24 Jul WHAT ACTION WOULD YOU TAKE TO IMPROVE THEIR MARKETABILITY?
We have been retained by Chow City Council to evaluate the proposed park and tourism development on Show more We have been retained by Chow City Council to evaluate the proposed park and tourism development on the old Jim Hainey farm located at the edge of the city. I want you to be responsible for evaluating some of the issues which have emerged. Jim Hainey was a fourth generation farmer. His great-grandfather had been one of the first settlers in the county when he arrived in 1850. The farm had been handed down through the family for 145 years but by 2004 it was increasingly difficult for the small family farmer to survive. Jim had seen this coming and had reluctantly decided 20 years previously that the farm was not likely to provide a viable living for his two children. With his encouragement the children had established their careers as a lawyer and a physician. Both had achieved extraordinary professional and financial success and were now independently wealthy. Jims wife had died 5 years earlier and as Jim approached retirement the future of the farm preoccupied his thoughts. After much discussion with the family he decided to continue to farm even in retirement. He couldnt bear the idea of doing nothing; he loved the farm and that was all he knew. However he didnt want the trouble of running all 150 acres of the farm any more. He figured 50 acres was all he needed to keep him occupied. Subdivisions accommodating some of the 600000 residents of the City of Chow now reached almost to the farms boundaries. Given his love of the land his children encouraged him to donate the farm to the city for use as a park. Two-thirds of the 150 acres would be available for the city to use immediately but the remaining 50 acres would be a life-estate donation. This meant that ownership would pass to the city on his death but that he would pay no property taxes and he would have exclusive use of the land until that time. The donation transaction was completed in 2005. The appraised value of the property was $40000 per acre. A matching regional grant was committed from the Texas Recreation and Park Account to pay for some of the development of the 100 acre section of the farm which was to be named Jim Hainey Park. Mr. Hainey was anxious that the park be a natural placea place of beautyand aesthetically attractive. For this reason when the donation was made it stipulated the level of maintenance required and that it was conditional upon the city passing general obligation bonds equal to the total value of both the 100 acres of land and the development grant received from the Recreation and Park Account. This money was to be used for extensive tree planting horticultural work and landscaping over the 100 acres. The intent was to return the farmland to its natural state. Recognizing that it was likely to be expensive to maintain at the levels specified in the donation the city was reluctant to accept the donation under those terms. With a property tax base valued at $10500000000 and an average residential home value of $190000 Chow had traditionally been considered a reasonably affluent city. It had a reasonably strong business base so taxes from homeowners constituted only approximately 50% of the total tax base. However the recent tough financial times had taught the council to be careful they didnt mortgage their future. Jims two children wanting to preserve the familys niche in the historical development of the area and to honor their father so each agreed to contribute $1 million to establish an endowment for the Parks maintenance. The residents of Chow responded positively to this generous donation package offer and when a referendum was held they voted to authorize the city council to issue bonds. The bonds were sold on January 1 2007 as straight serial bonds at 4.5 percent for 25 years. In the early spring of 2015 Jim Hainey died and the remaining 50 acres of land become the property of the City of Chow which in the intervening decade had developed rapidly almost all the way around the farm. In the few years since the Park had opened it became apparent that revenue from the endowment funds was inadequate to meet the operational costs associated with this Park. The endowment was yielding 6.0 percent per annum for this purpose but the operational and maintenance expenses amounted to $520000 per year. The difference was being paid by property taxes. In an effort to address this problem the parks and recreation director developed an ambitious plan which she presented to the Chow Council. The existing farm buildings equipment and infrastructure on the newly acquired 50 acres should be renovated and upgraded and the farm should be a demonstration farm operated by the department as an attraction. It would be a working farm but would offer tours demonstrations and tasteful supplementary facilities. The Farmpark as she termed it would be operated as an educational exhibit and commercial attraction. The surplus revenues from its operation would be used to make up the maintenance shortfall on the other 100 acres and perhaps contribute to offsetting the debt charges the citys residents were paying on the general obligation bonds. The Farmpark would open for business on January 1 2017 and all operational cost and revenue estimates started from that time. Any interim operational or debt expenses incurred before that date would be covered by the Chow Councils general fund. The consultants hired to undertake a feasibility study of the project estimated the renovation costs at $4.25 million. Their cost estimate for annual operating and maintenance costs of the Farmpark was $380000. Sales of farm produce livestock and crops were projected at $80000 per year. Two major companies with agricultural interests headquartered in Chow had indicated a desire to be associated with the venture and each committed $60000 annual sponsorship for the next 10 years. The citys school district agreed to sign a 10 year contract with the city for $100000 per year which would give its school groups free admission to the Farmpark. The school district would develop a curriculum to integrate the Farmpark resource into its regular teaching program. The uniqueness of this facility in the Chow area led the consultants to project it would attract between 120000 and 220000 visitors a year (excluding the school groups) of whom half would be children. The spread of this attendance projection has an obvious impact on the projects viability. Hence RATS should undertake a sensitivity analysis with these data looking at pessimistic optimistic and most probable scenarios. The consultants suggested an admission price of $10 for adults and $6 for children and recommended that revenue bonds should be issued on January 1 2016 to pay for the Farmpark. The straight serial revenue bonds would be sold to a local financial institution at an estimated rate of 6.0 percent with a 14 year pay-back period. The council has retained RATS to evaluate the findings of the feasibility study. Specifically I want you to develop responses with appropriate discussion background data and rationale to the following questions. Be sure to show the complete bond schedules from which you derived some of the responses. 1.(1) How much is the average homeowner currently (2015) paying annually for 1.(a) His or her share of the total obligation associated with the bond which was sold on January 1 2007 for extensive tree planting horticultural work and landscaping of Jim Hainey Park? 2.(b) Operating costs of the original 100 acres of Hainey Park? 2.(2) What will be the total annual debt charges (include maintenance costs associated with the revenue bond issue) on all capital developments in Hainey Park and the Farmpark on December 31 2018 if the Farmpark is developed as projected? 3.(3) Assuming the consultants financial projections are correct will profits from the Farmpark be adequate to meet the outstanding operating costs of Hainey Park? Explain your response. 4.(4) Is it realistic to expect a local financial institution to purchase the revenue bonds? Explain your response. What action would you take to improve their marketability? 5.(5) The major theme park operator in town whose taxable property value is $40000000 has protested We are being taxed tens of thousands of dollars to subsidize a competitor. Comment on this protest. Show less
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