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1 Appendix—Industrial Park Analysis 2 There is a common belief that the City of Pequot Lakes made a profit off of construction of the business park. 3 While it may be true that the City itself had more bottom-line revenue than expense(part of the cost of the park 4 was paid by a Federal grant),the sale of the lots did not cover the cost of land acquisition and construction. 5 Project Costs: $1,540,000 6 Revenue from Assessments and Lots Sales: $1,030,000 7 Revenue Shortfall(real value6): $ 510,000 8 As of 2009,the properties within the Business Park that pay property tax'had a combined Estimated Market Value 9 of$6.6 million.This tax paid from this valuation, if fully captured by the City of Pequot Lakes,would be just less 10 than$86,000 per year. 11 Tax Revenue=Estimated Market Value x Tax Classification Rate x City Tax Rate 12 Tax Revenue=$6,600,000 x 2% x 65% = $85,888 13 A way to measure the return on the Business Park is to consider a theoretical analysis: If the City of Pequot Lakes 14 had not developed the Business Park in 1996 but was instead given the opportunity to accept the park today,with 15 the current rate of development,at the inflation-adjusted cost of$2.08 millions',would this be a wise investment? 16 Not if the objective was to lower the overall tax burden. If the City financed the project at 4%and devoted every 17 cent of property tax collected from the Business Park to debt retirement,even if taxes paid continued to rise by 3% 18 per year,it would take 29 years for the park to cover the cost of its creation. During that time,the property taxes 19 paid by the businesses in the park would cover only debt repayment. The costs of snow plowing, street 20 maintenance, police and fire protection and other services provided to the park would have to be paid by the rest 21 of the tax base. 22 Of course,this would be a better scenario than the project as it was actually undertaken.While the actual project 23 cost was handled up-front,the tax revenue to pay for it did not appear until many years later.A number of the lots 24 were given away, businesses were enticed with tax incentives and further public improvements enhanced the 25 value of the lots along the way.If there had been no Federal assistance with the project,from a strictly tax revenue 26 standpoint,the Business Park was a bad investment for the City.As the infrastructure in the park ages and needs 27 increased maintenance, it will be critical that that tax base of the existing park increase sufficient to cover this 28 long-term liability. 29 What this analysis does not factor in is the value of the jobs created within the park. The business inventory 30 conducted in 2008 indicates that there were approximately 200 jobs within industrial park property.While the net 6 By"real value", this simply means that there has been no adjustment for inflation. The project costs were up- front and, in addition,to accurately compute the shortfall should also include financing costs.The revenue,on the other hand,came later in the life of the project.Some is still being collected through Tax Increment Financing(TIF) agreements.Revenue is also not adjusted for inflation.Including inflation and interest,the revenue shortfall would be much greater than$510,000. There are lots owned by a tax-exempt religious institution and property still owned by the City of Pequot Lakes. —� s'According to the inflation calculator at www.westegg.com/inflation, $1.54 million in 1996 is inflation adjusted to $2.08 million in 2009. 33IPage