MEMO

The city is considering the need for a second fire station to replace the one located on Ashland Street for various reasons. This memo speaks to the options for financing such a construction project.

If approved, construction would be budgeted and paid for out of the Capital Improvement Fund, Finance Department, Municipal Buildings Division - Fire Stations. The estimates we are currently using are in the proposed budget as approximately $3.5 million, all costs inclusive. At this time there is no significant amount of money set aside for this construction so most all of the costs (property acquisition, design, construction and related fees, contents and financing charges) would need to be included in the financing scheme.

Financing options are quite limited for building a municipal building. There are no Systems Development Charges that can be used for this and no operational revenue dedicated for municipal buildings. This generally means getting electorate authorization to do a special levy for debt service over the life of the financing - normally 20-year bonds. It would behoove the city to approach other sources for financing programs or economic grants to assist in the project but in all likelihood Ashland will pay this project itself.

In June, 2000 the city sold bonds totaling $3.3 million of which only $175,000 related to flood restoration. The remainder was for Fire Station #1 and final, all inclusive cost for that project was $4.0 million. The sale was based upon May approval by the electorate and all reserved monies held for future fire station construction were utilized during the project.

Given the above, the city should focus on the cost to issue general obligation bonds for Fire Station #2 thus the following comparison does not include any other resources and anticipates voter approval in November 2005, a bond issue by February 2006 and corresponding property taxes to be approved and levied as part of the FY 2006-07 budget.

It should be noted that, at this time, a November election in an odd numbered year requires a 50% turn out of the voters or the issue is automatically defeated. Ashland has a fairly good turn out record so that may not be a problem but failing to meet this requirement would significantly alter the proposed schedule. There has been some discussion in Salem regarding a change to this requirement but we should not expect it to be different by Fall 2005.

It is difficult to project the tax rate in FY 2006-07 if a $3.5 million bond issue is approved but estimates can be made. Assuming that the amount of the issue includes all costs (issuance, property, construction, design, etc.) and that the current assumption used for estimating taxes holds true in the near future, then the following table and ranges may be good indicators.

Assuming that each $0.01 of property tax per $1000 of assessed value remains true, a $3.5 million bond issue with the following debt service estimate and interest rate would require the corresponding tax rate and have the resultant impact:

Bond	Annual	Property	Annual Impact on House valued at:
Rate	P & I	Tax Levy	$300,000	$400,000
4.160%	$265,000	$0.1656	$49.68	$66.24
5.170%	$290,000	$0.1813	$54.39	$72.52

The above table shows that bonds sold at an average interest rate of 4.160% would result in an annual debt service requirement of $265,000 for twenty years. This would require a special levy authorizing approximately $0.1656/$1000 of assessed valuation to cover the debt service and would mean an additional property tax of $49.68 on a house assessed at $300,000. These are estimates and averages based upon the above discussion and assumptions.

The range is provided to give Council an idea of what may happen and to provide information for general discussion and preliminary decision making. The range includes rates higher than today's market but the actual rate would not be known until the day of a bond sale. The impact on an Ashland piece of property will vary based upon the above and growth of total taxable assessed value. It is likely that the amount for debt service will result in a smaller rate each year over the life of the debt as total assessed value grows, all other things remaining constant.

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