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City of Lino Lakes, Minnesota Management's Discussion and Analysis December 31, 2009 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES • The unemployment rate for the City of Lino Lakes at year -end is 7.8 %, which is a significant increase from a rate of 6.9% a year ago. This is slightly higher than the state's average unemployment rate of 7.4% and significantly lower than the national average of 10.0% at the end of 2009. • Residential growth in the City has slowed significantly over the last two years due to the general residential real estate market downturn and current economic recession, with about one -third the number of new home permits issued in 2009 as in 2007, and less than 85% of new home permits issued in 2005. This is expected to level off in 2010, with hopes of the beginning of a recovery of the housing market in 2011 -12. This, as well as falling property values of the existing tax base, will have a significant impact on the City's tax base for 2011 and beyond. • Energy costs, while relatively stable in recent months, are expected to continue to increase over the coming months. This will have an impact on the City's budget for the coming year and thereafter. • Property tax reforms and State budget deficits have significantly impacted local government aid payments the City of Lino Lakes receives. Local government aid and market value homestead credit was reduced to zero for 2003, 2004, 2005, 2006, 2007 and 2008. While the City is exempted from local government aid, none of the allocated market value homestead credit was received in 2009 and none is expected to be received in 2010. • The Federal Reserve Board has decreased the federal funds rates significantly, currently to between 0.00% — 0.25 %, which is expected to result in sizable decreases in the City's investment earnings. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City of Lino Lakes' finances for all of those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Finance, City of Lino Lakes, 600 Town Center Parkway, Lino Lakes, Minnesota, 55014. 20