Comprehensive Annual Financial Report 12/31/2010

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Factors Affecting Financial Condition (Continued) In 2006, the City placed a major focus on reconstruction of the 35W/Lake Drive interchange and completion of public improvements in the Legacy at Woods Edge mixed use development to accommodate planned development. Within Legacy at Woods Edge, the Lino Lakes Civic Complex and Chain of Lakes YMCA provide a civic and community focus as part of the vision for Town Center. A workforce family housing project and assisted living facility provide diversity in housing to underserved populations within the City. The deep recession has had negative impacts on the Legacy development. Both the master developer and lender — defaulted, sending the remaining 22 acres intended for townhomes and commercial uses into tax forfeit. However, the solid foundation that was built and strong interest by developers prior to the recession ensures that better economic times will once again bring the interest in residential and commercial growth needed to complete the vision. Building activity and development continued to be soft in 2010, reflecting the nationwide market. Building permits for new homes in 2010 numbered 31, compared to 28 in 2009. This represents about 1/3 of the new home permits issued in 2007 and is down by approximately 85% from 2005. In anticipation of a strengthening economy, the City took the lead on developing the infrastructure needed to service future growth on the 35E /County Road 14 interchange area. A major reconstruction of the interchange completes a multi -year improvement of County Road 14 from Highway 61 in Hugo, through Centerville, to 35W in Lino Lakes. The City portion of the cost for this bridge reconstruction project is being financed through Anoka County, with the City issuing a $4.26 million General Obligation Note to the County. The interchange will be completed in the summer of 2011. - With both major interstate interchanges complete, the City is preparing for development of several hundred acres in the northeast quadrant of 35E/14. Interest in the commercial interchange has spurred planning for an extension of Otter Lake Road North, which will leave the City well poised to accommodate significant future industrial, commercial and residential development. Long -term financial planning. The sagging economic conditions since 2008 continue to provide challenges in our long -term outlook. In 2004, the city entered into an agreement with a master developer to develop 40 acres in the southeast quadrant of I -35W and Lake Drive. This mixed -use development is intended to include diverse opportunities for housing, retail and office uses. To date, the development includes the Lino Lakes Civic Complex (which houses the city hall, police station and school district early childhood center), the Chain of Lakes YMCA, _ a 60 -unit workforce housing project, 13,000 square feet of leasable commercial space, and a former hotel, which is planned to be converted into an assisted living facility. Anoka County has plans to build a new regional library across the street from the development site, which is scheduled for 2012. However, the deep economic recession has stalled housing and commercial plans in the development and has forced the remaining 26 acres into foreclosure and tax forfeiture. The City continues to look for ways to resurrect the project and strives to be prepared to market the property when the economy recovers. WOW 5