Positioning a community bond issue for success.

In 1987, $105 billion in municipal bonds were issued to various public entities throughout the United States. Two years ago, that number jumped to an all-time high of $292 billion, more than double that of less than a decade ago.

In 1986, 9.6 million bonds were financed and seven years later, the number doubled to 18.1, according to James Lahay, first vice president of Public Finance at Stifel, Nicolaus and Co., a national investment banking firm headquartered in St. Laouis, Missouri.

As city governments struggle to maximize shrinking budgets and simultaneously meet the ever-expanding needs of the community, municipalities are stepping back, assessing the public's needs and seeking new ways to pay for those costs. According to Lahay, citizens are demanding more services for less tax dollars and many cities and towns are looking at the bond issue structure to meet those demands.

Historically, bond issues were designed to assist communities in keeping pace with their expansive and often expensive needs, such as establishing new recreation programs and facilities or upgrading grading existing ones.

Using bond issues to fill this increasing need is a tempting proposition, but before diving into building plans, new equipment, capital expenditures, and, most importantly, the voting booth, the first and most critical step is to establish a strategic planning framework. Correct and thorough development of a strategic approach can greatly increase your chances of success.

The strategic planning approach can generally be organized into seven basic fundamentals. While these components are organized and discussed in a particular sequence, it is important to understand that each is closely intertwined with the others and that all generally overlap.

The foundation of a successful bond issue campaign is laid well before the public opinion polls and renderings. It is vital to establish task forces and involve community members of various ages, cultures and backgrounds to participate in every phase of the campaign and the new product from concept to construction.

What Does the Public Want?

According to Dr. Rod Wright, president of Attitude Research Company in St. Louis, Missouri, once the core groups are energized it is important to begin assessing the mood of the community.

"The first task that should be addressed is to determine what the voters are thinking by conducting public opinion surveys and public input sessions within the community," says Wright. "These surveys can be done informally by a task force of interested citizens or in a structured manner through a professional consultant."

Typical opinion poll questions often include: How do you feel about a tax increase to support this project? Would you vote "yes" if...? What types of financing would you be willing to support for this project? Where should the facility be located? How should users pay for the services offered?

"Some communities get caught up in what we call the 'feel good' or 'Santa Claus' survey that says, Would you like to have a new recreation center?' Most likely, the response will be an overwhelming 'yes,' which doesn't do you any good," says Ken Ballard, Principal for Ballard(*)King and Associates, a recreation facility planning and operations consulting firm in Colorado. "You have to ask the right questions to get meaningful answers that are going to be workable."

"You need to know specifics. Would you support building a community recreation facility if it increased your taxes by this amount, or if the community used this form of financing? What if you had to pay daily admission fees or annual pass rates of this amount?"

Wright concurs. "Without the survey, you're kind of flying blind. It's hard to put together that plan or road map," he says.

Developing a Financing Approach and Plan

As soon as the results from the opinion polls are in, a financing plan must be established. At this stage, you should be able to answer the following questions: What type of bond structure should be used? In how many years can it be repaid? Are the bonds rateable? What is the lowest possible cost of borrowing the money?

"There might be two or three different ways to finance the program. We identify all of the options and the advantages and disadvantages of each one," says Lahay. "We then develop a preferred choice--a recommendation for proceeding. Not only the type of financing, but more particularly, what it involves, who it involves, a time line--the whole financing plan. Throughout the process, we seek input from the appropriate people."

Seeking an Optimum Facility Program Mix

Another key ingredient in determining and building public support is developing an optimum facility program mix. Any new service or facility should be tailored to the people who pay for it. Before discussing design plans and square footage, bond issue task forces and consultants should take note of what the community wants and needs in a recreational facility. At the same time, they should keep in mind what services other communities offer and the current user demands unique to the service area. If the neighboring complex has an ice rink, think about offering a pool. If the local YMCA has a gymnasium, think about constructing tennis courts.

When voters approved an $8.8 million bond issue to build the new 62,000-square foot recreational complex in Webster Groves, Missouri, Mike Oppermann, the director of Parks, Recreation and Community Development, as well as other participants, abandoned the idea of cardiovascular rooms and free weights because a local YMCA had recently upgraded similar facilities. But because the demand for ice time in the region is so high, they did include an ice rink--even though a nearby recreational complex also offered one. The completed facility features more than just sports, with meeting rooms, party rooms, a catering kitchen, concessions and staff offices.

A common mistake made by clients and consultants alike during this early time period is the urge to rush a completed building design and show the renderings to rally community support. This can be a deadly tactical error, because the campaign can be half lost before it begins. People may withdraw their support; form an early bias without complete information. Instead, use a fist of activities and a program mix to showcase the potential new facility rather than drawings.

Understanding the "Business" Aspects

A paradigm shift has occurred over the last few years in community-based facilities. Since most communities are on tight budgets, new recreation facilities and services are expected to do more than just serve the community. They must also make enough money to remain self-sufficient and operate at a profit, just as a traditional business would.

Because of this new concern, the public will be asking questions regarding the operations plan: When will the facility be able to generate revenues? How much money will it take to start up the facility? How much will it then cost to run the facility? What are the proposed fees for the users? Consultants and community task forces must be prepared to provide those answers.

Traditionally, many parks and recreation facilities have operated at a loss. The Webster Groves Complex has exceeded initial revenue projections because of a carefully planned and varied optimum program mix complemented by a center designed for maximum space efficiency. Sverdrup Facilities provided feasibility planning, as well as complete design and construction of the facility under a Total Program Management (TPM) approach.

"In the initial phases, Sverdrup, working with Ballard(*)King, projected a conservative $100,000 annual operating margin for the complex through a carefully designed program mix," says Oppermann. "But as different areas of the building opened, the revenues have more than exceeded profit expectations. Even the tennis complex and the gymnasium/ meeting rooms activity wing are currently breaking even." The tremendous excitement and the fact that we are operating in the black is a story in itself. We toured facilities around the country reviewing design and operations, and what we were hearing was if we could pay 80% of the expenses through revenue, we would be doing extremely well. Now open only six months, we are operating at 125% above expenses. We've got a facility that's providing the service, is operating in the black, and the community loves it. I don't know how you beat those three."

Building a Project Cost Model

It is crucial to have an early and definitive understanding of all potential project costs. The project cost model should be the budget "blueprint" and reference point for the project as it moves forward.

A common tactical error is evaluating only the construction costs rather than the entire cost of the project. This can cause significant embarrassment later in the project and even jeopardize the project itself. In addition to the typical construction costs, which include construction labor and materials, furniture and equipment budgets must be established, down to and including maintenance items like vacuum cleaners and trash receptacles. Signage and artwork should also be considered at this early stage.

Other expenditures, known as 'soft costs" like architectural and engineering design fees, specialty consultant fees, permits, environmental remediation, surveys, and start up costs must also be built into the budget model.

Creating A Design and Construction Plan

Equally important, and integral in construction cost modeling, is an action plan that addresses the actual construction project delivery methodology and schedule requirements.

Historically, the design and construction process has taken the conventional design/bid/build approach. This approach places the burden of management and risk solely on the owner, requiring a great deal of leadership and a significant time commitment from the client.

However, the pressure to get facilities up and running, while working around various existing operations is becoming an ever-increasing challenge. Communities expect to see immediate progress. One method to get up and running quickly is fast tracking, where the project is rapidly moved forward by advancing design and construction activities in delivery packages. This approach is frequently used in design/construction management and single source delivery systems.

The design/construction management approach allows the owner to select a design firm and a construction management firm to work in tandem early in the process. This assures better compliance with budget, schedule and constructability. While this alternative eases the interaction between design and construction objectives at an earlier stage, it still requires leadership and guidance.

Relatively new and innovative to the industry at large are single source delivery methods such as total program management or design/build. These approaches offer a cohesive blend of design and construction with leadership and responsibility from one consulting source. These advanced delivery methods can significantly decrease the amount of staff time and commitment required and eliminate the finger pointing that is so often present when mistakes or oversights do occur.

In addition, the financial risk of developing and implementing a facility is also a growing concern for many clients. Single source delivery allows for risk shifting. This technique puts the burden of cost overruns, schedule compliance and quality control squarely on the back of a single delivery entity. The result is a guarantee of the cost, schedule and quality. This becomes very important in communities where there has been a history of cost overruns, project schedule failures, and a lack of credibility among the voters. In these cases, total program management can often become a critical selling point in many communities.

While up to this point, efforts have been focused on developing the right product for the community, energies must now be shifted to concentrate on selling the product to the voters.

Creating the Sell Campaign and Getting the Vote

You and 10,000 residents may think that a recreational complex or other community facility project is a great idea, but there may be 20,000 other citizens who aren't yet sold. Since most bond issues require a vote, creating a targeted, thorough campaign is critical--and begins as soon as the idea is established.

"Years ago, if a school board voted to put something on the ballot, and if the leadership in the community was behind it, things passed fairly easily. But, over the last 10 years, with almost militant anti-tax sentiment in many communities, it has become increasingly difficult to pass these things," says Wright. "School districts that used to experience a lot of success are now having trouble getting anything passed. It has become increasingly important to get professional help in winning campaigns because there are proven methods that work."

Ballard stresses emphasizing a sense of ownership within the community. "These projects cannot be seen as the city's projects or as the municipality's project. They have to be seen as the community's project. They have to have ownership in it," Ballard says.

Throughout the campaign, communication is the key. The message must be repetitive, persuasive and emotional while addressing a need or stressing benefit. "The people of Webster Groves, for example, were very good at networking in the community," Wright says. "They started with some obvious constituent groups, sports leagues, swimming teams and people that had a direct vested interest in that facility, but then you layer out from that. Before long, you get a lot of people involved."

In summary, the key to a successful bond issue in your community is a well-designed and comprehensive strategic planning framework that includes three key elements: sufficient planning time; the integration of all planning aspects--feasibility, funding, design and construction; and community involvement and commitment.

The real measure of the bond issue's success--and the facility's success--is its benefit to the residents. "The people in the community are just overwhelmed with the complex," Oppermann says. "My little girl, she threw her arms up the other day and said, 'daddy, I love this place.' That's all I needed. It's a success."