DATE: Wednesday, September 17, 1997         TAG: 9709170485

SECTION: LOCAL                   PAGE: B1   EDITION: FINAL 

SOURCE: BY TOM HOLDEN, STAFF WRITER 

DATELINE: VIRGINIA BEACH                    LENGTH:  138 lines

PLAN MAY MORTGAGE BOARD TO HILT COST HAS RISEN FROM $12 MILLION TO POSSIBLY MORE THAN $17 MILLION

The Community Services Board will face a $1.18 million yearly mortgage and $430,000 in annual utility costs if it moves ahead with plans to develop land on Bonney Road into a central campus for its services.

When compared with current annual rent payments of about $552,000 to lease office space, the projected costs represent a threefold increase in the board's capital expenses.

The figures will push to the limit the board's ability to pay its mortgage and has the city's budget director concerned that the debt may be too high.

E. Dean Block, director of the city's Department of Management and Budget, said Tuesday he was concerned about the projected debt but continued to have faith in the board's ability to manage its finances.

``The higher debt is more of a stress on the department and that is more of a concern for us,'' Block said. ``As the project has gotten larger, we have become more concerned. There is not a lot of room for error right now.''

The controversy surrounding the board's project centers on the City Council's surprise upon learning that the costs to relocate the operations to a central site will be far higher than once thought. The board, through a network of services, provides care to families dealing with mental illness, substance abuse and mental retardation.

Council members approved spending $12 million in December on a project that included the purchase of a six-story Days Inn hotel, a furniture retail store, and a private residence, known as the Fuller property. That money would also cover the cost of razing the residence and renovating the commercial buildings for the board's new centralized campus.

Council members learned last week that the total costs could rise to more than $17 million, despite assurances last year from Dennis I. Wool, the board's executive director, that the project's original anticipated costs were accurate.

Council members have asked that at next Tuesday's meeting they be given a detailed explanation of what happened.

Meanwhile, James P. Duffy, the board's director of finance and administration, said Tuesday that he has a plan for funding these additional costs if the agency builds a new facility on the site, although he admitted that ``there will be some negative cash flow in the first five years.''

When that occurs, he said, the Community Services Board will tap into various accounts that accumulate surpluses each fiscal year to make up the shortfall. Since 1993-94, the board has had money left over in various accounts and has set the money aside in a special revenue fund. This is the same fund it plans to use to make a down payment on the new facility and to continue using it to defray the added costs of its proposed construction project.

Duffy also said that he expects the board to receive higher Medicaid payments in the coming years. Combined with higher incomes and careful management practices, Duffy said the board can meet its obligations.

Lenny Burns, the leasing director for Virginia Beach Associates, which owns Pembroke Office Park, where the Community Services Board rents about 40,000 square feet of space, said the board signed a new three-year lease last month - a lease that included utilities.

``Our leases are full service, so all the utilities here are paid for by the landlord,'' he said. ``The rent here encompasses everything, heat, janitorial, air conditioning. They're included, but it's all fixed into the rent.''

The board has said its rent will increase to about $700,000 in just three years. The projected increase in rent paid by the board to owners of the Pembroke Office Park is the basis, in part, for its argument for a new centralized facility.

Duffy and Wool have said that rent cost will continue to rise even if the city does nothing. But choosing not to act, they argue, means the city will have nothing to show for its money except rent receipts.

``I think we can manage our budgets to cover this,'' Duffy said. ``It should be evident that our costs of doing business will continue to go up. We have some sites now, particularly the Detox site, which is 12 years old. You can literally put your fingers through some walls.

``We have other sites in buildings that need to be dealt with long-term,'' he said. ``If we elect to lease, then we're subject to the whims of the market in trying to locate these programs.''

The consolidation plan originally involved purchasing the hotel, the retail business and the residence for $5.7 million. So far, that is what the city has spent. It now owns the property and buildings.

The project, after renovations, was supposed to cost $12 million, the amount the City Council appropriated last December. City regulations required an additional $2 million be added for construction project contingencies, which raised the basic original fund to $14 million. Revised estimates to complete the campus raised the total project cost to $18.1 million.

With the figure that high, the Community Services Board last week voted to change plans. It now wants to demolish the buildings and start over. The new total project cost will be $17.2 million - about $3 million more than originally appropriated by the City Council.

The plan called for land and building acquisition costs of $5.7 million; architectural and engineering fees of $500,000; inspection and support fees of $216,000 and construction costs of $5.7 million.

But part of the estimate was based on a cursory evaluation of the effort needed to convert the Days Inn into a usable space for the CSB campus. That architect, John H. Crouse, said last week that his estimates on the costs to renovate were based on his best ``guestimate.''

Crouse said he sought to have a more complete analysis completed, but was never given the opportunity. Board executive director Wool said the reason Crouse's firm, CMSS Architects, was not given the go-ahead for that was based on the need to keep the city's land acquisition efforts a secret from the commercial real estate community.

Granting CMSS the authority to do a more complete analysis would have required a public bid, Wool has said, and that would have betrayed the city's intentions on the planned campus and that could have led to higher costs.

When a new architectural firm, Paul Finch & Associates, examined the Days Inn, it concluded renovation costs to the Days Inn property would be $1.86 million more than Crouse had projected.

Finch also projected higher architectural and engineering fees - $200,000 more - bringing the new projected costs to $18.1 million. With costs this high, the Community Services Board reasoned, it would better serve the community if all the buildings at the site were razed and a new facility were constructed from the ground up.

To help pay for the added costs, the board would kick in $1.5 million cash from a fund balance held for capital projects and through the sale of its Wildwood facility, which the board hopes will generate $500,000. The Wildwood facility houses a psychiatric medical clinic and the board's older adult services operation.

An additional $1.56 million would be raised through the sale of lease purchase municipal bonds. None of the additional money would come directly from the city's cash reserves, the board and the city have said.

The City Council must approve the issuance of bonds.

Wool has defended the figures he first presented to council by saying that he, too, was surprised by new studies that showed the project would be more expensive than originally projected.

``I'm not an architect. I'm not an engineer,'' Wool said. ``I am a dreamer, a program planner, a creative problem solver. If you tell me these are good numbers, that we can move into that hotel for that price, then I'm going to believe it.''

Central to Wool's idea of a creative use for the space was the presence of a commercial laundry, kitchen and restaurant at the hotel. Wool had envisioned those facilities being put to use in conjunction with some of the services that the board provides to the mentally disabled.

``We thought we could do it at a reasonable price,'' Wool said. ``Even at $17.2 million, it was well within what we could afford. Down the road, the plus is that for the first time in our service facility history, we will have a permanent home, rather than a temporary headquarters and we will have equity for future services.'' KEYWORDS: VIRGINIA BEACH COMMUNITY SERVICES BOARD VIRGINIA BEACH

CITY COUNCIL

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