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GENERAL PARTNERSHIP <br /> SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PROJECTION ASSUMPTIONS <br /> FOR THE PERIOD COMMENCING JANUARY 1, 1998 <br /> AND ENDING DECEMBER 31 , 2012 <br /> SUMMARY OF SIGNIFICANT PROJECTION ASSUMPTIONS - Continued • <br /> Combined Property Taxes <br /> Property taxes are estimated, based on hard construction costs and <br /> increase at 4% per annum. Property taxes in Minnesota are based upon <br /> the following factors : <br /> Assessed Market Value x Effective Local Tax Rate <br /> The assessed market value is determined by capitalizing the net <br /> operating income before property taxes, less a reserve for replace- <br /> ment . The capitalization rate includes a provision for a return of <br /> approximately 10 . 5% plus the normal tax classification rate of 3 .4% <br /> times the tax extension rate, which for the City of Mounds View has <br /> approximated 138% . <br /> The effective local tax rate is determined by multiplying the tax <br /> classification rate by the local adjustment factor or tax extension <br /> rate. The local adjustment factor or tax extension rate is computed <br /> annually by each municipality. Recently, in the City of Mounds View, <br /> this rate has approximated 138% . <br /> Replacement Reserve <br /> The Partnership requires management to create and fund a replacement <br /> 110 <br /> reserve account for each project. The amount was determined by <br /> allocating $200 per unit per year for the senior housing and $1 . 00 <br /> per square foot per year for the commercial office building. <br /> Monies may be withdrawn from the fund by the partnership to pay <br /> extraordinary maintenance, repairs and to pay the costs of renewals , <br /> replacements , extensions or additions to the project . <br /> • <br /> 111 <br /> ( 6 ) <br />