Analysis of potential rental income at new Library/Civic Complex. (Publish the true MAXIMUM Capital Costs)

CLICK ON IMAGE TO ENLARGE:
Update:
One of the Blogreaders has left a valid comment that I have decided to post in the body of this blog: "one can discuss the numbers for a long time, but one comment you missed was that our estimates do not allow for any tax revenue for new growth (this figure is some $700,000 for 2008). New growth will have the effect of reducing the burden on the average home (potentially significantly)."

This comment and my reply are also in the comments section to this post.
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The Estimated Maximum Annual Tax for a $400,000 property is $55.86.

The word "Maximum" is in the City's handout and every ad that has run in both local newspapers. At one of the meetings I told the Mayor and 3 other councilors that were there that if this indeed was the maximum then I would reconsider my vote if they would guarantee this figure.

This figure is based on a 25 year term, includes potential rent recoveries and a 4.90% rate.

Potential Flaws in figure used by City:

• The capital cost of this project for this $400,000 property is $85.78 before any potential rental recoveries.
  
• There are $29.92 (85.78-55.86) in rental income that may or may not be recovered. There are no costs allocated for running the building etc. that would offset the potential rental income if realized.
  
• The interest rate used is 4.90% while the interest rate used for a 25 year term according to MFA today is 5.75%.
• The term is 25 years but the more likely borrowing term is 20 years. (Indeed if we project it on a 20 year term which is the more likely financing method the tax to be charged annually for this theoretical $400,000 property would be $112.22.)
• When the Greater Vernon Area voted on the Multiplex and the Performing Arts the City gave out the Capital Financing Costs and the effect on the average property and a separate listing for the net operating costs projected and the effect on that same property.

Potential problems and questions re the rental recoveries used to establish the Estimated Maximum Annual Tax :

• Art Gallery $47,028. The City has wisely only included the rent they get from GVSC for the present Art Gallery and not the actual rent that is proposed to be charged of 11388 sq.ft x $25 = $284,700. The actual rental cost needed to pay for the 25 year capital financing of the $4,822,000 Art Gallery is actually $30.91 per Sq. ft. Even the estimated $47,028 the City might continue receiving is not new money and will not come close to the operating costs of the new area.
• RCMP 6000 Sq. Ft $186.648 ($31.10 Sq.ft. ?) How much of this money is new rental income from outside the existing RCMP budget?
  
• Rent out extra Floor. $235,588 (9210 sq ft @ $31.19 x 82 % occupancy.) Is office space needed at this price in Vernon and will we not be competing with our own business taxpayers? How long will this space be rented out before the City needs it. The effect on the maximum annual tax to the taxpayer will be greatly underestimated if the space is taken up by the city in the first 10 years or sooner of a 25 year term borrowing.
• Main Floor Tenant $89,600 (3500 sq ft. at $31.22 at 82% occupancy) Looks good if we can get a tenant and I would think 82% occupancy is actually a little low.
• Parking 59 stalls at $55 monthly. Well below the economic cost of a $44,000 capital cost per stall with a 4.9% return which would return a parking rental monthly of $179.67. Hopefully even the lower rate will be charged to not only the public but to staff members etc.
• There are no operating costs offsetting these revenues for janitorial, utilities and all the new furniture that will be needed to make these offices operational. (Furniture costs are always be closely watched by Beardsell so lets get these potential costs upfront.)

Advice to City Council:
THE CITY SHOULD accept the Capital COSTS figures for this complex and this is the figure that SHOULD BE PRESENTED to the voters of Vernon as the Maximum Annual Tax and publish this figure both for a 25 year financing and a 20 year financing. Furthermore they should examine their 4.90% rate and decide if it would not be more prudent and transparent to update the figure to a more current rate of 5.75% which is the present rate both for a 20 and a 25 year borrowing.

Don't sugarcoat the financial details and put a best light on these details with advertisements that are paid from my pocket. Sell this project on its merits and in a transparent manner and enough people may come to the polls and vote for it.