insurance -- $4,650, that is a figure gentlemen if you we out tomorrow -and made a loan from any bnak on real estate you would have to have title insurance. Appraisal fee -- $4,000. If you borrown money on property anywhere you have to. have the property appraised. Loan Fee on Constxuction'of $2,665 now remember that is part of their cost of acquiring the property that they are going to sell to us for over $3,000,000, They have added into their costs about $200,000 -4the interest that the Development Company will have to pay for the building. Now, of course this is the way they have of arriving at the purchase price -that they are selling it to us for. They have added a development fee of $60,000, I want to be perfectly candid with the Board, and I think it should be a matter of record that T have some problems with that $60,000 fee. But we have negotiated with them and it has been put to us that this is the best we can do. We are engaging in an enterprise, ':they say,' that no other contractor, no other company, no other financial institution has been willing to do. We have engaged`the -- services of Prudential -Bache to underwrite° the financing when you (referring to the County) could not do it, You meaning (the County) tried with First Union and you could not get it done. You tried with Southern National, and could not get it done, You tried with Central Carolina Bank, and you could not get it don., So frankly, they are saying that is part of their development fees that they say they are entitled to if they are going to sell us this property after we get it built. So that figure is added into it. As much as I want to pick at it,I can understand their argument. Of course, when it comes down to it, I have always hated the words 'take it or leave it' but T believe after serious negotiations, we have negotiated as best we can and all we can. Now, the financing cost underwriting by Prudential -Bache which is determined a part of their - cost will be $113,050. Here again that is a cost based upon their underwriting. It is higher than it would have cost us if we could have gotten the voters to pass a bond issue, Mr. J. D. Foust had told us that even if we had the bond issue approved by the voters today, it would cost us $30,625 to issue the bonds. That is not counting the cost of the elections, the promotion; and here again we have to remember the unlikelihood' -that such a bond issue would pass. So that gentlemen is how Davidson and Jones arrives at their sell price of $3,056,865. Now.is that a fair price? Well, that is a judgement call that this Board is going to have to make. Bftt I can give you some indication based on some research that Mr. Pope has done. He has conferred with the Wake County authorities which are now in the process of building a Criminal Justice Center. Their jail area alone, paying cash, is going to cost them $125 a square foot. The administrative` area is $80 a square foot. The parking area is $20 a square foot and parking below ground $30. One Hundred twenty -five dollars a square foot and eighty dollars for administrative costs does not include equipment costs, does not include the engineering cost, does not include financing, parking or legal fees. Mr. Pope has done some computation on ours. The total area -is 34,890 square feet. If you based the cost of that on the sale price or purchase price of $3,056,000. It comes to about $86,41 per square foot. While we cannot tell you exactly, because jail space cost more than admin- istrative space. In a comparison Mr. pope and I have gone over it. We think taking into consider- ation the sale price, the price for Harnett County to acquire these facilities will be a fair and reasonable price. If you should decide today that we do want to buy this building from the Devel- oper when they get it constructed, what happens? Of course, we will enter into a contract. But what about the financing? Mr. Chairman, as you know, Raleigh Federal Savings Bank will not make 67 a fixed rate mortgage. Anywhere you go you have to get an adjustable rate. But by the same token, this County does not want to enter into a contract with an open ended agreement on the rate. So what we have recommended to you prior to now and what we recommend to you today is that we, the County, employ Kenny Information System as a consultant to this Board so that we will not have to rely on Prudential -Bache or anyone else to compute for us the interest rate that we will pay for the financing. If we agree to do that we will pay them a total of $3,000 for their services and this is what they will do: On the first closing date or prior to that, they will compute for us what they perceive to be a fair interest for transactions such as this. Now if they compute for us a given interest, said X amount, and then when we get down to signing the final contract and Davidson $ Jones and Prudential -Bache do not want to go along with that, then we will not sign the contract. What we are asking today is to establish this formula. It is estemated that the fix rate financing will be somewhere between 5.8 percent and 7.85 percent, which they estimate will be a true interest rate of about 7.31 percent. Now on the market today, I think that is a very favorable rate. I am satisfied and Prudential -Bache feels that paper will be treated as tax - exempt papers. Now that is a chance they are taking. If the IRS does not interpret it like that, Prudential -Bache will be stuck with it. So what we would do is we would have Kinney Information Systems to run for us on the Seventh of July what they preceive the interest for the purchase money mortgage would be on July 10, the closing date. We assume for the sake of argument that they come out with a 7.31 percnet then that is how we will sign the contract, buying the building at the price mentioned with this interest rate, with a provision in it that the interest rate will be adjusted at the second closing which will be somewhere between April 1 and June 30 of next year. Now, Kenny will provide us a formula by which the interest rate will be computed for the second closing. Davidson F, Jones and Prudential -Bache will be bound by the findings of this independent consultant which we hire. For the record, I think I should repeat what the Board already knows. Mr. J. D. Foust from the State Treasurer's Office, who is the head of the Local Government Commission, advises us that Kenny Information Systems is a reputable, acceptable consulting firm for this type of financing. I heard a cute story the other day, which I think illustrates the dilemma that we are in. A farmer came over to see his next door neighbor to borrow his axe and the man was sitting on his front porch, rocking in his rocking chair, and he asked him for his axe. He said, 'I'm sorry I'm using it.' Well, the Farmer saw him sitting on the porch and he said what are you doing with it. He said, 'I'm stirring my coffee.' The farmer questioned, 'Stirring you coffee ?' The neighbor said, 'If I'm not going to let you have it, one reason is just as good as another.' Well, that is just about the way we are with this jail. We have to buy one and we have to pay the price. We need to negotiate as best we can but we cannot worry too much about how they arrived at their price." Mr. Alphin asked Mr. Morgan exactly what the Board needs to do today? Mr. Morgan stated the following: 1. Mr. Chairman, I recommend that we approve the purchase of the law enforcement center, when completed in keeping with the terms and specifications of the building which has heretofore been provided by the Architect and has been approved and accepted by the Architects for the purchase price of $3,056,865, such purchase price to be adjusted upward or downward in keeping with the amount of construction interest that would have to be paid. It is to be understood that the construction interest will be NCNB prime with a cap of twelve percent (12%), less any adjustments we may be able to get in any of the fees with which we are still working. This would be the maximum subject only to the increase in the company's cost for construction financing. 2. The Board also needs to decide if the initial payment will be $400,000 or $450,000. 3. Approve the Contract with Kenny Information Services The Commissioners questioned the procedure in which the land transaction would be handled. Mr. Morgan stated that it is his recommendation that the County convey Davidson $ Jones the land. If NCNB from whom Davidson F, Jones will get their construcj tion money requires them to pay it, then they will pay us $50,000 for the land. We will make sure that the County is adequately secured for its land. If they pay us $50,000, then the purchase price will go up by this amount. MOTION TO Following this discussion, Commissioner Stewart made a motion that the Board approve PURCHASE LAW the purchasing of the law enforcement center for the amount of $3,056,865, plus inter - ENFORCEMENT CEN. est. Commissioner Collins seconded the motion and it carried with a unanimous vote. Commissioner Collins made a motion that the County pay $400,000 upon conveyance of of the Law Enforcement Center to the County; Commissioner Stewart seconded the motion and it carried with a unanimous vote. It was agreed by the Baord that this initial payment may be $450,000 depending on the transaction of the land. 1 68 MOTION TO EMPLOY Commissioner Stewart made a motion that the County employ the services of Kenny Inform - KENNY INFORM. ation Services to establish an acceptable interest rate on the closing date of July 10 SERVICE and the formula by which we will establish a closing interest rate when the building is turned over for a fee of $3,000 for these services; Commissioner Collins seconded the motion and it carried with a unanimous vote. ADJOURNMENT There being no further business, the Harnett County Board of Commissioners special meeting duly adjourned at 1:15 p.m. diN4 0 �C Secretary l r� v a QA d ‘7CILI.Cej 1