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Oil uncertainty looms over $10.7 million expansion

Posted 9/08/15 (Tue)

Oil uncertainty looms over $10.7 million expansion

By Jody Michael
Divide County commissioners said they will likely move forward with courthouse addition and renovation plans despite a cost estimate that is higher than they wanted.
Representatives from Klein-McCarthy Architects of Bismarck and Construction Engineers of Mandan met with the commissioners Wednesday last week to present their estimate and seek instruction on how to proceed.
The cost estimate lists a construction value of $8.3 million, with soft costs such as fees, contingency rates and furnishings putting a possible grand total as high as $10.7 million.
At a prior meeting in May, commissioners had said their budget was $6.5 million for construction, with a grand total of $7.5 million.
“This is all substantially more than we thought of originally,” Commission Chairman Doug Graupe said.
Commissioners spent most of the roughly hour-long discussion pondering how much the county can afford in the midst of the recent decline and uncertainty related to oil production.
Graupe said he has no interest in asking tax payers for the money.
“We don’t want to do a bond issue, because that would add taxes,” Graupe said. “If we had to float a bond issue, we’d say we’re not going to build.”
Perhaps rescuing the project from hopelessness, Graupe said, is a Bank of North Dakota program offering the county a 10-year loan at 1.75 percent interest. However, commissioners said they want to be certain the county can afford the payments.
Not scaling back
Commissioners are reluctant to pare down the project, because the original planning process included consulting each county office on what they need.
“We’re confident you came up with the size we need,” Graupe told Anthony Enright, the project manager with Klein-McCarthy.
Enright said part of the appeal of the plans, which would roughly double the size of the courthouse, is that county departments that have outgrown their space and moved elsewhere can return, putting all the offices under one roof.
“To get the $8.3 million down, we’d have to take things out of the building,” Enright said. “You’d have to make a decision on what departments to remove.”
Dan Walter, senior estimator for Construction Engineers, said the high cost is also due to the county’s desire for a long-lasting structure -- another 100-year building, much as the current courthouse has been around for 98 years.
“We can always look at cheaper finishes, stuff like that,” Walter said. “It’s the same square footage, but it won’t last as long.”
Commissioner Gerald Brady objected to the idea of cutting costs that way.
“Our goal is a hundred-year building,” he said. “The question is, how big?”
Enright suggested commissioners could reduce the 5 percent rate for design contingencies (about $418,000), as well as the $50,000 owner contingency, which the estimators include in case of cost overruns or if the county chooses to make any late changes.
The commissioners also noted that Walter overestimated a few of the soft costs, such as $15,000 for building permits and $500,000 for furnishings.
But all acknowledged these savings will amount to little more than a drop in the $10.7 million bucket.
The oil question
A crucial component of funding for the courthouse expansion is the county’s share of state tax revenues from oil and gas production -- if those revenues remain healthy enough to take on such a project.
“What can we afford in the future for payments?” Graupe asked.
Graupe said he hears increasing speculation that more wells will come online this winter as a result of changes to the funding formula for oil tax revenues.
A reduction in the state extraction tax takes effect Jan. 1 to incentivize drilling, and it does not alter the rate of the gross production tax that filters to the counties. In fact, the county‘s share of state production tax revenues has increased, from 25 percent to 30 percent, as of July 1.
This means the smaller extraction tax could spur both an increase in oil activity locally and a higher rate of revenue for the county.
But the commissioners said this doesn’t entirely ease their hesitance.
“It’s not, ‘Are they going to drill?’ -- it’s, ‘Are they going to continue to drill in Divide County?’” Brady said. “All but one company have pulled out.”
Next steps
The commissioners told Enright to continue with the final phases of design and development, keeping the project on pace to bid out in January.
“We’re not building yet; we’re putting more detail into it,” Enright said. “The next phase is not committing you to build anything.”
The commissioners held off on further action, citing a meeting Thursday with oil and gas officials that might give a better idea of next year’s oil forecast.
Still, Graupe said he is leaning toward giving the full project the green light.
“We’ll have to go forward with faith that we can afford it,” Graupe said. “I’m confident we can do it.”