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City of Hugo Special Bulletin,July 1988 Page 2 WHY NOT JUST PUT MORE GRAVEL ON THE EXISTING ROADS? There are several considerations which make this alternative less desirable each year. The maintenance of gravel roads comes under the scope of street maintenance which must be funded through the general goven ment operating budget which is restricted by the tax levy limits. Capital improvements of the nature pro- posed can be funded through the sale of public improvement bonds and the debt retirement on these bonds Is not subject to the legislature's mandated tax levy limits. With the cost of street maintenance going up 2 to 3 times the rate-that cities may increase the tax levy, one doesn't have to be a mathematical genius to see that the frequency of road maintenance will have to decrease or we will have to flnd some other sources of revenue to maintain the gravel roads in the future. WILL IMPROVED ROADS CHANGE THE RURAL CHARACTER OF HUGO? It is very unlikely that road conditions w111 have any effect on the rural or urban nature of a community. One need only look at the rural areas of Wisconsin and other northern suburbs where roads are surfaced and they have a more rural atmosphere than the City of Hugo. Financial Information HOW WILL THIS PROJECT BE FINANCED? The proposed financing mechanism is through the sale of public improvement bonds. These bonds would be sold to the public and the loan to the city would be repaid over a 15 year period. WHAT WILL THIS PROJECT COST ME? Based on a $1,000,000 project financed over a 15 year period at 7-112% interest we are estimating a tax in- crease of about $15.00 per year per household. Those properties abutting on the roadway would pay an addi- tional 21% of the cost of the road improvement to be assessed and repaid by the property owner over a 15 year period. WHY DO PROPERTY OWNERS HAVE TO BE ASSESSED? Minnesota law requires that for the sale of this type of public improvement bonds a minimun of 20% of pro ject cost must be assessed to benefitting property owners. The city council has the latitude of assessint more than 20%but must assess a minimum of 21% to pursue this project. HOW WILL THE CITY FUND PHASE 1 OF THIS PROJECT? The annual funding sources for Phase I over a 15 year period is as follows: 1. $21,000 in assessments 2. $15,000 tax levy increase 3. $70,000 existing tax levy. WHAT WAS THE 1988 CITY ROAD MAINTENANCE BUDGET? The city anticipates spending approximately$120,000 on grading, $10,000 on materials, $20,000 on mq jor im- provement and other road repairs, and $21,000 on snowplowing in 1988. WILL THE CITY SAVE ON ROAD MAINTENANCE IF THE ROADS ARE BLACKTOPPED? Both gravel roads and blacktopped roads require maintenance. Over the long haul, the maintenance savings wil not be that great, however, the city will realize an immediate savings in grading existing gravel roads. Just the grading costs for the roads in phase -1 of this project runs the city approximately $22,000 annually. If the roads were blacktopped the grading cost could be eliminated although the city would still have to pro- vide other maintenance and plow these roads like any other road. WHY NOT INCREASE TAXES FOR ROAD MAINTENANCE? The Minnesota Legislature passed a law in 1987 requiring that all cities in the state of Minnesota be subject to tax levy limits (the City of Hugo was previously exempt from the levy limits). In 1988 the legislature ex- empted cities under 2,500 from tax levy limits while other cities must adhere to the 4% and 3% levy increas- es for the next 2 years. With the rapidly increasing costs of other city services it is unlikely that the city will be able to increase its road maintenance in the near future. WHAT IF I CAN'T AFFORD TO PAY MY SHARE OF THIS PROJECT NOW? We don't anticipate that $15.00 per household will create a mq jor hardship for most Hugo residents. Thosk who may be assessed 21% or more for the project improvement will be given an option to pay for their as- sessment over a 15 year period in annual installments. Those who will be faced with assessments should keep in mind that if these projects were to be done in a conventional manner, as are most other public im- provement projects, the assessments would be 4 to 5 times more than proposed.