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• • City of Lino Lakes, Minnesota January 29, 2008 Page 3 If the City were to decide to eliminate the geographic boundary exception and instead differentiate by type of improvement, extra interest costs related to taxable bonds could be avoided. New development could be assessed at one threshold and redevelopment assessed at another, but all geographic areas could be treated equally in terms of criteria, process and cost allocation methods in order to avoid special treatment and higher interest costs. Marketability of Bonds While the City's high credit rating provides a great deal of comfort in the market place, the complications noted in Mr. Bubul's letter related to the Proposed Charter increase the likelihood of a legal challenge by citizens or a specific group. Such challenges may require removing the bond sale from the market before or during the sale or for their issuance to be challenged after the sale. It is important for the underwriting and financial community to be comfortable that any City of Lino Lakes debt instruments they purchase as investments are transferable and remain marketable without any concern of a challenge or added conditions placed on them. If the City has to cancel a sale at the last minute or after the purchase but before closing, the bond community may be less likely to bid aggressively on bonds in the future, lessening competition and possibly affecting interest rates. Challenges after the fact will tarnish the City's name in the market place and the workout could be expensive. Investors may seek to recover any losses incurred after the sale due to a cancellation. We encourage consideration of the streamlined and the well- tested processes already in state law in order to minimize or avoid any legal or market exposure. Administrative Efficiency and Flexibility A charter is difficult to change or modify. There are many administrative details in the Proposed Charter that are already in state law or they are only slight variations of what is already state law. In cases where the intention is to follow state law, or to follow it closely, removing it from the proposed charter will make it easier to adopt state law changes. For administrative and procedural items, using an ordinance rather than a charter as the enforcing document provides flexibility to allow changes in a timely manner. Moody's looks for flexibility when rating bonds. The City's ability to adapt quickly, the amount of reserves or available options to address changes as well as local control by the City Council for efficiency purposes are all important factors that make the City stronger in the rating agencies eyes. State laws have been governing road and street improvements effectively for decades. The more restrictive language in the Proposed Charter restricts flexibility and efficiency. Closing From a financial standpoint, the City is more likely to efficiently maintain street and road assets by simplifying the project approval process to the greatest extent possible while following the state bonding and assessment laws. Deviations may result in challenges of legality and taxability, increase administrative effort and may dilute the City's credit rating strengths. Please let me know if you have any questions or wish to discuss further. Sincerely, C124)1,f Terri Heaton, Senior Vice President Client Representative