Thanks to John Erwin and MPRB staff for following up on my earlier questions concerning financing a new MPRB headquarters along the upper Mississippi. I believe that the MPRB has already signed a purchase agreement for this property. After reviewing their data, however, my conclusions differ from those of the MPRB, on the financial merits of the deal. I found little-to-no cost savings associated with purchasing the new river property vs. the current rent option. I feel that if the MPRB (and City Council) wish to pursue the purchase option (requiring a bond issue), additional reasoning beyond financial, will be needed for justification-- i.e. it's nicer digs with a great view of the river, etc. I think the City Council votes on the project this Friday?? If the deal goes through, so be it. But the public deserves a clearer view of what's going on. It's just been too easy for the public sector to make capital investments in recent years, then three-five years down the road come back and tell us they can't afford to operate and maintain the facilities-- sewers, roads, libraries and park properties included.
In my earlier question, I asked if the MPRB financial analysis (rent vs. buy) was a discounted cash flow analysis-- it was not. I feel that such an analysis should always examine the discounted cash flows associated with the alternate scenarios being studied, in order to account for the time value of money. I also question the structure of the financial model used, because the analysis is continued for 5 years beyond the 25 year bond retirement period, without including any added maintenance or rehab costs (normally associated with owning/maintaining an aging building) which, to my mind, bias the analysis in favor of the buy option, and provides the nominal $4.8 million savings John Erwin refers to in his post of July 3rd. To imply that this investment will save taxpayers $4.8 million is very misleading. I realize that Mr. Erwin's background is in the biological sciences, not finance, but this analysis was presented to the MPRB to influence their vote on the transaction, and it deserves added scrutiny. My interest is in the public cash flow requirements associated with the project, be it capital or operating costs-- a cash flow requirement that is funded by taxpayers, just like those associated with providing water, sewer, roads, police and fire service. After all, we are trying to prioritize our needs in this town, and determine just what we can really afford. The politicians can argue over departmental jurisdictions and respective taxing authorities all they want, but when it's all added up, the common property taxpayer- increasingly the residential property taxpayer, pays the bill (and, yes, renters too). As an example, for this project, the MPRB projects cumulative savings of $1.6 million after retiring debt in 25 years, and $4.8 million in savings after a 30 year period. Using a 5 percent discount rate, the present value of those savings amounts to only $590,000 and $1.4 million respectively-- that's in today's dollars-- not the $1.6 and $4.8 million they project. And, if annual operating costs exceed their assumptions significantly in any given year(s), those minimal projected savings will quickly disappear. Arguments comparing the purchase of a home with the MPRB's purchase of this property don't hold up either-- the homeowner receives significant tax advantages that the MPRB does not. And many people prefer renting to buying for other economic reasons; just as some purchase automobiles while others lease. Using all their cost assumptions for rwnting and buying, and a 5 percent discount rate, I found no significant cost savings associated with the purchase vs. rent options. In fact, if the equivalent of an unforeseen $2 million investment (not financed) were required after 10, 20 or 30 years (parking lot improvements, landscaping, building improvements, plumbing, etc.), all projected savings would more than disappear-- there is no sinking fund to cover such unforeseen expenses. In addition, while the riverfront building and property may have significant value in the future, they will not be on the property tax rolls contributing to the City revenue stream (nor other tax jurisdictions as well, i.e. MPS or Henn. Co.)-- and the City should not be speculating on land for future sale. As referenced earlier on this list, there is plenty of competitively priced rental property available in downtown Mpls., given all the TIF generated new property that draws tenants from the older properties, thus forcing down rents/taxes on those older properties. Seems only natural that City government should take advantage of those reduced rents that currently add so little to the property tax rolls anyway. Perhaps the City should leave the new construction/rehab and ownership of space on prime real estate to those developers/owners/tenants with deeper pockets than us taxpayers! The MPRB cannot adequately maintain the property currently on their books-- and those unmet demands will consume funds into the indefinite future. It's time the public sector realize we are in a recession; people have lost jobs; businesses have disappeared; individual, household and corporate earnings are down, and the ancillary tax revenues are down. Federal, state and county revenues are down-- yet our property taxes (and rents) continue to rise at rates well beyond inflation, only aggravating the affordable housing situation. Michael Hohmann Linden Hills www.mahohmannbizplans.com > -----Original Message----- > From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]]On Behalf Of > Michael Hohmann > Sent: Thursday, June 27, 2002 2:48 PM > To: timothy connolly; [EMAIL PROTECTED] > Subject: RE: [Mpls] New Park Board digs > > > Seems I read that the projected cost savings associated with the MPRB > purchase of the Moore property along the river aren't realized for quite a > few years into the future (compared with renting current space), and were > then pretty meager over a 30 year period. Just wondering-- was that cost > analysis based on a discounted cash flow analysis of capital and operating > costs vs the rent option (i.e. total costs) and, if so, what were the > assumptions used for the comparison? > > Today's story by Steve Brandt mentions that the MPRB may ask the City > Council to sell bonds to help finance the purchase. I thought > the City was > in dire financial straits. How could this be justified given other City > needs/priorities? (..and I read nothing of a new MPRB headquarters in the > McKinsey report) How would the MPRB come up with the capital for this > project (or a revenue stream to cover the bonds and ongoing operating > expenses)? Brandt's article mentioned they may sell some park > property near > Dunwoody for a quarter million... where's the rest coming from? > > Comments to the list from MPRB members, CLIC members and Steve Brandt > appreciated. > > Michael Hohmann > Linden Hills > www.mahohmannbizplans.com > _______________________________________ Minneapolis Issues Forum - A Civil City Civic Discussion - Mn E-Democracy Post messages to: [EMAIL PROTECTED] Subscribe, Unsubscribe, Digest option, and more: http://e-democracy.org/mpls
