Friday, December 5, 2008

Stubler mistake

The Stubler Pit project is the biggest mistake the City Council made in my first 4 ½ years on the council and is the worst waste of money that I have ever been involved with. The project was the Mayor’s idea, and in my opinion was a bad idea from the start. In my post on the South Industrial Park, I wrote about public –vs- private developments. Stubler would have been a great private development project. As a public development, it is a disaster.

The project was set up as the choice between four different public development scenarios. Really, the choice was between two different projects. One that had an initial cost of $459,000, and one with an initial cost of $192,000.

Project #1 had an initial cost of $459,000 and was 19 lots on the north and east side of Stubler. The project included water, sewer, electric and roads. This is the project that the city council voted for. Now that the project is done, we can add the additional costs and subtract all of the grant money that we have received. The total cost of the project came to $595,193. Discounting the grants that Buhl received for this project ($250,000), the project cost Buhl taxpayers $345,193 up front. That is out of the Buhl’s taxpayers pockets.

Project #2 had an initial cost of $192,000 and was 15 lots on the north side of Stubler. This project would have included water, sewer, electric and roads. If we would have selected this project, we would now have 15 lots ready for development. The total cost of the project would have been @$290,000. Discounting the grants that Buhl received for this project ($250,000), the project would have cost Buhl taxpayers $40,000 up front.

Simple math. We built 4 extra lots (nice lots fairly near the water) for an additional $305,000. That was your money. If the houses stand for 100 years, we will not recoup the tax dollars spent on those 4 extra lots. That is IF we can sell the lots. Let’s talk about that.

Using public money for new development is a risk, one I am usually not ready to take. The risk in this project was (and is), can we sell the lots? We have so far sold 1 of the 19. There are good real estate markets, and there are bad ones. Then there is the real estate market we are in now, which is the worst in 70 years. That was part of the risk, and we lost on that one.

The argument I get for doing the 19 lots is “when we sell all the lots, the project will be paid for”. The estimate is we will make a “profit” of $93,000 when we sell the 19 lots. Using the same cost basis, I estimate that we would have made a profit of $185,000 if we would have only built 15 lots.

When will we sell those lots? Will we get enough from them to offset the project? What about the projects we can’t do now because we spent $345,193 on Stubler when we really needed to do infrastructure projects in the older parts of Buhl? Now we don’t have the money to do those projects. The answer from the council members that supported Stubler is “lets bond for infrastructure”.

UGHHHH! The Stubler Pit Project is a near calamity for Buhl. Buhl doesn’t have a big tax base, and we don’t have a big budget. We must do small projects that we can afford, not take huge bites and gorge ourselves on projects that we will be paying on for years to come.

The State of Minnesota now says that there is a $5.2 billion budget deficit for the next two years. I think that they will cut our local government aid because of the deficit, and I think the cut could be up to $100,000. If we need another $100,000 from Buhl taxpayers in 2010, how will we get it? Maybe we will have to cut at least one fulltime employee. Or maybe we just close the library. There will some kinds of major cuts if our local government aid gets a big cut. And forget about any new infrastructure projects.

What if we still had that $345,193 in the bank? At 3.5% interest, that’s $12,000 a year in interest we have lost.

I hate the stock market right now because I have lost some money in it. But putting money in the stock market was my risk to take. The Stubler Pit project was a risk the City Council took with your money. We should not have done it, and now you will pay the cost out of your pocket.

$595,193 for 19 lots, $290,000 for 15 lots. A profit of $93,000 for 19 lots, or $185,000 for 15 lots. $345,193 up front for 19 lots, or $40,000 up front for 15 lots.

This post has a lot of information, and a lot of dollar values for you to swallow. It took me a while to put it together, so read it a couple of times, and please let me know what you think.


1 comment:

old guy said...