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WHY WE ARE FALLING BEHIND The property owners of North Sleutter Road will pay the entire cost of improving their road today. Over the next 24 years,they will contribute to the maintenance and improvements of all the roads in the city,yet will not require any improvements themselves. In year 25, when some of the current property owners will no longer even remain on their properties, all of the City's taxpayers will be asked to pay double the amount of revenue collected from these properties over the past two and a half decades to fix the road. Project Cost: $154,400 Cumulative Taxes Paid by Property Owners: $79,400 Shortfall: -$75,000 In short, the current system requires the City to trade near-term improvements for long-term liabilities. The true costs are not being realized until decades after the commitments have been made. We are only starting to realize this now in other parts of the City,where commitments made years ago are beginning to overwhelm the budget. This all assumes a very low inflation rate over the next 25 years. Historically, construction costs have increased faster than the general rate of inflation.This may not hold true in the changing economy, but neither can we count on low bituminous prices far into the future. If the average inflation rate were to rise to 3% for example, the project would cost$225,000 and the gap would be$145,000. The analysis also assumes annual tax increases. While the rate of increase is modest at 1.5%, there are likely few that would commit today to never-ending increases in the rate of taxation. If the rate of taxation is held steady, the funding shortfall in 25 years would be between$90,000(1.5%inflation) and$160,000(3%inflation). OPTIONS FOR CLOSING THE GAP There are two sides to the long-term funding equation. To make things balance, we need to increase revenues, reduce expenses or a combination of the two. INCREASING REVENUE We don't know the total extent of the infrastructure funding shortfall that exists within the city limits. For that to be known,the City would need to perform a complete inventory and assessment of existing infrastructure systems and then answer some fundamental questions. • How much public infrastructure does the City have? What condition is it in? When will it need to be maintained or improved?What is the estimated cost? • Does the City have the resources to maintain the existing public infrastructure over the long term?What are the funding sources?Are they reliable? • Where are the parts of the system that generate a positive rate of return (generate more revenue than they cost to maintain)? Where are the parts that have a negative rate of return (cost more to maintain than they generate in revenue)? If the economics of North Sleutter road are representative of the city as a whole— and there is reason to believe that the high shoreline property values and low infrastructure costs make it closer to a best-case scenario—then the City's tax rate would need to be increased immediately by 25% if this problem is to be solved by adding Page 1 3