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City of Lino Lakes, Minnesota January 29, 2008 Page 2 These options are the primary tools to carry out pavement management plans which facilitate street and road maintenance on a timely basis. Engineers develop optimization plans which identify the most cost effective time to seal coat, overlay and replace roads and streets. The cost savings resulting from extending the life of each road and street provide millions of dollars of savings. Such a plan was completed for the City of Lino Lakes calculating potential savings of an estimated $18 million, if the plan was followed. By employing more restrictive standards than in state law for approving such bonds, the likelihood of delaying the improvements increases. As part of the credit review, Moody's uses depreciation of the existing roads to determine whether a community is deferring maintenance or keeping up with needs by improving infrastructure at a pace equal to or near depreciation. If the Proposed Charter is subject to interpretation and may be challenged, it may cause deferment of street and road maintenance. This may place Lino Lakes at a competitive credit rating disadvantage when comparing to other communities that are more aggressive in maintaining infrastructure. Lino Lakes may also be at a competitive disadvantage in appearance when potential homeowners and businesses are making location choices. This may have an impact on tax base overall, which is another important credit factor. Reverse Referendum Section 8.08 When a proposal is to be funded, in part by general revenue, the Proposed Charter proposes that the taxpayers may petition for a referendum on the public improvements. While this is less restrictive than the existing Charter, this provision could allow taxpayers who do not directly benefit from the improvement to stop improvements if the project uses general revenue. Mr. Bubul points out that the term general revenue is not defined. This opens the door for challenges or interpretation. Street and road replacement plans (pavement management plans) provide for fairness in road conditions, by setting the city-wide timetable to keep all roads in the same state of repair. Reverse referendums may prevent those streets most in need of repair from being repaired due to the ability to reverse the decision to follow the plan. Taxpayers, who do not benefit from the project, may choose to vote it down leaving those who could benefit without the opportunity to have their road improved to the level that is in place for other neighborhoods or business districts. Fairness in the level of service or quality of streets for all neighborhoods or projects could be achieved by following a plan and defining the level of road quality, assessment level and general tax support throughout the city by improvement type. The City of Lino Lakes has millions of dollars invested in roads and streets that could be maintained with timely projects, or they could deteriorate over time to a point where costly replacement is necessary. We encourage the City to consider all roads and streets as one asset that requires planned maintenance rather than as several small projects. Deferral and degradation of infrastructure is costly and, if prolonged, it will become a negative factor in the City's credit rating review. Taxability of Bonds for Special Exceptions Section 8.10. This section is similar to the provision in the existing Charter that carves out special areas of the City where different rules apply. Providing special rules for a specific area of the City that have the ability to opt out or who are not subject to the bonding criteria other areas of the City are required to adhere to, may result in the bonds issued to finance their improvements being taxable. The difference in interest rates between taxable and tax - exempt bonds is somewhere between 0.75% and 1.50% depending on the market conditions at the time of sale, structure, term and amount. Assuming a $2,000,000 bond with a 15 -year term, the extra 0.75% to 1.50% for taxable bonds would cost from $120,000 to $240,000 over the life of the bonds. This extra expense is recovered from assessments and debt service levies from property owners. • • •