The City Hall South Annex is a modular office building that was installed in 1989 to provide additional office space at the City Hall Campus. It was four years old when purchased and never intended to be a permanent building. In July of this year following complaints of unusual levels of allergy symptoms by employees working in the South Annex, indoor air quality tests were taken. The test results showed that there are higher levels of some bacterium from mold and mildew that could increase reactions to allergies. While these levels are not toxigenic, the City has taken a cautious approach and has moved all 22 occupants from the South Annex to temporary locations, but these locations are less than ideal, and service levels are impacted. This report describes the costs and benefits of four options the City can take to provide office space to the employees now working from temporary sites. These are:

1. Repair and clean existing modular structure.
   
2. Replace existing modular structure with a similar structure of the same size.
   
3. Replace existing modular structure with two-story modular structure.
   
4. Lease space for the relocated employees.

Staff is recommending option #2- Replace the South Annex with a similar, modular structure and design interiors with modular furniture so space use can remain flexible. It is further recommended that Budget Modification No. 4 be approved to move the appropriate funds to the current fiscal year.

The South Annex is a 5,040 square foot office building that was installed in 1989 as temporary office space to house employees that would otherwise be located in City Hall (Please see Attachment A - South Annex Location Map). Purchased as a temporary solution to overcrowded conditions in City Hall, it was never intended to be a permanent structure. Although it has the appearance of one building, it actually consists of seven modular building sections, each with its own heating and cooling unit. Currently, 22 employees from the Public Works Department, the Department of Human Resources, the Department of Community Development and the City Manager’s Office occupy the South Annex.

In June of this year, in response to employee complaints of unusual levels of allergies that seemed worse while at work, the City contracted with "Benchmark", an environmental engineering and property inspection firm, to have air-sampling tests performed. The results of those tests indicated "slightly elevated levels of bacterium associated with mold and mildew growth." While none of the molds identified are known to be toxigenic, the report did acknowledge "the possibility of an individual suffering from or being sensitized to elevated levels of Basidiospores, Cladosporium, Penicillium, and Aspergillus."

"Benchmark’s" recommendations were to: (Report is on file with the City’s Risk and Insurance Division.)

• Obtain the services of a competent building specialist in order to assist with the correction of the dry-rot repairs and ventilation issues within the building, and possible roof related issues;
  
• Perform a round of specialized cleaning of affected wall cavities to prevent dispersal wherever mold growth is discovered;
  
• HEPA (High Efficiency Particulate Air Filter) vacuum, clean with sponges and brushes and treat with a microbiocide all affected areas- possibly sub-flooring, wall cavity studs and/or floor beams;
  
• Seal with a waterproof encapsulate the affected wall cavity studs, beams, base-plates and flooring;
  
• Replace affected carpet.

Alternate work sites have been provided on a temporary basis to employees normally assigned to the South Annex.

Legislative/ Management Sub-Element:

Provide appropriate facilities and equipment in order to ensure that City employees function in a safe, effective manner.

Maintain facilities and equipment in a clean, safe, cost-effective manner.

Budget for new equipment and replacement in the 20-year plan.

Repair and restore equipment and facilities in a timely manner.

When first confronted with the South Annex’s air quality issues, staff identified several important factors to consider in reviewing alternative courses of action. Those factors are:

• The South Annex was purchased as a temporary solution to overcrowded conditions in City Hall and was never intended to be a permanent structure;
  
• A modular building is a temporary structure that has a pre-determined life expectancy of 15 to 20 years when it is new.
  
• In 1994 a $1,400,000 capital improvement project (Project #814650- City Hall Improvements) was approved by City Council to replace the South Annex with a permanent 5,040 square foot building in Fiscal Year 2001/2002;
  
• The overcrowding which prompted the original development of the South Annex has grown more obvious and more serious each year. It is now apparent that a permanent "South Annex" of the same size, would not begin to resolve the City’s overall need for additional space;
  
• A Council-approved study is underway (Project #820580-Space Utilization Study for City Facilities) to determine the actual difference between the amount of space the City currently has and the amount it needs to provide Council-approved service levels. Staff plans to present the results of that study, including recommended short and long-term solutions with cost estimates, to Council in the spring of 2001;
  
• A number of capital projects designed to maintain the City’s existing buildings have been postponed to ensure that significant amounts of money are not spent on facilities that may be replaced or renovated in the near future.
  
• Regardless of how the City addresses its long-term space needs, there currently exists an immediate need to provide permanent office space for those workers recently relocated from the South Annex building. The temporary office space currently provided is less than ideal (e.g., windowless storage room converted to temporary office space) and in some cases affects the City’s ability to provide approved service levels (e.g., Community Center’s billiard room no longer available to the public);
  
• Prior to the surfacing of air quality issues, City staff had planned repairs to the South Annex due to termite damage and dry rot (at a cost of approximately $25,000);
  
• Other infrastructure repairs had been identified including the replacement of all seven of the original heating and cooling units which had reached their life expectancy.
  
• The open office areas in the South Annex are built-in partitions that do not allow office spaces to change without minor reconstruction. If modular furniture was used such reconstruction would not be necessary, thereby facilitating future reconfigurations due to staffing changes.

Staff has reviewed several options with regard to the future of the South Annex with the above factors in mind. To provide a fair comparison of long-term financial impacts to the City, staff has reviewed each option over a five to seven year time frame.

These options are:

1. Repair the existing building and include a thorough cleaning by a competent specialist to assure the structure is free of mold and mildew, replace carpets and ceiling tiles.

This option will require that the building be vacated for a minimum of 10 to 14 days to allow for the termite abatement (3-4 days), construction (5-7 days) and clean up procedures (2 to 3 days). The cost estimate for this portion of the work is approximately $171,000. This figure includes costs for work already identified, such as replacing the HVAC units that have reached their life expectancy. Under this option, an additional $45,000 of repair work in roof replacement and further dry rot/ termite repair work would be required over the next five to seven years to keep the building in operating condition, bringing the total estimated cost of Option 1 to $216,000.

Staff does not recommend this option. While it is the least costly option, and perhaps the least disruptive to existing operations, it is also the least cost-effective option. Upon completion of this project, the City would still have a fifteen-year-old structure, rapidly reaching the end of its life expectancy (15 to 20 years) and requiring an unknown amount of future repair and renovation.

2. Replace the existing building with a similar modular office structure that would last another fifteen to twenty years.

Staff has received preliminary cost estimates to replace the South Annex with a similar modular building. The replacement structure would have a life expectancy from fifteen to twenty years longer than the existing structure and another fifteen years could pass before major infrastructure renovation work would be required. In addition, by installing a similar modular building the City has the option to design the building’s interior to better accommodate the job requirements of employees assigned to work there.

Staff recommends this option. After reviewing cost estimates it is clear that the City’s needs could be met with a modular building that would have a similar design and cost approximately $365,000, including new carpeting and furnishings. Replacing the South Annex with a similar structure would still remain a "stop-gap" measure but it would provide sufficient time to complete the Citywide Space Study and develop the solutions to meet the City’s needs for space. The cost estimates for this option are shown in Attachment B- "Costs to Replace the South Annex."

3. Lease or purchase a two-story modular building to provide 10,080 square feet of office space.

Staff explored this option as a potential solution to the City’s current demand for office space. In other words, this option would attempt to satisfy more than just the needs of those employees currently assigned to the South Annex. In addition, it would serve to accommodate some of the overcrowding currently experienced elsewhere throughout the City’s buildings. Modular office buildings are available in a two-story configuration that would offer 10,080 square feet. The cost of this option is estimated at approximately $818,000.

Staff does not recommend this option. While the notion of capturing extra space to offset some of the City’s existing deficit is very appealing, staff cannot at this time, justify the additional expense. Staff does however, recognize the need for short-term solutions to the City’s space needs while long term solutions are being sought. As a result, the larger Space Optimization Study results presented to Council this spring will make recommendations regarding both.

4. Move the employees currently located in the South Annex to leased office space.

This option would entail abandoning the South Annex altogether, and would seek leased office space for the 22 employees that have been relocated. While this option could allow the most flexibility to add and subtract workspaces, the cost to lease 5,040 square feet of office space in Sunnyvale is the highest cost option. Based on an average cost of $3.00 per square foot per month to lease office space, it would cost over $181,000 per year plus the cost to move in and add computer work stations connected to the City’s network. This option would cost over $1,270,000 over a seven year period and given the current rental market and lack of supply, lease costs would be expected to increase even more. Staff does not recommend this option from a cost/benefit standpoint.

The required funds for Option 2, Refurbished Modular Structure, are available in Project #814650 - City Hall Improvements. However, the budgeted amount of $1,404,545 is programmed for FY 2001/2002. Budget Modification No. 4 would allocate $365,000 of this budget to FY 2000/2001 giving staff the needed resources to facilitate this project. This allocation would leave a balance of $1,039,545 in the project for FY 2001/2002.

Public contact was made through posting of the Council agenda on the City's official notice bulletin board, posting of the agenda and report on the City's web page, publication of the Council agenda in the San Jose Mercury News, and the availability of the report in the Library and the City Clerk's Office.

Staff recommends that Council support the conclusions as stated in the report and approve alternative #2 above and Budget Modification No. 4.

Prepared by:

Cathy E. Merrill
Superintendent of Building Services

Reviewed by: