New affordable housing project way over budget before construction begins

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KAWARTHA LAKES-Councillor Breadner called it a “bait and switch’ when he heard the city’s new affordable housing project is 50% over budget before a shovel even gets in the ground. “I am not going to support this, the problem that I have is the continuous bait and switch approach of how these things are budgeted. Breadner said to council. “I feel that we are given the number, we are budgeted for a lower number, the project comes in and then we are hammered and we are already down the rabbit hole.”

Technically shovels are in the ground as soil remediation has begun, however no physical building construction has begun.

In 2016 Council approved the design and development of a capital project to build office space and affordable housing at the north-east corner of Lindsay Street North and Queen Street in Lindsay. It was approved in the 2017 City Budget at $8M, with $2.7M coming from grants and $5.3M through debenture. “The costs we have been receiving, the bids, are significantly higher than originally anticipated when the budget was developed,” Rod Sutherland, Director of Human Services explained.

The project was designed as a joint project with the Kawartha Lakes Haliburton Housing Corporation (KLHHC) as the operator of the expected 24 housing units.

On Tuesday council heard the project is already over budget by about 4.3 million dollars bringing the cost to $12,300,000. It would be refinanced with $3,600,000 in various housing-related grants,a  $1,900,000 debenture to be repaid by rental revenue generated by the affordable housing portion of the building and $6,800,000 in debenture to be repaid by lease cost avoidance and revenue generated by the office portion of the building. “These types of projects really lend themselves to debenture finanding because we’ve used them with affordable housing units in the past up in Haliburton where the level of rental revenue that we recieve from the building will cover the majority of the principle and interest annually,” city treasurer Carolyn Daynes explained. Daynes says the impact on the tax levy will be minimal at $10,000 a year.

The increase in the budget didn’t sit well with some councillors incuding Breadner and Junkin. “I was fully willing to support this project at $8 million dollars but when it balloons to $12.3 million  before we’ve even started building, I’m ready to put the brakes on it and say let’s stick with 8 million.” he said.

Others still saw value in the project. “I think for our municipality to get out of where we are on Kent Street and not have the burden of that rental property and to have our own building and increase the affordalbe housing stock, which we know has a five year waiting list, I think are all positive things. Councillor Elmslie remarked. ” I am going to hold my nose and vote in favour of going ahead with the project.”

Councillor Strangway was concerned about the ballooning costs but wanted to see it go ahead. “It is concerning to see the increase but the staff report has outlined the reasons for the increse. I think we all agree when we first started there was excellet reasons for this project. It is a 10,000 net tax impact and in light of what we are getting, in light of the potential office space and housing its still a wonderful project.”

Councillor O’Rielly says it’s time the city own some of these rental units. “I think there’s a number of reasons why they are over budget, construction people are busy, we are at the tail end of the year, when we do our budgets secondly this is going to be a huge savings to our municipality. We’ve been renting at 222 Kent Street for 20 some odd years, we are going to own this project and over time we are going to save money.”

A staff report blames market conditions for the overages.”The primary cost drivers have been market conditions and demand. With the volume of development in the region, tender bids have been much higher than originally anticipated.” said the report.

Construction tenders were issued starting in the summer of 2017 and staff says the tendering process was challenging with the first round of tenders resulting in very few submissions and for some aspects of the build, no submissions were received. Staff presisted in trying to find tenders and report most contracts have now been awarded.

While the issuing of contracts has taken longer than anticipated and delayed the start of construction, the target of completing the housing units by the end of 2018 is still achievable according to Rod Sutherland, Director of Human Services.  The deadline is a requirement of the housing funding under the Social Investment Fund. The full completion of the office space does not impact any of the grants so may be slightly delayed if necessary to focus on completion of the housing units according to staff.

Some saw the irony in the situtaiton the city finds itself in. “This is affordable housing on one hand and then 4.3 million over budget before you put the shovel in the ground,” said Councillor Yeo. “We’re talking affordable housing, this doesn’t make sense to me and honestly I cant support it.”

Staff have been able take advantage of new grants for the capital funding allocation under Home for Good, announced by the Ministry of Housing in September. It  provides $600,000 that is being allocated to this project. And there may be other grants avaialoble in the future as well.

“I am struggling a little bit with this one too,” Mayor Letham said. “It’s a lot of money, it’s way over budget, its a great project. I think the question we have to ask is if this project came forawrd last year at 12 million dollars with a 30 year debenture and the business plan made sense and it was a good project for our community, would we have looked at it and approved it?  It still makes sense it’s still a good project for our community”

Daynes says the debt is still within the city’s debt limit.

Council voted to approve the new, increased budget. Councillor Breadner put forward a secondary motion that the project had to stay within the new budget. That motion was approved as well.