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the City has enjoyed a below average tax rate. Without regard to affordability, we believe the City is <br />positioned well to take on additional debt for projects, without an adverse effect on its credit rating. <br /> <br /> Water and Sewer Rates are competitive: Monthly utility bills (water and sewer combined) are <br />slightly higher than the comparison group average. <br /> <br /> Total cost of City services: When we consider the total cost of taxes and utilities on a typical <br />home, Pequot Lakes is slightly above average (about $10 per month more than the average). <br /> <br /> Pequot Lakes is efficient with its LGA and Levy dollars: One way to determine the efficient use <br />of taxes and LGA is to look at how much the City spends on a per capita basis. We note that Pequot <br />Lakes is in the more efficient half of the comparison group. Again, it’s impressive, since many of the <br />comparable cities receive significantly more LGA than Pequot Lakes. <br /> <br />Comparative Analysis Conclusion <br />The City of Pequot Lakes is currently financially sound. It has healthy cash reserves in the General Fund <br />and a very low amount of debt. The City has proven to be very efficient of its use of tax dollars and as a <br />result enjoys a competitive tax rate despite lower LGA funding and a smaller tax base. However, due to <br />slightly higher utility bills the overall cost of living in Pequot Lakes is slightly above average. <br /> <br />These strengths put Pequot Lakes in a good position to consider future projects (while keeping an eye on <br />affordability). <br />Capital Project Analysis <br />Capital financial planning helps you balance two competing needs; the need to complete capital projects and <br />the need to preserve or improve your financial condition. Many factors can affect project feasibility and <br />impact; construction can be phased or delayed, debt payments can be stretched over a longer period of <br />time, assessment burdens can be increased, etc. And when multiple projects are under consideration, the <br />number of combinations and impacts quickly becomes quite complicated. <br /> <br />To help you deal with the complexity, David Drown Associates uses a customized computer model to crunch <br />the numbers and quickly show elected officials the financial impact of an approach to a series of projects. <br /> <br />Baseline Assumptions <br />The computer model can operate under an unlimited number of assumptions. However, for the <br />purpose of future financial planning, the City decided to use the following assumptions: <br /> <br />1. Increases in operational spending will not outpace growth in tax base, both estimated at 2% <br />per year. The Council should take great care in monitoring this each budget season. <br /> <br />2. Construction cost and purchases will suffer from an inflation rate of 5% per year. This may be <br />conservatively high. <br />3. LGA is expected to be received as certified. <br />4. The City expects 3 new homes to be built on average per year, with population increasing by <br />an average of 7.50 people per year. <br />5. Impacts will be measured against a residence with a market value of $125,000 that inflates 1% <br />per year and uses 5,000 gallons of water monthly. <br /> <br />SCENARIO ONE: Future Condition – No New Projects or Purchases (See Tab 2 for associated <br />exhibits) <br />Before any new projects are considered, we must first look at how city rates and charges will need to change <br />just to continue with current programs and operations and to make payments on any debt that already exists. <br />The following bullet points indicate our best projections of where tax rates and utility rates will need to be to <br />simply maintain current spending levels.