The Wauwatosa Budget and Finance Committee on Tuesday night unanimously approved spending $5.2 million more than was planned for the Meinecke Avenue sewer Project.
But despite the all-are-in-favor vote from the seven-member panel of aldermen, it was not exactly a rubber stamp or a hearty endorsement.
Ultimately, the uneasy feeling was that just had to go forward as designed and as bid, with no cutbacks or further holdups.
But aldermen wanted to know two things:
- Why, after all the lengthy planning that has gone into this project, is it suddenly costing a full 50 percent more than anticipated? And,
- Where, in these already difficult times, did Wauwatosa so easily find the "pot of money" to pay that extra 50 percent – more than $5 million – without any additional taxation (which it can't) or borrowing (which it won't)?
Fair questions, since $5 million is not chump change to a city the size of Wauwatosa, amounting to about 10 percent of the entire annual budget.
The answers to the two questions are arcane and complicated, interrelated and yet separated, worthy of incredulity yet wholly understandable if you take the answers on trust – which not everybody did, or will.
In short, , the largest public works program in Tosa's living memory, has turned out to be a huge hot mess – and one quite easily fixed.
That does call for some explanation.
Estimates, budgets, keep leapfrogging
In the matter of cost overruns, there are two important figures to keep in mind: $10.3 million, and $12.5 million.
The first, $10.3 million, is what had been budgeted for a project now expected to cost more than $5 million above that.
The second, $12.5 million, is what had been estimated as the project cost by the city engineer as of the letting of bids – which then came in at a low of $14.5 million, with total project costs pegged at $15.2 million.
Both are low, but one is far lower than the other. So, why was the city engineer's final estimate more than $2 million higher than what had been allocated, and why was it still $2-plus million less than the final cost?
According to City Engineer Bill Wehrley, his estimate of $12.5 million was based, as it had to be, on a combination of the experience of recent past project costs and consultants' predictions.
"I don't want to put it all on our consultants," Wehrley said, "but I thought they looked low" compared to his staff's own expectations.
Wehrley's figure also was current, the best estimate at the time bids were let in April, whereas the approved project funding figure was a year and a half old.
Wehrley did not claim that his own figures were on the money, but said they would have been closer to the accepted bid.
Why were they low at all?
Wehrley said that his cost comparisons from recent projects – there have been several smaller but significant sewer rebuilds since Meineke was conceived – came during epic bad economic times.
Contractors since 2008 have been willing to lowball bids just to get work, he said.
In order to keep key personnel employed and expensive machinery working while private projects were at a near halt, construction firms were eager to cut margins on public works projects.
Now, apparently, signs of a slowly recovering economy have put them in a mood to make money again.
Allocated funds lag as years, floods mount up
So, why is the bid cost 50 percent above the budgeted cost, as opposed to the estimated cost, and why are the budgeted and estimated costs so far apart?
As mentioned, Wehrley's estimated cost is fresh, based on the final design and most recent cost comparisons.
Bill Porter, who became Public Works director only a little over a year ago and had to learn the history of Meinecke, said that the budgeted costs of the project had been a moving and growing target for four years.
Meineke, Porter said, began humbly in 2008 as a street repaving plan. There was no thought then of rebuilding entire storm and sanitary sewer systems, along with water mains, street lights and everything else.
Money for repaving was being allocated in the capital budget, Porter said – and then the rains came, hundreds of basements flooded, and engineers looked again at the area and wondered if sewer work was needed, too. (It would make no sense to renew pavement only to turn around and break it up if sewers needed excavating.)
In 2009, the rains came again, another rip-roaring June flood that filled the same basements again, and more.
In response, the Meinecke Project started to take on a much larger shape, and more money was allocated. But as in 2008, the money set aside in the capital budget was not spent. Mother Nature was not done.
In 2010, before the expanded 2009 plan could be implemented, July let loose. The first flood was worse than the previous two. The next was worse than anyone had ever experienced or imagined.
On July 22, 2010, . (In some parts of north Milwaukee and the North Shore suburbs, there were reliable reports of 3 inches of rain in a half hour.)
Going back to the back-to-back floods of 1997 and '98, it was the sixth time homes in neighborhoods throughout Wauwatosa were severely inundated.
So, once again the Meinecke Project was expanded, this time, Porter said, into "a comprehensive infrastructure plan," basically rebuilding everything from the bottom up.
The project was ramped up, with new funds allocated on top of funds already budgeted but not spent.
The plan approved in late 2010 was so big that no work would be contemplated in 2011. It would take that full year just to design the thing. So again, money allocated was not spent.
Now, in 2012, the cobbled-together 2008 through 2010 budgets, totalling $10.3 million for Meinecke, proves to be around 33 percent, $5.2 million, under the actual current costs.
The real-time design is complete. Market forces have changed. The foreseen funds are inadequate.
Call in the reserves
So how do we pay for it?
Excepting some few hundreds of thousands of dollars here and there to be moved backward or forward, the lion's share will be paid in cash – from cash reserves.
John Ruggini, director of finance, like Porter just over a year in the job and hired from the outside, looked at the reserve funds of the storm and sanitary sewer utilities and felt that they were unnecessarily – even irresponsibly – bloated.
Nobody doesn't like having healthy reserves, but these two, at $6.4 million for storm sewers and $2.2 million for sanitary sewers, seemed overly healthy to Ruggini.
After all, that's taxpayer money sitting in a low-interest environment (a next to no-interest environment in this economy) doing nothing.
Ruggini said that those surplus funds needed to be spent down even if Meinecke didn't demand it – and the other options, raising taxes or borrowing through bonding, were impossible or unthinkable, respectively.
Ruggini had won applause in his first year for revamping the capital budget from a one-year to a five-year plan. Budgeting capital projects a year at a time was asking for trouble, he felt, because of just the sort of volatility being demonstrated.
Expect the unexpected, as you should – whether it's weather or some other emergency or a project coming in over budget – and you will find yourself short of funds mid-year and begging for new cash, if you budget year-to-year.
On a five-year plan, you have flexibility. You can move a project forward or backward based on real issues. As long as the bottom line comes out the same at the end of five years, you haven't lost – or necessarily won – anything by advancing or postponing projects, or by dealing with emergencies.
There's an end to that rainbow
Ald. Pete Donegan was uncharacteristically perplexed. A former business executive, and former chair of Budget and Finance, Donegan seldom admits to failing to understand a financial matter.
"I trust this," Donegan said to Ruggini, "but I don't understand it.
"I don't know where this pot of money is that we keep going to."
Donegan referred not only to Meinecke but to Covenant, the $8.5 million lawsuit loss last year that was paid out of reserve funds and the promise of future funds from the retirement of the Research Park TIF.
"We keep going to our reserves, which we have so carefully built up over many years," Donegan said. "There has to come a day, and I fear that day is coming."