Rising construction costs spell trouble for school projects
The optics of Portland Public Schools being so overbudget on its 2017 bond projects are not good.
Mix in school pride with politics, and rumors that someone put their thumb on the scale have been flying through the community since even before the April announcement that the $790 million bond program was $100 million overbudget.
So are taxpayers getting a bait-and-switch?
Those close to the bond program say no: The school construction market is just so hot that contractors can basically name their own price.
The 2017 bond request was for $790 million to renovate or rebuild Madison, Lincoln and Benson Polytechnic high schools plus Kellogg Middle School. It also included "at least" $150 million for "health and safety" improvements at many other schools — a popular feature in the wake of the 2016 lead-in-water scandal.
Read the first part of this series: Portland's $100 million question — why are its new schools so expensive?
Bond Accountability Committee chair Kevin Spellman said the fact that those projects are over budget at this stage is not surprising in the construction world.
"It is to be expected, and it's not even particularly unusual, for the design to exceed budget," said Spellman, a retired contractor. "What is different in this current environment is the extraordinary pressures on cost because of the lack of availability of contractors."
But, Spellman said, that's no excuse.
"They seem to want to build, whatever it costs," he said.
Waiting is expensive
The master plan presented July 17 to the school board for the rebuild of a new seven-story Lincoln High School was estimated at $245 million — $58 million more than originally thought. The construction price per square foot is up to $664 — about double the $285 to $350 price per square foot averages for high school construction in Portland, according to a national estimator publication.
The board has yet to approve that master plan as it looks for cost savings.
But, due to construction schedule pressures, any more delays can be expensive. According to Office of School Modernization senior director Dan Jung, Bora Architects is already working on drawing up schematics — a process that is supposed to come after the master plan is approved.
If the board doesn't approve Lincoln's master plan soon, project work could grind to a halt.
Indeed, much is still uncertain in the 2017 bond process. With projects scheduled out to 2024, a number of variables could change costs.
Part of that uncertainty was already figured into the bond request to voters, though. There was a total of $75 million figured for contingency and another $75 million for cost increases. But the cost increases — called escalation — were predicted too low, at 4 percent. Portland's numbers are actually coming in above 6 percent.
Each year, costs will get more expensive.
Graham Roy, executive vice president of Rider Levett Bucknall, an international construction-cost-estimating company, said everybody seems to be upgrading their schools at the same time — from Hawaii up through Canada.
"There's been a good amount of successful bonds passed," Roy said. "We're working with several districts locally that are currently going through bond plans."
The firm Roy works for is providing cost estimates to PPS, Beaverton, North Clackamas, Albany, Camas and Lake Oswego school districts.
"Construction is much more expensive. We're seeing a very big increase in escalation each year," Roy said. "Construction generally is busy."
Ken Fisher, a management consultant on the 2012 PPS bond and now vice president at CBRE Heery, agreed.
"The amount of work that's out there right now is playing a big part on the marketplace," Fisher said. "The majority of the subcontractors are fully employed. So, when you get to that sort of situation, they can participate or not participate, depending on what they're getting paid."
For example, this year, Northeast Portland's Rigler Elementary School was supposed to get work done. But the district couldn't get a single contractor to bid on the summer project.
"We didn't get any bids because of the construction climate," said Office of School Modernization spokesman David Mayne. "It's really hard out there right now. The bids are coming in tons higher."
Borrow the money?
The result seems to be that Benson — a trades school specializing in teaching students to use dental, engineering and other expensive equipment — will get partially kicked off the list.
Rob Johns, a Benson alumnus and president of its foundation, filed a formal complaint with the state elections division in May over what he considers the intentional misdirection to voters. It was dismissed for lack of jurisdiction, but Johns remains frustrated to the point of legal action that the board's current plan for dealing with the overruns is to break up Benson's remodel into two phases.
"The school that's third gets the shaft in this case," Johns said. "It should be recognized that this is a problem to all of the high schools involved (and the district should) borrow the money to make up whatever the difference is."
If the board continues with its current direction of a phased project at Benson, voters would have to approve a third bond package to finish the magnet technical high school — a risky move if public sentiment swings against the district.
The person Johns considers ultimately responsible for the budgeting mistake — school board member Amy Kohnstamm — says she has nothing to gain by putting out the wrong message to voters.
"My interest as a parent is helping the district pass a series of bonds so that we can fix all of our schools," said Kohnstamm, a Lincoln High School supporter and a leader in the 2017 bond campaign. "And the way we do that is to deliver the bond on time and on budget."
Stuart Emmons, an architect and member of the 2017 Bond Stakeholder Advisory Committee, said he sees a certain irony that the school getting bumped off the bond is the one that feeds new skilled workers to the in-demand construction industry.
"It's critical that Benson gets rebuilt the way it was anticipated," Emmons said.
School construction costs are tricky to pin down.
Beaverton School District's new $186 million Mountainview High School came in a whopping $75 million overbudget. The $680 million 2014 bond projects in that district are costing more like $760 million.
Milwaukie High School is currently being demolished. The North Clackamas School District didn't publish a cost estimate for it before voters passed the bond. The first published budget, in March 2017, was for $77.3 million for the 130,000 square-foot school. According to district spokesman Jonathan Hutchison, the hard construction costs on the project are $329 per square foot.
Portland school board members Julia Brim-Edwards and Amy Kohnstamm say they hope the district's new chief operating officer can help with lessons learned. Claire Hertz, who recently started in that post, was Beaverton's CFO during the Mountainview High School building process — the one that was $75 million over budget.