This is something that no one can say with any degree of authority because we have been given many numbers with large variances attached to them. In regards to the construction costs we have been given an estimate of $17.5 million plus or minus 50% to build a second Library. We have also been given operating cost estimates for a second Library between $800 Thousand and $3.1 Million per year.
Firstly; Lets examine the costs of building the Branch Library. These costs are derived from a business case that was first put forward in budget 2014 which is attached here. What really stands out here is that the construction costs are 17 million and the Library has pledged to contribute an additional $517,500 to the project for a rough total of $17.5 million to build a Branch Library. What this business case does not include is a cost for land. This was the basis for the $17.5 million included in the Borrowing Bylaw that was brought before council, however, it failed to detail the $517,500 to be donated by the Library itself towards the project or the fact that there was land to purchase which raises the cost by millions.
Secondly; Lets examine the operating costs. Council was provided with initial operating cost estimates of $800 Thousand per year. When this figure was challenged by council, it was increased to $1.3 million dollars per year. The city staff thought that this revised figure was still light and this $1.3 million dollar figure has since been increased to $1.7 million dollars per year (IR_601_-_Library_Operating_Cost) for operating costs. The current Library operates on a budget of $4.2 million as of 2016 and with a branch library there will be many additional costs not incurred by the current Library.
A library with its own stand alone building will have to pay for its own snow removal, liability insurance, janitorial costs, and building maintenance just to name a few of the additional costs that will be incurred by having a library in a stand-alone building. In addition, with a second library there will be costs related to necessary duplication of services. Book transfers between libraries, additional reception duties and duplicate equipment are just a few broad categories.
The only comprehensive estimate council has received concerning the costs of a second library come from the 2009 report in which the costs of a second library were reported to be $3.1 million annually. To date we have not received firm estimates for the costs of $1.7 million and as a result a strong case can be made that the costs of a branch library will be closer to the $3.1 million that was in the official 2009 report rather than the $1.7 million operating costs per year that were not formally substantiated.
Now let’s look at some financial numbers:
The current borrowing bylaw that council approved is for a 20 year term and the current Alberta Capital Finance Authority has rates of 3.051% for 20 years. If one were to amortize $21.9 million over 20 years at 3.051% the payments will be about $1,238,000 per year. If you then add $3.1 million dollars (operating costs for a branch library based on the 2009 report) to the $1,238,000 per year, your total will be $4,338,000 per year in Branch Library costs. This will equate to a property tax increase of about 4.42% per year.
If we use the lesser $1.7 million dollar figure for operating costs, then the costs of borrowing and operating costs will be about $2.94 million per year for a potential tax increase of 3% per year.
One could argue that the costs of building the Branch Library may be below $21.9 million (building and land costs) and I could calculate the figures for this scenario and of course the resulting tax increase would be less. However, since the cost estimate is plus or minus 50% and since the likelihood of a new city building costing less than the original estimate does not occur often I find this scenario very unlikely. Since the borrowing bylaw has already been reduced from its original $25 million to $21.9 million and in conjunction with the fact that the $17.5 figure does not include land costs the likelihood of the figure being below $21.9 million is remote. Councillor Heron has a motion on August 21st to spend money from capital reserves to purchase the land and to perform detailed design work on the branch library. It seems much more likely that more money will be spent than less as is often the case with municipal buildings. One only has to look at the cost increases that were associated with the 50+ building expansion as evidence of how more money is usually spent rather than less.