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Workspace Webmail:: Print https://email 14.secureserver.net/viewjrint_multi.php?uidArray=69... Print I Close Window Subject: RE: FW: Council Packet Now Available From: Chris Miller<Chris.Miller@cityofroseville.com> Date: Fri, Aug 14, 2015 2:59 pm To: Tammy McGehee<tam@mcgehee.info> Attach: image001.jpg Tam, If what you need is $1 million in cash each year in perpetuity, then the least-costly method to collect that is to establish an annual tax levy of$1 million. Keep in mind that every time you issue a bond you have to pay interest—about 2.50% in today's rates. You also incur issuance costs that take away about 3% of the bond proceeds right off the top. With a$1 million levy, the annul impact for a$216,000 home is approximately $52.06 at today's city tax rate. This translates into $520.60 over 10 years, and $1,041.20 over 20. In contrast, if we issued a $1.03 million bond each year(to get us a net of$1 million) and spread the debt service for each bond issue over 10 years the impact would be more gradual but would increase each year. Under this approach,the impact would be $6.13 in year 1, $12.25 in year 2 and reaching $61.27 by year 10. This translates into $336.97 over 10 years and $949.65 over 20. On the surface the bonding approach over a 20-year period sounds cheaper. However,we're calculating the bond interest at only 2.5% for the next 20 years. If interest rates rose to a more normalized 4.5%, the 20-year bonding approach would cost $1,050.38 —or about the same as the direct levy approach. Thereafter, the bond approach will always be more expensive in perpetuity. Another big challenge with taking the second approach is trying to unwind your reliance on the bonds. If you ever decided to go back to the direct levy approach, you not only have to levy a new $1 million each year to pay for project costs,you also have to keep paying a million+ each year for debt service. During the first year of taking that strategy, you would have an impact of$52.06 per year for the new levy, but you also continue imposing an impact of$61.27 to pay the bonds. At that point,taxpayers are paying $123.33 per year instead of$52.06 if you had stuck with the direct levy approach all along. In conclusion, if you consider cities to be in the forever business then the direct levy approach is less costly than issuing bonds. Once you commit to bond strategy, it's incredibly difficult to stop the cycle. The bonding approach makes life a little bit easier for the current generation of taxpayers (next 20 years), but it makes it more expensive for every generation thereafter. Chris From:Tam McGeheemailto:tam@mcge.._� _-. ..�.._.�._�,.-.......�._._.M..__-.-..............._._.�. -.......�._.,.�._..._ .. hee.infoJ Sent: Friday, August 14, 2015 1:45 PM To: Chris Miller<Chris.Miller@cityofroseville.com> 1 of 3