FEMA Denies Cedar Rapids Sinclair Demolition Disposal Funds

CEDAR RAPIDS, Iowa - The Federal Emergency Management Agency will not reimburse the city of Cedar Rapids an estimated $6.5 million for part of the cost to remove and dispose of material from the former flood-damaged Sinclair meatpacking plant south of downtown.

FEMA's decision comes with a fault-finding explanation.

The agency concluded that it could not determine the reasonableness of the cost reimbursement sought by the city because the city made an "intentionally inaccurate representation" of the scope of the demolition work when it sought bids for the project, according to FEMA's written ruling to the state of Iowa and the city.

The agency's analysis suggests that the city lessened its estimate of the project's scope from 100,000 tons to 65,000 tons of demolition debris, which "may have influenced" the number of firms that would compete for the work. In the end, the project doubled in size without new, competitive bids as the project grew, the FEMA analysis states.

The latest denial comes from the federal agency's headquarters in Washington, D.C., and it is a denial of the city's second appeal on the Sinclair cost reimbursement issue. FEMA's regional office denied a first appeal nearly two years ago.

City Manager Jeff Pomeranz, and Joe O'Hern, the city's executive administrator for development services, on Monday called FEMA's new decision a final one.

"There's nowhere else to go," Pomeranz said.

O'Hern said the city also continues to contest a different FEMA decision tied to the Sinclair plant that would deny the city another $3.5 million in reimbursement for damage at the Sinclair plant because of a private insurance award the city received from a fire that hit the plant after it was flooded. The city is still involved in its first appeal of the matter related to fire insurance, O'Hern said.

Both Pomeranz and O'Hern said they were "disappointed" with the new FEMA ruling.

Neither was with the city at the time that the Sinclair work was bid, but Pomeranz said he had confidence that the city acted in an "upfront, forthright manner."

"At this point, while we don't agree with the FEMA decision, we respect FEMA's role and responsibility, and it's time to move on," he said.

Pomeranz said it was too early to know where they city would find the money to cover the $6.5 million it has spent from city reserve funds and had expected to have reimbursed by FEMA.

Remaining revenue from the local-option sales tax for flood recovery, general fund dollars, utility reserve funds or borrowing may help cover the costs, the city manager said.

"This is over $6 million, and this is a very significant amount of money for the city and for our taxpayers that will have to be covered," Pomeranz said.

At the heart of the FEMA decision on the Sinclair plant is the bid process that the city used in January 2010, which required companies submitting bids for the demolition work to take the Sinclair debris 1.5 miles across the Cedar River to the Cedar Rapids/Linn County Solid Waste Agency's Site 1 landfill — known locally as Mount Trashmore.

However, one out-of-state bidder did not follow the bid requirements and submitted a bid significantly lower than others based on his plan to transport the debris to a much lower-priced landfill at Milan, Ill.

The city deemed the bid unresponsive, tossed out the first round of bids, sought new bids and awarded the demolition project to local company D.W. Zinser Co. of Walford. Zinser bid $117 a ton for removal and disposal of the demolition debris, compared to the $65-a-ton bid from the out-of-state firm with the plan to take the material to an out-of-state landfill.

The landfills were required to treat the debris as asbestos-containing material, which prompted the Cedar Rapids/Linn County Solid Waste Agency board — on which the Cedar Rapids City Council controls the majority of the seats — to first say it would charge $120 a ton to bury the material at Site 1. It later lowered the price to $90 a ton after the agency board's analysis of costs, but with the understanding that the winning bidder would have no choice but to bring the material to the agency's Site 1 landfill.

In FEMA's analysis sent to the state of Iowa and to the city of Cedar Rapids by Deborah Ingram, assistant administrator, Recovery Directorate, FEMA headquarters, the agency stated that the city's decision to require that the Sinclair debris go to the local landfill did not violate a FEMA rule against using a "geographic preference" in a contract. In so concluding, FEMA headquarters rejected FEMA's earlier conclusion, which found the city imposed a sole source purchasing preference and drove up costs by requiring the use of the Cedar Rapids landfill.

However, FEMA headquarters stated that the city reduced the debris estimate from 100,000 tons to 65,000 tons as it sought a second round of bids, which may have limited competition for the work and so prevented FEMA from determine what the true reasonable cost of the work was. Thus, FEMA settled on $65 a ton from the lowest bidder as the reasonable cost.

Ingram said FEMA would reimburse the city $1.3 million of its overall request, which is the actual cost of the Sinclair demolition unrelated to the removal and disposal costs.

In the final denial letter to the state of Iowa and to the city of Cedar Rapids from Deborah Ingram, assistant administrator, Recovery Directorate, FEMA headquarters, the agency stated that the city's decision to require that the Sinclair debris go to the local landfill did not violate a FEMA rule against using a "geographic preference" in a contract. In so concluding, FEMA headquarters rejected FEMA's first denial, which had concluded that the city imposed a sole source purchasing preference and drove up costs by requiring the use of the Cedar Rapids landfill.

However, FEMA headquarters stated that the city reduced the debris estimate from 100,000 tons to 65,000 tons as it sought a second round of bids, which may have limited competition for the work and so prevented FEMA from determine what the true reasonable cost of the work was. Thus, FEMA settled on $65 a ton from the lowest bidder as the reasonable cost.

Ingram said FEMA would reimburse the city $1.3 million of its overall request, which is the actual cost of the Sinclair demolition unrelated to the removal and disposal costs.

In total, the city's O'Hern estimated that the city has received about $5 million from FEMA for the Sinclair project.

Though not at City Hall at the time, Pomeranz said the city and the Solid Waste Agency board felt bound by state of Iowa rules that he said call for the city and the agency to place material in a local landfill and not to ship it out of state.

Joe Horaney, spokesman for the Solid Waste Agency, on Monday estimated that 124,000 tons of debris from the Sinclair site ended up in the Site 1 landfill.

At the time of the 2008 flood, the city was the owner of the former Sinclair plant, which the city purchased for $4 million at the start of 2007 in the first phase of a brownfield cleanup project. A $2-million grant from the Hall-Perrine Foundation covered half of the purchase price.

The city continued to rent out some space in the mostly abandoned plant when the flood of June 2008 hit. By the summer of 2009, fire also damaged the plant, prompting FEMA to conclude that the plant was a public safety risk and should be demolished with FEMA covering most of the costs.

For a time in 2010, temporary FEMA staff members in Iowa gave the city the impression it might receive some $19 million for use on an alternative project because the city wouldn't be able to use the flood-hit Sinclair plant again. Little of that money ended up coming to the city after FEMA's higher-ups reached different conclusions.
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