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Wednesday, November 11, 2009
Thursday, October 8, 2009
This IS The Right Time!
One of the common reactions to the proposed new Central Library for the Madison Public Library system is:
Why? ... Because we have a rare opportunity as a community to build a new library for a small fraction of its usual cost due to a unique confluence of factors:
1. Historically low interest rates. Just as if you were buying a new house, the City will borrow the capital to fund this construction and repay it over time. (Because Madison is so fiscally conservative, it plans to pay this "mortgage" back in only 10 years.) Interest rates on municipal debt are now lower than they've been since Lyndon Johnson was in the White House.
These rates are not expected to remain this low for long.
2. Federal subsidy is currently available under the New Markets Tax Credit program that is expected to range from $6 - 8 million. The City funding commitment is only $17 million - out of a total budget cost of $37 million.
The New Markets Tax Credit program is currently set to expire after 2010.
3. Construction prices are currently depressed. The estimated cost to build the library is $6 million lower today than it was one year ago. However, material costs are already beginning to move upward.
In short, there has never been - nor may ever be - a better opportunity in our lifetimes to make this much needed investment in the Madison Public Library system.
The Mayor's office has estimated that the cost on the average Madison home will average $17 per year starting in 2011. And when the debt is paid off after 10 years, the City will continue to enjoy new tax revenues from the redevelopment of Block 66 for decades to come thereafter.
This investment is worth it. And we owe it to future generations to act wisely now.
"I support this project, but think it should be delayed for a few years until the economy recovers."This would seem to be a reasonable, but to further delay action will be costly.
Why? ... Because we have a rare opportunity as a community to build a new library for a small fraction of its usual cost due to a unique confluence of factors:
1. Historically low interest rates. Just as if you were buying a new house, the City will borrow the capital to fund this construction and repay it over time. (Because Madison is so fiscally conservative, it plans to pay this "mortgage" back in only 10 years.) Interest rates on municipal debt are now lower than they've been since Lyndon Johnson was in the White House.
These rates are not expected to remain this low for long.2. Federal subsidy is currently available under the New Markets Tax Credit program that is expected to range from $6 - 8 million. The City funding commitment is only $17 million - out of a total budget cost of $37 million.
The New Markets Tax Credit program is currently set to expire after 2010.3. Construction prices are currently depressed. The estimated cost to build the library is $6 million lower today than it was one year ago. However, material costs are already beginning to move upward.
In short, there has never been - nor may ever be - a better opportunity in our lifetimes to make this much needed investment in the Madison Public Library system.
The Mayor's office has estimated that the cost on the average Madison home will average $17 per year starting in 2011. And when the debt is paid off after 10 years, the City will continue to enjoy new tax revenues from the redevelopment of Block 66 for decades to come thereafter.
This investment is worth it. And we owe it to future generations to act wisely now.
Monday, October 5, 2009
Strong Support from Three Former Mayors!
The Wisconsin State Journal ran a guest column today co-signed by three former Madison mayors expressing their support for a new Downtown library:
"As three former Madison mayors, we have followed with great interest the various proposals for a new Madison Central Library.
We were very gratified to see funding for the Fiore/Irgens proposal for a new Central Library in Mayor Dave Cieslewicz's proposed capital budget, which the City Council will consider this fall.
We couldn't be more supportive..." [read more here]
Friday, September 25, 2009
A Conservative Economic Analysis
One of the important factors that weighed in Mayor Cieslewicz's decision to support the new Central Library is the impact analysis performed by Andrew Statz, his Fiscal Efficiency Auditor. He described this analysis in a powerpoint presentation to the Common Council on August 27, 2009.
Everyone acknowledges that significant new tax revenues will flow to the City from redevelopment of the existing library site. Indeed, our team estimated that these new revenues could exceed $100 million over a 50-year horizon, including just the City portion of property taxes and room taxes. However, before putting this project in his 2010 capital budget request, Mayor Cieslewicz wanted to take a look at this from a very cautious and conservative perspective.
Statz did this in his comparison of the costs and benefits of the proposed project with those of the remodeling alternative. His conclusion was that in a worst case scenario the net cost to taxpayers over a 15-year horizon would be no greater for the new library than the remodel. Under expected conditions, the new library will actually be $8 millions less.
What makes his assumptions conservative?
1. A 15-year analysis period was used. This timeframe covers repayment of all City debt and results in four years where the tax revenues exceed the debt service costs. However, tax base created by the Phase II development will generate revenues to the City for decades thereafter.
2. Debt service costs were estimated assuming a 5% interest rate. Current ten year rates for municipal bonds are 3.3% - and federal "recovery zone" subsidies could reduce this rate even further.
3. Property tax rates and assessments are projected to decline every year during the analysis period. In contrast, Fiore-Irgens projections reflected a 2.5% average increase in property taxes.
4. The "status quo" value of Block 66 is escalated by 4% annually to determine the increased property taxes. On the other hand, the value of the fully-improved Block 66 is assumed to increase by only 2%.
We are cautious investors ourselves, and generally approve this approach. After all, if a project still makes sense when the assumptions are stacked against it, you know you have a good one!
Everyone acknowledges that significant new tax revenues will flow to the City from redevelopment of the existing library site. Indeed, our team estimated that these new revenues could exceed $100 million over a 50-year horizon, including just the City portion of property taxes and room taxes. However, before putting this project in his 2010 capital budget request, Mayor Cieslewicz wanted to take a look at this from a very cautious and conservative perspective.
Statz did this in his comparison of the costs and benefits of the proposed project with those of the remodeling alternative. His conclusion was that in a worst case scenario the net cost to taxpayers over a 15-year horizon would be no greater for the new library than the remodel. Under expected conditions, the new library will actually be $8 millions less.
What makes his assumptions conservative?
1. A 15-year analysis period was used. This timeframe covers repayment of all City debt and results in four years where the tax revenues exceed the debt service costs. However, tax base created by the Phase II development will generate revenues to the City for decades thereafter.
2. Debt service costs were estimated assuming a 5% interest rate. Current ten year rates for municipal bonds are 3.3% - and federal "recovery zone" subsidies could reduce this rate even further.
3. Property tax rates and assessments are projected to decline every year during the analysis period. In contrast, Fiore-Irgens projections reflected a 2.5% average increase in property taxes.
4. The "status quo" value of Block 66 is escalated by 4% annually to determine the increased property taxes. On the other hand, the value of the fully-improved Block 66 is assumed to increase by only 2%.
We are cautious investors ourselves, and generally approve this approach. After all, if a project still makes sense when the assumptions are stacked against it, you know you have a good one!
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