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ownership 26 years out. If the ownership equation was not included, the numbers would still show <br />~ lower numbers for contract rate over market rate. Don stated that they took a very conservative <br />position in their approach, using a straight line depreciation with a 60 year life and depreciating the <br />building by 43% of construction costs. Ownership of assets on about half of building and land <br />value at end of 26 years would amount to about a$15 million value. With a reduction in rent and <br />the ability to delivery a building at a rate lower than you would have to pay elsewhere and <br />ownership position in 26 years, are all factors that will drive down the cost of ownership. <br />Graphics in the study did not represent the straight line chart or visual concept that the team had <br />discussed earlier that would show the e~ent of additional operational dollars generated by contract <br />rental rates vs. e~rternal rental rates over the period of 25 yeazs. Out of the $1.30 contract rate, <br />about $1.00 will stay fixed and about 29 cents will be adjustable for operating expenses. Market <br />rents would take the inflationary figure against the total rent not just operational and maintenance, <br />making the slopes greatly different. The graphs provided confums our previous assumptions. The <br />graphs show over the long term, there will not be an operating loss because of this project. <br />7ohn Whittington asked Don Palmer on a scale of one to five, with five being the absolute best, <br />where would he subjectively place the project. Financially, yes do it and you have the added <br />operational savings as a major benefit. It makes sense to do it. He would rate it as "four". John <br />asked that Don be prepared to answer questions in those kinds of terms during his presentation to <br />SPOC to evaluate what the report states. Public and press will be included and we want them to <br />get and understand the real message of the report. <br />There was additional discussion regarding allocating costs and distinguishing between county and <br />transit portions. There was some confusion on staff's part on the handling of transit's portion. The <br />study did not distinguish between the two entities. Don is not a construction estimator and is only <br />working from numbers provided to him. The study takes a very conservative approach to the <br />analysis. <br />Mazk Wieprecht expressed concern on the perception of both public and the press of the simplistic <br />view of spending $23 million and then 26 yeazs down the road only ending up with a building worth <br />$15 million without the e~ra back up data that goes into these two numbers. The solution would <br />be to take the $23 million and depreciate that number and then bring back the $23 million as <br />replacement cost at the end of 25 years. This would also have costs drop down about another <br />million dollars. <br />Ra.ndy Franke rephrased the question of how much will this cost you to do this, to how much will <br />it save us to do this? The first chart on page 12 will answer that question. You could have a$4 <br />million savings starting from day one over the life of the 25 years. The chart Ken Roudybush <br />requested earlier will be included in the presentation. Don clarified that staff was now asking the <br />study to compute the annual differential along the way with this graph. Craig Lewis was concerned <br />about changing the bond interest rate from 6.34% to the 5.25% when the information SPOC has is <br />based on the November 1997 proforma as well as the information that was given to Don Palmer. <br />For consistency, it was decided that the 6.34% interest rate remain in the study. <br />~ <br />Page2of5 <br />