Klamath Falls Urban Renewal Feasibility Study

Klamath Falls Urban Renewal Feasibility Study

March 17, 2016 Nathan Cherpeski City Manager City of Klamath Falls P.O. Box 237 Klamath Falls, Oregon 97601 Dear Nathan, The Urban Renewal Feasibility Study for the industrial/commercial area of Klamath Falls is attached. The study has been completed by Elaine Howard Consulting, LLC and ECONorthwest. It shows that a new urban renewal area could both be adopted and comply with the statutory acreage and assessed value guidelines. It identifies the potential amount of tax increment revenues that could be received in the Urban Renewal Area over three different assessed value growth scenarios for a 30 year duration. The next steps to consider, if the city council decides to proceed, are identified in the study. We have appreciated the opportunity to work with you and Joe Wall on this project. Joe has been an excellent resource for us. Sincerely, Elaine Howard, Principal Elaine Howard Consulting, LLC 4763 SW Admiral Street Portland, Oregon 97221 elainehowardconsulting@gmail.com www.elainehowardconsulting.com

Table of Contents Table of Contents... i Executive Summary...1 Methods...6 Step 1. Define boundary options...6 Step 2. Identify projects and costs...7 Step 3. Determine applicable tax rates...7 Step 4. Forecast growth in assessed value...8 Step 5. Calculate tax increment revenue and revenue sharing...11 Step 6. Create a draft finance plan...15 Impacts on Taxing Districts...16 Impact from Existing Urban Renewal Areas...23 Next Steps...23 BACKGROUND INFORMATION...25 What is Urban Renewal?...25 What is Tax Increment Revenue?...25 What is Maximum Indebtedness?...25 What is Revenue Sharing?...26 How does Oregon Property Tax Work?...26 Property Taxes and School Funding...26 What is Compression?...27 What are Enterprise Zones?...27 What is the Vertical Housing Abatement Program?...30 Elaine Howard Consulting, LLC ECONorthwest i

Executive Summary The city of Klamath Falls, Oregon is conducting a feasibility study for an urban renewal area (Area) to serve the industrial and commercial area at the east end of the downtown and adjacent to and west of the rail road from Esplanade Avenue to the north down to South 6 th Street to the south, (Exhibit 3). The Area is largely industrial and general commercial in nature (Exhibit 4, zoning map) with the majority of the buildings in disrepair. The transportation network is in need of improvement and there are minimal storm water facilities in the Area. The road bed is irregular with many pot holes, there are limited sidewalks, and no bike paths. There are also non-conforming uses, most specifically residential uses in an industrial area. The Area will qualify as blighted as defined in ORS 457.010. A portion of the Area that is zoned commercial is under negotiation for a mixed-use development that could provide momentum in the northern section of the Area. This development will be more fully described in the Forecast Growth in Assessed Value section of the document. Klamath Falls presently has two other urban renewal areas, Lakefront and Town Center. A third urban renewal area was closed in FY2014/15. If an urban renewal area were to be established in this study area, the city would remain in compliance with the acreage and assessed value limitations for urban renewal as stated in ORS 457. The purpose of this feasibility study is to examine the financial feasibility of urban renewal in this area and to examine the impacts on taxing districts as a result of the potential of adding an additional urban renewal area (URA) in Klamath Falls. This report provides the City of Klamath Falls with baseline data to understand the financial capacity of a new URA. The feasibility study examines three financial scenarios: 1. An average 2% annual growth of assessed value that is slightly more than the assessed value growth in Klamath Falls in the past 6 years (1.9%). 2. A 3.2% gain in assessed value plus assumptions on development of Phase I of the Balsiger site. The value above the frozen base and new development assumptions are termed excess value. This is the term defined by the Department of Revenue and used by assessors to capture any additional value in an urban renewal area above the frozen base. 3. A 3.2% gain in assessed value plus assumptions on development of Phase I of the Balsiger site and projected an additional $5 million of assessed value growth in the Area over the 30 year time period. The summaries of the scenarios are listed below. More details on the scenarios are found later in the document. The summaries assume an urban renewal plan is adopted after the FY2016/17 tax roll is certified. This tax roll will show the change of ownership of a number of properties from private ownership to public ownership, identified in Exhibit 10. Elaine Howard Consulting, LLC ECONorthwest 1

Scenario 1 The annual average growth rate in the study area over the last six years has been just below 2%. This factor was used to establish a baseline scenario against which to compare the other two scenarios. This timeframe encompasses much of the worst recession in many years. A very conservative scenario might use this growth rate. However, if there is an incentive for development through use of urban renewal, the Area should see a growth rate higher than this very conservative level. Under this scenario of a 2% assessed value growth rate, the Area could support a maximum indebtedness $5,700,000 for a 30 year time period of urban renewal. This scenario does not project any new development beyond the 2% growth nor does it factor in the use of any Enterprise Zone benefits. This scenario is considered by the consulting team to be only a benchmark, not a valid scenario for using in an urban renewal plan. This conservative growth amount and indebtedness translates to a smaller real dollar amount for projects and administration, $3,600,000 of constant 2016 dollars. This amount is less than the nominal maximum indebtedness because the present day estimated costs of projects to be undertaken in the future must account for inflation. It takes an urban renewal plan with a 30-year duration to pay off the debt that is issued after year 16 of the Plan. Scenario 2 The Oregon Constitution limits increases in assessed value of properties to 3% per year. This excludes properties that undergo rehabilitation in excess of $25,000 and new development. Scenario 2 depicts this 3% limitation, adds an additional.2% starting in FYE 2020, and includes projected excess value from the potential new development of Phase I at the Balsiger site, as detailed in the section on tax increment forecasts. Under this scenario, the Area could support a maximum indebtedness of $13,500,000 for a 30 year time period of urban renewal. This translates to a smaller real dollar amount for projects and administration, $8,400,000 for a 30 year period. The amount available for projects is less than the nominal maximum indebtedness because the present day estimated costs of projects to be undertaken in the future must account for inflation. Scenario 3 Scenario 3 uses the assessed value growth rate of 3.2% starting in FYE 2020, uses the same excess value assumptions for the Balsiger site and considers the possibility of additional increased new development or rehabilitation in the Area, which is accounted for by projecting an additional $5 million of assessed value, composed of $2.5 million in FYE 2025 and $2.5 million in FYE 2028. Phase II of the Balsiger site alone will account for some assessed value growth. While there is no guarantee that this level of growth can be attained, it does not hurt the urban renewal plan to assume a higher level of growth. If the growth is not attained, either the project list will be reduced in the future or the urban renewal plan will last longer. Under this scenario, the Area could support a maximum indebtedness $15,100,000 for a 30 year time period of urban renewal. Elaine Howard Consulting, LLC ECONorthwest 2

This translates to a smaller dollar amount for projects and administration, $9,500,000 for the 30 year period. The amount available for projects is less than the nominal maximum indebtedness because the present day estimated costs of projects to be undertaken in the future must account for inflation. The duration of an urban renewal plan is not a requirement, but it is used as a factor in determining the financial feasibility. The assessed value increase factor to be used in an urban renewal plan can be determined by the Klamath Falls staff and City Council, if they decide to proceed with the development of an urban renewal plan. Exhibit 1 shows the projected tax increment revenues under the three scenarios. These are total revenues and will translate into lower maximum indebtedness amounts as some of these funds will be used to pay interest on long term debt. Exhibit 2 shows the projected maximum indebtedness for the three scenarios, with a 30-year duration. It also shows the total amount of funds for projects, accounting for annual inflation. Exhibit 1. Tax Increment Revenue Summaries Scenario 30 Years 2% $7,997,872 3.2% plus excess value $18,701,070 3.2% plus excess value plus $5m additional excess value $21,151,868 Source: ECONorthwest Exhibit 2. Maximum Indebtedness and Amounts for Projects Summaries Assessed Value Growth Scenario 1 Scenario 2 Scenario 3 Projects Completed 23 Years 23 Years 23 Years Term of URA 30 Years 30 Years 30 Years Projected Maximum Indebtedness $5,700,000 $13,500,000 $15,100,000 Total for Projects $3,600,000 $8,400,000 $9,500,000 Source: ECONorthwest Scenario 1 2% AV growth Scenario 2-3.2% of real property AV growth begins in FYE 2020, Phase I Balsiger Site Scenario 3-3.2% of real property AV growth begins in FYE 2020, Phase I Balsiger Site, plus additional is $5M in additional AV real property value growth in FYE 2025 and 2028. Elaine Howard Consulting, LLC ECONorthwest 3

Exhibit 3. Urban Renewal Feasibility Study Boundary Map Klamath Falls Urban Renewal Feasibility Study Source: ECONorthwest Elaine Howard Consulting, LLC ECONorthwest 4

Exhibit 4. Urban Renewal Feasibility Study Zoning Map Source: ECONorthwest Elaine Howard Consulting, LLC ECONorthwest 5

Methods The methods used for this feasibility study to establish potential maximum indebtedness and define impacts on the taxing jurisdictions included the following key steps: Step 1. Define boundary options Step 2. Identify projects and costs. Step 3. Determine applicable tax rates. Step 4. Forecast growth in assessed value. Step 5. Calculate tax increment revenue and revenue sharing. Step 6. Create a draft finance plan. Step 7. Present to Klamath Falls City Council Step 1. Define boundary options The City of Klamath Falls defined the boundary option as shown in Exhibit 3. It encompasses 163 acres, and $42,641,172 in assessed value (assumes change in value of publicly owned properties identified in Exhibit 10). The Area is primarily industrial, with some general commercial in the northern and western properties of the Area. There are also a few public/exempt properties in the Area. ORS 457 limits the total amount of assessed value and acreage that can be included in urban renewal districts in a city the size of Klamath Falls to 25% of acreage and 25% of assessed value. The City of Klamath Falls already has two existing URAs, Lakefront and Town Center. This potential urban renewal area does not exceed the assessed value and acreage statutory authority for urban renewal in Klamath Falls, see Exhibit 5. Exhibit 5. Statutory Limitation on Assessed Value and Acreage Urban Renewal Area Acres Frozen Base Lakefront 104 $1,405,520 Town Center 23.5 $3,917,950 Potential Urban Renewal Area 163.3 $42,641,172 Totals in urban renewal 290.8 $48,920,192 City 13,325.00 $1,339,814,749 Percentage of Total 2.18% 3.65% Source: City of Klamath Falls and Klamath County Assessor Elaine Howard Consulting, LLC ECONorthwest 6

Step 2. Identify projects and costs Klamath Falls Urban Renewal Feasibility Study The list of projects and their cost estimates were provided by City of Klamath Falls staff. Potential project allocations are shown below in Exhibit 6. These will be reviewed by City Council and if an urban renewal plan is directed, these will be updated. These project categories are typical categories for projects in an urban renewal area, focusing on infrastructure improvements and developer incentives. The City Council would also direct whether to add an administration category and how much to allocate to that category. Exhibit 6. Estimated project costs, Klamath Falls Feasibility Study Percentage Project Cost of Total Land Acquisition/Parcel Aggregation $2,000,000 25.00% Developer Assistance/Gap Financing $2,500,000 31.25% Infrastructure Improvements $2,500,000 31.25% Demolition $1,000,000 12.50% Total $8,000,000 100.00% Source: City of Klamath Falls The total project costs are estimated to be $8 million. Depending on the financial scenario used, these costs will be updated as directed by City Council. The proportional share of total costs could be one method to use for updating the cost estimates. Step 3. Determine applicable tax rates All properties within the boundary options are located within tax code areas 100 and 101, and have the same tax rate. Details of the applicable tax rate are shown below in Exhibit 7. Note that some of these taxing districts, Klamath Falls Police and Klamath Falls Schools, also have rates for general obligation (GO) bonds. However all of these bonds were approved after 2001, and Oregon statutes preclude new urban renewal areas from including GO bond rates for all bonds approved after 2001. Tax rate information was obtained from Klamath County Assessor Summary Table 4a and the Klamath County FY 2015/16 Tax Book. The Klamath Falls School District and the Southern Oregon Education Service District are not directly affected by the tax increment financing, but the amounts of their taxes divided for the urban renewal plan are shown in the charts. Under current school funding law, property tax revenues are combined with State School Fund revenues to achieve per-student funding targets. Under this system, property taxes foregone because of the use of Tax Increment Financing are replaced, as determined by a funding formula at the State level with State School Fund revenues. Elaine Howard Consulting, LLC ECONorthwest 7

Exhibit 7. Applicable tax rates for Klamath Falls Feasibility Study, FY 2015/16 District Name Permanent Rates Klamath County 1.7326 Klamath Falls City 5.4423 Fire District 1 2.8822 Library 0.4900 Klamath Vector 0.1805 Klamath 911 0.1541 County Extension 0.1500 Basin transit 0.4822 General Government 11.5139 Klamath Schools 3.1127 Southern Oregon Education Service District 0.3524 Klamath Community College 0.4117 Education 3.8768 Total 15.3907 Source: Klamath County Assessor Tax Book FY 2015/16 Klamath Falls Urban Renewal Feasibility Study Step 4. Forecast growth in assessed value The Klamath County Assessor provided data on the assessed value of all properties in the city of Klamath Falls for FY 2015-16. The current assessed value of the boundary option is determined from that information. Growth rates for assessed value vary over time, depending on market cycles and new development. In Oregon, appreciation is capped at 3.0% per year, which means any growth above 3.0% per year requires new development to occur. Recent historical trends in the city of Klamath Falls were reviewed to determine a reasonable growth rate to use for the analysis. Exhibit 8 shows historical growth in assessed value in the Area from 2010 to 2016. This shows annual growth varying from -1.10% per year to 4.91% per year, with an average annual growth rate (AAGR) of 1.9%. Exhibit 9 shows the growth rates for the city as a whole for the same time period. The growth in the study area in the last two years, when the city has been coming out of the recession, has been much lower in the study area than in the city as a whole. Exhibit 8. Historical Assessed Value Growth for Potential Area FYE Real Property Personal Property Utility Total Assessed Value Growth Rate 2011 $37,076,540 $1,219,939 $2,440,956 $40,737,435 4.44% 2012 $37,780,130 $1,235,610 $2,487,277 $41,503,017 1.88% 2013 $37,250,230 $1,343,922 $2,452,391 $41,046,543-1.10% 2014 $39,221,970 $1,257,973 $2,582,201 $43,062,144 4.91% 2015 $39,120,160 $1,321,499 $2,575,499 $43,017,158-0.10% 2016 $39,631,720 $1,355,825 $2,609,177 $43,596,722 1.35% AAGR 1.9% 1.7% 1.9% 1.9% Source: Klamath County Assessor, City of Klamath Falls AAGR: Average Annual Growth Rate Elaine Howard Consulting, LLC ECONorthwest 8

Exhibit 9. Historical Assessed Value Growth for City FYE Real Property Manufactured Property Personal Property Klamath Falls Urban Renewal Feasibility Study Utility Total Assessed Value Growth Rate 2011 $1,167,972,940 $3,937,130 $47,138,294 $44,965,790 $1,264,014,154 2.58% 2012 $1,179,509,280 $3,455,300 $44,972,566 $46,187,620 $1,274,124,766 0.80% 2013 $1,183,731,580 $3,560,230 $47,443,726 $51,786,800 $1,286,522,336 0.97% 2014 $1,179,242,030 $3,266,050 $49,256,909 $52,325,300 $1,284,090,289-0.19% 2015 $1,219,320,080 $3,074,670 $48,015,872 $56,780,736 $1,327,191,358 3.36% 2016 $1,243,039,592 $3,444,640 $50,203,798 $65,482,000 $1,362,170,030 2.64% AAGR 1.25% -2.64% 1.27% 7.81% 1.51% 1.69% Source: Klamath County Assessor, City of Klamath Falls AAGR: Average Annual Growth Rate The period shown in Exhibits 8 and 9 includes the most severe economic recession since the Great Depression, and future growth rates (particularly in the short-term) are estimated to be higher than in recent years, as real market values recover. Indeed, long-term trends statewide demonstrate annual assessed value growth closer to 4.5% per year. Areas with development potential, and areas that receive targeted public investments (like the kinds of investment facilitated by urban renewal) are also more likely to see higher growth in assessed value. For the analysis, annual average growth in assessed value of 2%, 3.2% with some exception value and 3.2% with the baseline exception value and additional assumptions for exception value per year were used. Exception Value is defined as the assessed value of new development that will occur in the Area. This is a planning level analysis to demonstrate the potential of urban renewal to assist with economic development in Klamath Falls. If actual growth is slower than is forecast, that means the Area will need to spend less on projects, or phase those projects over a longer period of time. Additionally, before the Area incurs debt to fund any expenditure on projects, the city will need to conduct another feasibility study, providing a more detailed, short-term forecast of TIF revenues, and confirming that the Area has sufficient financial capacity to pay debt service. The forecasts include the change of ownership of a number of parcels from private ownership to public ownership. This will reduce their assessed value to zero. These properties are shown in Exhibit 10. A number of these properties will return to private ownership once the Balsiger site is developed, and that assumption is included in the financial modelling. Elaine Howard Consulting, LLC ECONorthwest 9

Exhibit 10. Properties Moving from Private to Public Ownership Property Assessed Value FY15/16 R3809-028CC 11400-000 $74,500 R3809-028CC 11300-000 $59,620 R3809-028CC 11200-000 $473,860 R3809-028CC 11100-000 $27,920 R3809-028CC 11000-000 $12,500 R3809-028CC 10900-000 $11,230 R3809-028CC 10800-000 $9,470 R3809-028CC 10700-000 $18,080 R3809-032AA 01600-000 $73,160 R3809-032AA 01700-000 $47,220 R3809-028CC 08000-000 $147,990 Total $955,550 Source: Klamath County FY 2015/16 tax roll Note that for Scenarios 2 and 3, FY 2019-20, the forecast of assessed value also includes projected development (represented by the incremental 0.2% increase in the growth rate). The process of establishing assessed values results in a lag time between when construction occurs and when the value of that new construction activity hits the tax rolls. This means that any new development in 2017 will not be added to the tax roll until FYE 2020. If the timeframe for construction lags, this could be pushed out further. The new assessed value assumptions include the Balsiger site with the following development assumptions: 1. The project will be in two phases. 2. Phase 1 will be approximately 50-60 residential units over retail, with 3 floors of residential. 3. Phase 1 will start approximately in April of 2017 and take 18 months to construct. 4. The total value of Phase 1 will be between $11-12 million. 5. The developer will apply for the State's Vertical Housing Abatement Program, which will provide a 60% tax credit for the residential improvements (not land) for a 10-year time frame. 6. Phase 2 is not yet defined and therefore assumptions regarding Phase 2 are not included. However, it will add additional value and therefore additional capacity. If the City Council authorizes proceeding with an urban renewal plan, then the development assumptions will be updated at that time. Scenario 3 includes additional new development growth of $2.5 million in 2025 and $2.5 million in 2028. This is based on the assumption that the Balsiger site development will provide momentum to spur additional mixed use development in the Area and understanding Phase II of the Balsiger site development will also add increased assessed value. Elaine Howard Consulting, LLC ECONorthwest 10

Step 5. Calculate tax increment revenue and revenue sharing Calculating tax increment revenue is done by forecasting assessed value, based on assumed assessed value growth as described in Step 4, and then subtracting the initial assessed value (the frozen base) to determine the excess value. The excess value is that amount of growth in the Area including both new development (exception value) and the annual growth of assessed values within the Area. This excess value is multiplied by the applicable tax rate to determine the total amount of tax increment revenue. Then, the revenue sharing thresholds are applied to determine the portion of tax increment revenue that will be collected by the Area and the portion that will be shared with overlapping taxing districts. The tax increment revenue is forecasted using three different growth scenarios. If it is decided to pursue an urban renewal plan for the area, the city will decide which growth scenario to use in the financial feasibility portion of the urban renewal plan. Exhibits 11 through 13 show the projections of assessed value, tax increment revenues, delinquencies and the portion of TIF projected to be received by the Area. Tax increment revenues would begin in FYE 2018 if an urban renewal area is adopted by the Klamath Falls City Council by December 31, 2016. If the urban renewal area is approved after that date, the first year of tax increment is delayed. Scenario 1 - Baseline The Area would receive $7,997,872 in TIF over a 30-year time frame. This translates to $5,700,000 in maximum indebtedness and $3,600,000 in present value dollars available for projects if the area had a 30-year term. No revenue sharing is projected in this scenario. Scenario 2-3.2% Assessed Value (AV) Growth Plus Balsiger Site Phase I The Area would receive $18,701,070 in tax increment over a 30-year time frame. This translates to $13,500,000 in maximum indebtedness and $8,400,000 in present value dollars available for projects for the 30-year time frame. No revenue sharing is projected in this scenario because revenue sharing targets, as established by ORS 457, are not met. Scenario 3-3.2% AV Growth, Balsiger Site Phase I, Plus Additional $5 Million of AV Growth The Area would receive $21,151,868 in tax increment over a 30-year time frame. This translates to $15,100,000 in maximum indebtedness and $9,500,000 in present value dollars available for projects for the 30-year time frame. No revenue sharing is projected in this scenario because revenue sharing targets, as established by ORS 457, are not met. The amounts projected to be available for projects over incremental time periods are shown in Exhibit 14. The charts show a 30 year time period for collecting tax increment revenues, shown in bold in the tables below. Elaine Howard Consulting, LLC ECONorthwest 11

Exhibit 11. Scenario 1-2% Assessed Value Growth Baseline Scenario FYE Assessed Value Frozen Base Excess Value Tax Rate Gross Tax Increment Underpayments/ Delinquencies 5% Net Tax Increment Cumulative Tax Increment 2018 $44,361,483 $43,491,650 $869,833 15.3907 $13,387 $669 $14,056 $14,056 2019 $45,248,713 $43,491,650 $1,757,063 15.3907 $27,042 $1,352 $28,394 $42,450 2020 $46,153,687 $43,491,650 $2,662,037 15.3907 $40,971 $2,049 $43,020 $85,470 2021 $47,076,761 $43,491,650 $3,585,111 15.3907 $55,177 $2,759 $57,936 $143,406 2022 $48,018,297 $43,491,650 $4,526,647 15.3907 $69,668 $3,483 $73,151 $216,557 2023 $48,978,663 $43,491,650 $5,487,013 15.3907 $84,449 $4,222 $88,671 $305,228 2024 $49,958,236 $43,491,650 $6,466,586 15.3907 $99,525 $4,976 $104,501 $409,729 2025 $50,957,400 $43,491,650 $7,465,750 15.3907 $114,903 $5,745 $120,648 $530,377 2026 $51,976,548 $43,491,650 $8,484,898 15.3907 $130,589 $6,529 $137,118 $667,495 2027 $53,016,079 $43,491,650 $9,524,429 15.3907 $146,588 $7,329 $153,917 $821,412 2028 $54,076,401 $43,491,650 $10,584,751 15.3907 $162,907 $8,145 $171,052 $992,464 2029 $55,157,928 $43,491,650 $11,666,278 15.3907 $179,552 $8,978 $188,530 $1,180,994 2030 $56,261,086 $43,491,650 $12,769,436 15.3907 $196,531 $9,827 $206,358 $1,387,352 2031 $57,386,308 $43,491,650 $13,894,658 15.3907 $213,849 $10,692 $224,541 $1,611,893 2032 $58,534,034 $43,491,650 $15,042,384 15.3907 $231,513 $11,576 $243,089 $1,854,982 2033 $59,704,715 $43,491,650 $16,213,065 15.3907 $249,530 $12,477 $262,007 $2,116,989 2034 $60,898,810 $43,491,650 $17,407,160 15.3907 $267,908 $13,395 $281,303 $2,398,292 2035 $62,116,786 $43,491,650 $18,625,136 15.3907 $286,654 $14,333 $300,987 $2,699,279 2036 $63,359,123 $43,491,650 $19,867,473 15.3907 $305,774 $15,289 $321,063 $3,020,342 2037 $64,626,306 $43,491,650 $21,134,656 15.3907 $325,277 $16,264 $341,541 $3,361,883 2038 $65,918,833 $43,491,650 $22,427,183 15.3907 $345,170 $17,259 $362,429 $3,724,312 2039 $67,237,210 $43,491,650 $23,745,560 15.3907 $365,461 $18,273 $383,734 $4,108,046 2040 $68,581,954 $43,491,650 $25,090,304 15.3907 $386,157 $19,308 $405,465 $4,513,511 2041 $69,953,593 $43,491,650 $26,461,943 15.3907 $407,268 $20,363 $427,631 $4,941,142 2042 $71,352,666 $43,491,650 $27,861,016 15.3907 $428,801 $21,440 $450,241 $5,391,383 2043 $72,779,719 $43,491,650 $29,288,069 15.3907 $450,764 $22,538 $473,302 $5,864,685 2044 $74,235,313 $43,491,650 $30,743,663 15.3907 $473,166 $23,658 $496,824 $6,361,509 2045 $75,720,020 $43,491,650 $32,228,370 15.3907 $496,017 $24,801 $520,818 $6,882,327 2046 $77,234,421 $43,491,650 $33,742,771 15.3907 $519,325 $25,966 $545,291 $7,427,618 2047 $78,779,109 $43,491,650 $35,287,459 15.3907 $543,099 $27,155 $570,254 $7,997,872 Source: ECONorthwest Elaine Howard Consulting, LLC ECONorthwest 12

Exhibit 12. Scenario 2-3.2% Assessed Value growth Scenario Phase 1 of Balsiger Development Assessed Gross Tax Underpayments/ Net Tax FYE Value Frozen Base Excess Value Tax Rate Increment Delinquencies Increment Cumulative Tax Increment 2018 $45,083,086 $43,491,650 $1,591,436 15.3907 $24,493 $1,225 $25,718 $25,718 2019 $45,984,748 $43,491,650 $2,493,098 15.3907 $38,371 $1,919 $40,290 $66,008 2020 $50,705,768 $43,491,650 $7,214,118 15.3907 $111,030 $5,552 $116,582 $182,590 2021 $52,276,850 $43,491,650 $8,785,200 15.3907 $135,210 $6,761 $141,971 $324,561 2022 $53,897,177 $43,491,650 $10,405,527 15.3907 $160,148 $8,007 $168,155 $492,716 2023 $55,568,304 $43,491,650 $12,076,654 15.3907 $185,868 $9,293 $195,161 $687,877 2024 $57,291,835 $43,491,650 $13,800,185 15.3907 $212,395 $10,620 $223,015 $910,892 2025 $59,069,425 $43,491,650 $15,577,775 15.3907 $239,753 $11,988 $251,741 $1,162,633 2026 $60,902,784 $43,491,650 $17,411,134 15.3907 $267,970 $13,399 $281,369 $1,444,002 2027 $62,793,673 $43,491,650 $19,302,023 15.3907 $297,072 $14,854 $311,926 $1,755,928 2028 $64,743,911 $43,491,650 $21,252,261 15.3907 $327,087 $16,354 $343,441 $2,099,369 2029 $66,755,372 $43,491,650 $23,263,722 15.3907 $358,045 $17,902 $375,947 $2,475,316 2030 $75,482,380 $43,491,650 $31,990,730 15.3907 $492,360 $24,618 $516,978 $2,992,294 2031 $77,835,036 $43,491,650 $34,343,386 15.3907 $528,569 $26,428 $554,997 $3,547,291 2032 $80,261,720 $43,491,650 $36,770,070 15.3907 $565,917 $28,296 $594,213 $4,141,504 2033 $82,764,778 $43,491,650 $39,273,128 15.3907 $604,441 $30,222 $634,663 $4,776,167 2034 $85,346,628 $43,491,650 $41,854,978 15.3907 $644,177 $32,209 $676,386 $5,452,553 2035 $88,009,764 $43,491,650 $44,518,114 15.3907 $685,165 $34,258 $719,423 $6,171,976 2036 $90,756,762 $43,491,650 $47,265,112 15.3907 $727,443 $36,372 $763,815 $6,935,791 2037 $93,590,277 $43,491,650 $50,098,627 15.3907 $771,053 $38,553 $809,606 $7,745,397 2038 $96,513,051 $43,491,650 $53,021,401 15.3907 $816,036 $40,802 $856,838 $8,602,235 2039 $99,527,912 $43,491,650 $56,036,262 15.3907 $862,437 $43,122 $905,559 $9,507,794 2040 $102,637,776 $43,491,650 $59,146,126 15.3907 $910,300 $45,515 $955,815 $10,463,609 2041 $105,845,655 $43,491,650 $62,354,005 15.3907 $959,672 $47,984 $1,007,656 $11,471,265 2042 $109,154,657 $43,491,650 $65,663,007 15.3907 $1,010,600 $50,530 $1,061,130 $12,532,395 2043 $112,567,984 $43,491,650 $69,076,334 15.3907 $1,063,133 $53,157 $1,116,290 $13,648,685 2044 $116,088,945 $43,491,650 $72,597,295 15.3907 $1,117,323 $55,866 $1,173,189 $14,821,874 2045 $119,720,954 $43,491,650 $76,229,304 15.3907 $1,173,222 $58,661 $1,231,883 $16,053,757 2046 $123,467,530 $43,491,650 $79,975,880 15.3907 $1,230,885 $61,544 $1,292,429 $17,346,186 2047 $127,332,306 $43,491,650 $83,840,656 15.3907 $1,290,366 $64,518 $1,354,884 $18,701,070 Source: ECONorthwest 3.2% AV growth on real property starts in FYE 2020 Elaine Howard Consulting, LLC ECONorthwest 13

Exhibit 13. Scenario 3-3.2% Assessed Value growth Scenario Phase 1 of Balsiger Development Plus $5M of Additional Excess Value FYE Assessed Value Frozen Base Excess Value Tax Rate Gross Tax Increment Compression Loss Net Tax Increment Cumulative Tax Increment 2018 $45,083,086 $43,491,650 $1,591,436 15.3907 $24,493 $1,225 $25,718 $25,718 2019 $45,984,748 $43,491,650 $2,493,098 15.3907 $38,371 $1,919 $40,290 $66,008 2020 $50,705,768 $43,491,650 $7,214,118 15.3907 $111,030 $5,552 $116,582 $182,590 2021 $52,276,850 $43,491,650 $8,785,200 15.3907 $135,210 $6,761 $141,971 $324,561 2022 $53,897,177 $43,491,650 $10,405,527 15.3907 $160,148 $8,007 $168,155 $492,716 2023 $55,568,304 $43,491,650 $12,076,654 15.3907 $185,868 $9,293 $195,161 $687,877 2024 $57,291,835 $43,491,650 $13,800,185 15.3907 $212,395 $10,620 $223,015 $910,892 2025 $61,569,425 $43,491,650 $18,077,775 15.3907 $278,230 $13,912 $292,142 $1,203,034 2026 $63,482,784 $43,491,650 $19,991,134 15.3907 $307,678 $15,384 $323,062 $1,526,096 2027 $65,456,233 $43,491,650 $21,964,583 15.3907 $338,050 $16,903 $354,953 $1,881,049 2028 $69,991,673 $43,491,650 $26,500,023 15.3907 $407,854 $20,393 $428,247 $2,309,296 2029 $72,171,063 $43,491,650 $28,679,413 15.3907 $441,396 $22,070 $463,466 $2,772,762 2030 $81,071,373 $43,491,650 $37,579,723 15.3907 $578,378 $28,919 $607,297 $3,380,059 2031 $83,602,876 $43,491,650 $40,111,226 15.3907 $617,340 $30,867 $648,207 $4,028,266 2032 $86,214,131 $43,491,650 $42,722,481 15.3907 $657,529 $32,876 $690,405 $4,718,671 2033 $88,907,666 $43,491,650 $45,416,016 15.3907 $698,984 $34,949 $733,933 $5,452,604 2034 $91,686,089 $43,491,650 $48,194,439 15.3907 $741,746 $37,087 $778,833 $6,231,437 2035 $94,552,088 $43,491,650 $51,060,438 15.3907 $785,856 $39,293 $825,149 $7,056,586 2036 $97,508,440 $43,491,650 $54,016,790 15.3907 $831,356 $41,568 $872,924 $7,929,510 2037 $100,558,009 $43,491,650 $57,066,359 15.3907 $878,291 $43,915 $922,206 $8,851,716 2038 $103,703,750 $43,491,650 $60,212,100 15.3907 $926,706 $46,335 $973,041 $9,824,757 2039 $106,948,713 $43,491,650 $63,457,063 15.3907 $976,649 $48,832 $1,025,481 $10,850,238 2040 $110,296,043 $43,491,650 $66,804,393 15.3907 $1,028,166 $51,408 $1,079,574 $11,929,812 2041 $113,748,987 $43,491,650 $70,257,337 15.3907 $1,081,310 $54,066 $1,135,376 $13,065,188 2042 $117,310,895 $43,491,650 $73,819,245 15.3907 $1,136,130 $56,807 $1,192,937 $14,258,125 2043 $120,985,222 $43,491,650 $77,493,572 15.3907 $1,192,680 $59,634 $1,252,314 $15,510,439 2044 $124,775,535 $43,491,650 $81,283,885 15.3907 $1,251,016 $62,551 $1,313,567 $16,824,006 2045 $128,685,515 $43,491,650 $85,193,865 15.3907 $1,311,193 $65,560 $1,376,753 $18,200,759 2046 $132,718,957 $43,491,650 $89,227,307 15.3907 $1,373,271 $68,664 $1,441,935 $19,642,694 2047 $136,879,779 $43,491,650 $93,388,129 15.3907 $1,437,309 $71,865 $1,509,174 $21,151,868 Source: ECONorthwest property AV growth 3.2% AV growth on real property starts in FYE 2020, Phase I of Balsiger Development, Additional $5M of real Elaine Howard Consulting, LLC ECONorthwest 14

Step 6. Create a draft finance plan Klamath Falls Urban Renewal Feasibility Study The final step in the analysis is to take the annual forecast of tax increment revenue for the Area, and translate it into a financing plan showing the year projects would be funded, the debt incurred, and the timing for retiring the debt. The available funding is in constant 2016 dollars, meaning, for example, the $3,600,000 in available funding under the 2% growth scenario means you could specify $3,600,000 of projects, programs and administration in today s costs for that scenario. The difference between the Maximum Indebtedness and the Available Funding is the cost of inflation increasing the project costs over time. The projects would be completed in a shorter timeframe than the life of the district. The district lasts longer in order to pay off remaining debt. If a shorter term of urban renewal is desired, that can be accomplished by issuing less debt and therefore having less maximum indebtedness and less funding to do projects. The table shows a 30-year duration for all scenarios. Exhibit 14. AV Growth Scenario Finance Plan 25-30 Year Districts Assessed Value Growth Scenario 1 Scenario 2 Scenario 3 Projects Completed 23 Years 23 Years 23 Years Term of URA 30 Years 30 Years 30 Years Projected Maximum Indebtedness $5,700,000 $13,500,000 $15,100,000 Available Funding (2016 $) Years 1-5 $200,000 $1,000,000 $1,100,000 Years 6-10 $900,000 $1,400,000 $1,300,000 Years 11-15 $900,000 $1,600,000 $3,400,000 Years 16+ $1,600,000 $4,400,000 $3,700,000 Total for Projects $3,600,000 $8,400,000 $9,500,000 Source: ECONorthwest Scenario 1 2% AV growth Scenario 2-3.2% of real property AV growth begins in FYE 2020, Phase I Balsiger Site Scenario 3-3.2% of real property AV growth begins in FYE 2020, Phase I Balsiger Site additional is $5M in additional AV real property value growth in FYE 2025 and 2028. Elaine Howard Consulting, LLC ECONorthwest 15

Impacts on Taxing Districts Klamath Falls Urban Renewal Feasibility Study Tax increment financing through urban renewal is not finding new money. These tax revenues are generated from the existing property tax rates of other taxing districts that overlap the urban renewal area. A new urban renewal area would impact these affected taxing districts, by redirecting a portion of these property tax revenues to the urban renewal area. The impact to other taxing districts is measured in terms of foregone revenue. Exhibits 15a through 17b summarize the amount of foregone revenue that would be caused by the proposed new Area given the boundary options. Note that the foregone revenue for the School District and Education Service District does not have a direct impact on school funding, as funding is equalized at the State level. The amount of foregone revenues is roughly equal to the amount of tax increment revenue needed to pay debt service on the maximum indebtedness. In general these impacts start off very small, and grow over time as the assessed value of the Area grows. For example, in Scenario 3 shown in Exhibit 17a, the City of Klamath Falls is estimated to have a total impact of only $2,895 in FY 2017-18 (the first year in which tax increment would be collected), and an impact of $169,894 per year in FY 2046-47 (the 30 th year tax increment would be collected). Detailed tables showing the annual foregone revenues for each taxing district for each scenario are shown in Exhibits 15a through 17b. Recent changes to Oregon Revised Statutes governing urban renewal give urban renewal agencies the ability to under-levy their annual tax increment revenue. That means that a new Area could voluntarily reduce the annual amount of tax increment revenue collections, sharing some of that revenue with overlapping taxing districts. If this were the case, then the amount of annual foregone revenues would be less than what is shown in Exhibits 15a through 17b, though it would have little impact on the total foregone revenues, as the reduced tax increment revenues (TIF) for the Area would result in an extended period of time for the Area to pay off its maximum indebtedness. To the extent that urban renewal investment is successful in stimulating new taxable development, not all of the foregone revenues should truly be categorized as impacts to taxing districts. Successful urban renewal areas cause new development to occur, above and beyond the level that would have occurred without urban renewal. In these situations, the property taxes would not have existed but for the Area s targeted investments, so even though these tax revenues show up as tax increment revenue, and as foregone revenues, they really should not be counted as a negative impact to taxing districts. Note that the analysis was not conducted at the detailed level required to estimate the portion of tax increment revenue in the proposed new Area that would likely be generated by new development dependent upon urban renewal investment. Elaine Howard Consulting, LLC ECONorthwest 16

Exhibit 15a. Scenario 1-2% Assessed Value growth Scenario - General Government Klamath Co Library KFalls City Klamath Co Fire Dist #1 Basin Transit Klamath Vector Klamath 911 Klamath Co Ext Serv Dist FYE Subtotal 2018 -$1,582 -$448 -$4,970 -$2,632 -$440 -$165 -$141 -$137 -$10,515 2019 -$3,196 -$904 -$10,040 -$5,317 -$890 -$333 -$284 -$277 -$21,241 2020 -$4,843 -$1,370 -$15,212 -$8,056 -$1,348 -$505 -$431 -$419 -$32,184 2021 -$6,522 -$1,845 -$20,487 -$10,850 -$1,815 -$679 -$580 -$565 -$43,343 2022 -$8,235 -$2,329 -$25,867 -$13,699 -$2,292 -$858 -$732 -$713 -$54,725 2023 -$9,982 -$2,823 -$31,355 -$16,605 -$2,778 -$1,040 -$888 -$864 -$66,335 2024 -$11,764 -$3,327 -$36,953 -$19,570 -$3,274 -$1,226 -$1,046 -$1,018 -$78,178 2025 -$13,582 -$3,841 -$42,662 -$22,594 -$3,780 -$1,415 -$1,208 -$1,176 -$90,258 2026 -$15,436 -$4,365 -$48,486 -$25,678 -$4,296 -$1,608 -$1,373 -$1,336 -$102,578 2027 -$17,327 -$4,900 -$54,427 -$28,824 -$4,822 -$1,805 -$1,541 -$1,500 -$115,146 2028 -$19,256 -$5,446 -$60,486 -$32,033 -$5,359 -$2,006 -$1,713 -$1,667 -$127,966 2029 -$21,224 -$6,002 -$66,666 -$35,306 -$5,907 -$2,211 -$1,888 -$1,837 -$141,041 2030 -$23,231 -$6,570 -$72,970 -$38,644 -$6,465 -$2,420 -$2,066 -$2,011 -$154,377 2031 -$25,278 -$7,149 -$79,400 -$42,050 -$7,035 -$2,633 -$2,248 -$2,188 -$167,981 2032 -$27,366 -$7,739 -$85,959 -$45,523 -$7,616 -$2,851 -$2,434 -$2,369 -$181,857 2033 -$29,495 -$8,342 -$92,648 -$49,066 -$8,209 -$3,073 -$2,623 -$2,554 -$196,010 2034 -$31,668 -$8,956 -$99,471 -$52,679 -$8,813 -$3,299 -$2,817 -$2,742 -$210,445 2035 -$33,883 -$9,583 -$106,432 -$56,366 -$9,430 -$3,530 -$3,014 -$2,933 -$225,171 2036 -$36,143 -$10,222 -$113,531 -$60,125 -$10,059 -$3,765 -$3,215 -$3,129 -$240,189 2037 -$38,449 -$10,874 -$120,772 -$63,960 -$10,701 -$4,006 -$3,420 -$3,329 -$255,511 2038 -$40,800 -$11,539 -$128,158 -$67,872 -$11,355 -$4,251 -$3,629 -$3,532 -$271,136 2039 -$43,199 -$12,217 -$135,692 -$71,861 -$12,023 -$4,500 -$3,842 -$3,740 -$287,074 2040 -$45,645 -$12,909 -$143,376 -$75,931 -$12,703 -$4,755 -$4,060 -$3,952 -$303,331 2041 -$48,140 -$13,615 -$151,214 -$80,082 -$13,398 -$5,015 -$4,282 -$4,168 -$319,914 2042 -$50,686 -$14,335 -$159,210 -$84,316 -$14,106 -$5,280 -$4,508 -$4,388 -$336,829 2043 -$53,282 -$15,069 -$167,364 -$88,635 -$14,829 -$5,551 -$4,739 -$4,613 -$354,082 2044 -$55,930 -$15,818 -$175,682 -$93,040 -$15,566 -$5,827 -$4,974 -$4,842 -$371,679 2045 -$58,631 -$16,581 -$184,166 -$97,533 -$16,318 -$6,108 -$5,215 -$5,076 -$389,628 2046 -$61,386 -$17,361 -$192,820 -$102,116 -$17,084 -$6,395 -$5,460 -$5,314 -$407,936 2047 -$64,196 -$18,155 -$201,647 -$106,791 -$17,866 -$6,688 -$5,710 -$5,558 -$426,611 30 years -$900,357 -$254,634 -$2,828,123 -$1,497,754 -$250,577 -$93,798 -$80,081 -$77,947 -$5,983,271 Source: ECONorthwest Elaine Howard Consulting, LLC ECONorthwest 17

Exhibit 15b. Scenario 1-2% Assessed Value growth Scenario - Education Klamath Falls Urban Renewal Feasibility Study KFalls City Schools S Oregon ESD Klamath CC FYE Subtotal Total 2018 -$2,843 -$322 -$376 -$3,541 -$14,056 2019 -$5,743 -$650 -$760 -$7,153 -$28,394 2020 -$8,701 -$985 -$1,151 -$10,837 -$43,021 2021 -$11,717 -$1,327 -$1,550 -$14,594 -$57,937 2022 -$14,794 -$1,675 -$1,957 -$18,426 -$73,151 2023 -$17,933 -$2,030 -$2,372 -$22,335 -$88,670 2024 -$21,135 -$2,393 -$2,795 -$26,323 -$104,501 2025 -$24,401 -$2,762 -$3,227 -$30,390 -$120,648 2026 -$27,732 -$3,140 -$3,668 -$34,540 -$137,118 2027 -$31,129 -$3,524 -$4,117 -$38,770 -$153,916 2028 -$34,594 -$3,917 -$4,576 -$43,087 -$171,053 2029 -$38,129 -$4,317 -$5,043 -$47,489 -$188,530 2030 -$41,735 -$4,725 -$5,520 -$51,980 -$206,357 2031 -$45,412 -$5,141 -$6,006 -$56,559 -$224,540 2032 -$49,164 -$5,566 -$6,503 -$61,233 -$243,090 2033 -$52,990 -$5,999 -$7,009 -$65,998 -$262,008 2034 -$56,892 -$6,441 -$7,525 -$70,858 -$281,303 2035 -$60,873 -$6,892 -$8,051 -$75,816 -$300,987 2036 -$64,934 -$7,351 -$8,588 -$80,873 -$321,062 2037 -$69,075 -$7,820 -$9,136 -$86,031 -$341,542 2038 -$73,300 -$8,299 -$9,695 -$91,294 -$362,430 2039 -$77,608 -$8,786 -$10,265 -$96,659 -$383,733 2040 -$82,003 -$9,284 -$10,846 -$102,133 -$405,464 2041 -$86,486 -$9,791 -$11,439 -$107,716 -$427,630 2042 -$91,059 -$10,309 -$12,044 -$113,412 -$450,241 2043 -$95,723 -$10,837 -$12,661 -$119,221 -$473,303 2044 -$100,480 -$11,376 -$13,290 -$125,146 -$496,825 2045 -$105,333 -$11,925 -$13,932 -$131,190 -$520,818 2046 -$110,283 -$12,485 -$14,586 -$137,354 -$545,290 2047 -$115,331 -$13,057 -$15,254 -$143,642 -$570,253 30 years -$1,617,532 -$183,126 -$213,942 -$2,014,600 -$7,997,871 Source: ECONorthwest Note that the foregone revenue for the School District and Education Service District does not have a direct impact on school funding, as funding is equalized at the State level. Elaine Howard Consulting, LLC ECONorthwest 18

Source: ECONorthwest Klamath Falls Urban Renewal Feasibility Study Exhibit 16a. Scenario 2 3.2% Assessed Value growth Scenario including Balsiger Phase 1 Projections - General Government Klamath Co Basin Klamath Klamath Klamath Co Klamath Co Library KFalls City Fire Dist #1 Transit Vector 911 Ext Serv Dist FYE Subtotal 2018 -$2,895 -$819 -$9,094 -$4,816 -$806 -$302 -$258 -$251 -$19,241 2019 -$4,536 -$1,283 -$14,247 -$7,545 -$1,262 -$473 -$403 -$393 -$30,142 2020 -$13,124 -$3,712 -$41,225 -$21,832 -$3,653 -$1,367 -$1,167 -$1,136 -$87,216 2021 -$15,982 -$4,520 -$50,202 -$26,587 -$4,448 -$1,665 -$1,421 -$1,384 -$106,209 2022 -$18,930 -$5,354 -$59,461 -$31,490 -$5,268 -$1,972 -$1,684 -$1,639 -$125,798 2023 -$21,970 -$6,213 -$69,011 -$36,548 -$6,115 -$2,289 -$1,954 -$1,902 -$146,002 2024 -$25,106 -$7,100 -$78,860 -$41,764 -$6,987 -$2,615 -$2,233 -$2,174 -$166,839 2025 -$28,340 -$8,015 -$89,018 -$47,143 -$7,887 -$2,952 -$2,521 -$2,454 -$188,330 2026 -$31,675 -$8,958 -$99,495 -$52,692 -$8,815 -$3,300 -$2,817 -$2,742 -$210,494 2027 -$35,115 -$9,931 -$110,300 -$58,414 -$9,773 -$3,658 -$3,123 -$3,040 -$233,354 2028 -$38,663 -$10,934 -$121,444 -$64,316 -$10,760 -$4,028 -$3,439 -$3,347 -$256,931 2029 -$42,322 -$11,969 -$132,938 -$70,403 -$11,779 -$4,409 -$3,764 -$3,664 -$281,248 2030 -$58,199 -$16,459 -$182,808 -$96,814 -$16,197 -$6,063 -$5,176 -$5,039 -$386,755 2031 -$62,478 -$17,670 -$196,252 -$103,934 -$17,388 -$6,509 -$5,557 -$5,409 -$415,197 2032 -$66,893 -$18,918 -$210,119 -$111,278 -$18,617 -$6,969 -$5,950 -$5,791 -$444,535 2033 -$71,447 -$20,206 -$224,423 -$118,853 -$19,884 -$7,443 -$6,355 -$6,186 -$474,797 2034 -$76,144 -$21,534 -$239,177 -$126,666 -$21,192 -$7,933 -$6,772 -$6,592 -$506,010 2035 -$80,989 -$22,905 -$254,395 -$134,726 -$22,540 -$8,437 -$7,203 -$7,012 -$538,207 2036 -$85,986 -$24,318 -$270,092 -$143,039 -$23,931 -$8,958 -$7,648 -$7,444 -$571,416 2037 -$91,141 -$25,776 -$286,284 -$151,614 -$25,365 -$9,495 -$8,106 -$7,891 -$605,672 2038 -$96,458 -$27,280 -$302,986 -$160,459 -$26,845 -$10,049 -$8,579 -$8,351 -$641,007 2039 -$101,943 -$28,831 -$320,214 -$169,583 -$28,372 -$10,620 -$9,067 -$8,826 -$677,456 2040 -$107,600 -$30,431 -$337,985 -$178,994 -$29,946 -$11,210 -$9,570 -$9,316 -$715,052 2041 -$113,436 -$32,081 -$356,317 -$188,703 -$31,570 -$11,818 -$10,089 -$9,821 -$753,835 2042 -$119,456 -$33,784 -$375,226 -$198,717 -$33,246 -$12,445 -$10,625 -$10,342 -$793,841 2043 -$125,666 -$35,540 -$394,731 -$209,046 -$34,974 -$13,092 -$11,177 -$10,880 -$835,106 2044 -$132,071 -$37,351 -$414,851 -$219,702 -$36,757 -$13,759 -$11,747 -$11,434 -$877,672 2045 -$138,679 -$39,220 -$435,606 -$230,693 -$38,596 -$14,447 -$12,334 -$12,006 -$921,581 2046 -$145,495 -$41,148 -$457,015 -$242,032 -$40,493 -$15,157 -$12,940 -$12,596 -$966,876 2047 -$152,525 -$43,136 -$479,100 -$253,728 -$42,449 -$15,890 -$13,566 -$13,205 -$1,013,599 30 years -$2,105,264 -$595,396 -$6,612,876 -$3,502,131 -$585,915 -$219,324 -$187,245 -$182,267 -$13,990,418 Elaine Howard Consulting, LLC ECONorthwest 19

Exhibit 16b. 3.2% Assessed Value growth Scenario including Balsiger Phase 1 Projections - Education KFalls City Schools S Oregon ESD Klamath CC FYE Perm Subtotal Total 2018 -$5,201 -$589 -$688 -$6,478 -$25,719 2019 -$8,148 -$923 -$1,078 -$10,149 -$40,291 2020 -$23,578 -$2,669 -$3,119 -$29,366 -$116,582 2021 -$28,713 -$3,251 -$3,798 -$35,762 -$141,971 2022 -$34,009 -$3,850 -$4,498 -$42,357 -$168,155 2023 -$39,470 -$4,469 -$5,221 -$49,160 -$195,162 2024 -$45,104 -$5,106 -$5,966 -$56,176 -$223,015 2025 -$50,913 -$5,764 -$6,734 -$63,411 -$251,741 2026 -$56,906 -$6,442 -$7,527 -$70,875 -$281,369 2027 -$63,086 -$7,142 -$8,344 -$78,572 -$311,926 2028 -$69,459 -$7,864 -$9,187 -$86,510 -$343,441 2029 -$76,034 -$8,608 -$10,057 -$94,699 -$375,947 2030 -$104,556 -$11,837 -$13,829 -$130,222 -$516,977 2031 -$112,246 -$12,708 -$14,846 -$139,800 -$554,997 2032 -$120,177 -$13,606 -$15,895 -$149,678 -$594,213 2033 -$128,358 -$14,532 -$16,977 -$159,867 -$634,664 2034 -$136,796 -$15,487 -$18,093 -$170,376 -$676,386 2035 -$145,500 -$16,473 -$19,245 -$181,218 -$719,425 2036 -$154,478 -$17,489 -$20,432 -$192,399 -$763,815 2037 -$163,739 -$18,538 -$21,657 -$203,934 -$809,606 2038 -$173,292 -$19,619 -$22,920 -$215,831 -$856,838 2039 -$183,145 -$20,735 -$24,224 -$228,104 -$905,560 2040 -$193,309 -$21,885 -$25,568 -$240,762 -$955,814 2041 -$203,794 -$23,072 -$26,955 -$253,821 -$1,007,656 2042 -$214,609 -$24,297 -$28,385 -$267,291 -$1,061,132 2043 -$225,765 -$25,560 -$29,861 -$281,186 -$1,116,292 2044 -$237,272 -$26,862 -$31,383 -$295,517 -$1,173,189 2045 -$249,143 -$28,206 -$32,953 -$310,302 -$1,231,883 2046 -$261,388 -$29,593 -$34,572 -$325,553 -$1,292,429 2047 -$274,019 -$31,023 -$36,243 -$341,285 -$1,354,884 30 years -$3,782,207 -$428,199 -$500,255 -$4,710,661 -$18,701,079 Source: ECONorthwest Note that the foregone revenue for the School District and Education Service District does not have a direct impact on school funding, as funding is equalized at the State level. Elaine Howard Consulting, LLC ECONorthwest 20

Exhibit 17a. Scenario 3-3.2% Assessed Value growth Scenario including Balsiger Phase 1 Projections Plus $5M Additional Excess Value - General Government FYE Klamath Co Library KFalls City Klamath County Basin Transit Klamath Vector Klamath 911 Klamath Co Fire District #1 Source: ECONorthwest 3.2% AV growth for real property starts in FYE 2020 Extension Subtotal 2018 -$2,895 -$819 -$9,094 -$4,816 -$806 -$302 -$258 -$251 -$19,241 2019 -$4,536 -$1,283 -$14,247 -$7,545 -$1,262 -$473 -$403 -$393 -$30,142 2020 -$13,124 -$3,712 -$41,225 -$21,832 -$3,653 -$1,367 -$1,167 -$1,136 -$87,216 2021 -$15,982 -$4,520 -$50,202 -$26,587 -$4,448 -$1,665 -$1,421 -$1,384 -$106,209 2022 -$18,930 -$5,354 -$59,461 -$31,490 -$5,268 -$1,972 -$1,684 -$1,639 -$125,798 2023 -$21,970 -$6,213 -$69,011 -$36,548 -$6,115 -$2,289 -$1,954 -$1,902 -$146,002 2024 -$25,106 -$7,100 -$78,860 -$41,764 -$6,987 -$2,615 -$2,233 -$2,174 -$166,839 2025 -$32,888 -$9,301 -$103,304 -$54,709 -$9,153 -$3,426 -$2,925 -$2,847 -$218,553 2026 -$36,369 -$10,285 -$114,238 -$60,499 -$10,122 -$3,789 -$3,235 -$3,149 -$241,686 2027 -$39,959 -$11,301 -$125,515 -$66,472 -$11,121 -$4,163 -$3,554 -$3,459 -$265,544 2028 -$48,210 -$13,634 -$151,432 -$80,197 -$13,417 -$5,022 -$4,288 -$4,174 -$320,374 2029 -$52,174 -$14,756 -$163,886 -$86,793 -$14,521 -$5,435 -$4,640 -$4,517 -$346,722 2030 -$68,366 -$19,335 -$214,746 -$113,728 -$19,027 -$7,122 -$6,081 -$5,919 -$454,324 2031 -$72,972 -$20,637 -$229,212 -$121,389 -$20,309 -$7,602 -$6,490 -$6,318 -$484,929 2032 -$77,722 -$21,981 -$244,134 -$129,291 -$21,631 -$8,097 -$6,913 -$6,729 -$516,498 2033 -$82,622 -$23,367 -$259,526 -$137,443 -$22,995 -$8,607 -$7,349 -$7,153 -$549,062 2034 -$87,677 -$24,796 -$275,403 -$145,851 -$24,401 -$9,134 -$7,798 -$7,591 -$582,651 2035 -$92,891 -$26,271 -$291,781 -$154,525 -$25,852 -$9,677 -$8,262 -$8,042 -$617,301 2036 -$98,269 -$27,792 -$308,674 -$163,472 -$27,349 -$10,238 -$8,740 -$8,508 -$653,042 2037 -$103,817 -$29,361 -$326,101 -$172,701 -$28,893 -$10,816 -$9,234 -$8,988 -$689,911 2038 -$109,540 -$30,979 -$344,077 -$182,220 -$30,486 -$11,412 -$9,743 -$9,483 -$727,940 2039 -$115,443 -$32,649 -$362,620 -$192,041 -$32,129 -$12,027 -$10,268 -$9,994 -$767,171 2040 -$121,532 -$34,371 -$381,748 -$202,171 -$33,824 -$12,661 -$10,809 -$10,522 -$807,638 2041 -$127,814 -$36,147 -$401,480 -$212,621 -$35,572 -$13,316 -$11,368 -$11,066 -$849,384 2042 -$134,294 -$37,980 -$421,834 -$223,400 -$37,375 -$13,991 -$11,944 -$11,627 -$892,445 2043 -$140,979 -$39,870 -$442,830 -$234,520 -$39,236 -$14,687 -$12,539 -$12,205 -$936,866 2044 -$147,874 -$41,821 -$464,490 -$245,990 -$41,155 -$15,405 -$13,152 -$12,802 -$982,689 2045 -$154,987 -$43,832 -$486,833 -$257,823 -$43,135 -$16,146 -$13,785 -$13,418 -$1,029,959 2046 -$162,325 -$45,907 -$509,882 -$270,030 -$45,177 -$16,911 -$14,437 -$14,053 -$1,078,722 2047 -$169,894 -$48,048 -$533,658 -$282,621 -$47,283 -$17,699 -$15,111 -$14,709 -$1,129,023 30 Years -$2,381,161 -$673,422 -$7,479,504 -$3,961,089 -$662,702 -$248,066 -$211,785 -$206,152 -$15,823,881 Elaine Howard Consulting, LLC ECONorthwest 21

Exhibit 17b. Scenario 3-3.2% Assessed Value growth Scenario including Balsiger Phase 1 Projections Plus $5M Additional Excess Value - Education KFalls City Schools S Oregon ESD Klamath CC FYE Subtotal Total 2018 -$5,201 -$589 -$688 -$6,478 -$25,719 2019 -$8,148 -$923 -$1,078 -$10,149 -$40,291 2020 -$23,578 -$2,669 -$3,119 -$29,366 -$116,582 2021 -$28,713 -$3,251 -$3,798 -$35,762 -$141,971 2022 -$34,009 -$3,850 -$4,498 -$42,357 -$168,155 2023 -$39,470 -$4,469 -$5,221 -$49,160 -$195,162 2024 -$45,104 -$5,106 -$5,966 -$56,176 -$223,015 2025 -$59,084 -$6,689 -$7,815 -$73,588 -$292,141 2026 -$65,338 -$7,397 -$8,642 -$81,377 -$323,063 2027 -$71,788 -$8,127 -$9,495 -$89,410 -$354,954 2028 -$86,611 -$9,806 -$11,456 -$107,873 -$428,247 2029 -$93,734 -$10,612 -$12,398 -$116,744 -$463,466 2030 -$122,823 -$13,905 -$16,245 -$152,973 -$607,297 2031 -$131,097 -$14,842 -$17,339 -$163,278 -$648,207 2032 -$139,631 -$15,808 -$18,468 -$173,907 -$690,405 2033 -$148,435 -$16,805 -$19,633 -$184,873 -$733,935 2034 -$157,515 -$17,833 -$20,834 -$196,182 -$778,833 2035 -$166,883 -$18,893 -$22,073 -$207,849 -$825,150 2036 -$176,545 -$19,987 -$23,351 -$219,883 -$872,925 2037 -$186,512 -$21,116 -$24,669 -$232,297 -$922,208 2038 -$196,793 -$22,280 -$26,029 -$245,102 -$973,042 2039 -$207,399 -$23,480 -$27,432 -$258,311 -$1,025,482 2040 -$218,339 -$24,719 -$28,879 -$271,937 -$1,079,575 2041 -$229,625 -$25,997 -$30,371 -$285,993 -$1,135,377 2042 -$241,266 -$27,315 -$31,911 -$300,492 -$1,192,937 2043 -$253,275 -$28,674 -$33,499 -$315,448 -$1,252,314 2044 -$265,663 -$30,077 -$35,138 -$330,878 -$1,313,567 2045 -$278,442 -$31,523 -$36,828 -$346,793 -$1,376,752 2046 -$291,625 -$33,016 -$38,572 -$363,213 -$1,441,935 2047 -$305,224 -$34,555 -$40,370 -$380,149 -$1,509,172 30 Years -$4,277,870 -$484,313 -$565,815 -$5,327,998 -$21,151,879 Source: ECONorthwest 3.2% AV growth for real property starts in FYE 2020 Note that the foregone revenue for the School District and Education Service District does not have a direct impact on school funding, as funding is equalized at the State level. Elaine Howard Consulting, LLC ECONorthwest 22

Impact from Existing Urban Renewal Areas It is important to note that the figures shown in Exhibits 15a through 17b are only the impact of the proposed new urban renewal area. The city s two existing urban renewal areas, Lakefront and Town Center are already collecting tax increment revenue, in the amount of $79,139 in FY 2016/17 to Lakefront and $185,257 in FY 2016/17 to Town Center. The impact from these urban renewal areas is in addition to the impact shown in Exhibits 15a through 17b. Next Steps This Urban Renewal Feasibility Study will be presented to the Klamath Falls City Council. If they direct staff to pursue the development of an urban renewal plan, the following steps must be completed: 1. Preparation of an Urban Renewal Plan (Plan) pursuant to ORS 457.085 including goals and objectives and projects to pursue. This is typically done with the assistance of a consultant. City Council will want to determine if they want additional public input through an advisory committee or to have staff work directly with a consultant. 2. Direction for the projects to be included in the urban renewal plan. This determination should come from the City Council, sometimes with the input of an advisory committee. Initial project categories are presented in the feasibility study. A decision needs to be made on the percentage of allocations to the projects and if administration should also be included as a potential project. 3. Completion of the Report that accompanies the Urban Renewal Plan. This Report must comply with ORS 457.085, both identifying existing conditions and establishing financial feasibility. There is generally a large amount of city staff input in this document, as existing conditions must be identified and projects defined. 4. Presentation of the draft Plan to the Urban Renewal Agency for their review, and if desired, passing a motion to start the public review process. 5. Public input that generally takes the form of a Public Open House. 6. Presentation to the Klamath Falls Planning Commission for their finding of conformance with the Klamath Falls Comprehensive Plan. 7. Presentation to the Klamath County Commission. No action on their behalf is required. 8. Consult and confer with affected taxing districts. 9. Public hearing in front of Klamath Falls City Council, advertised to a specific group as identified in 457.120. Review of a non-emergency ordinance. 10. Publication of notice if the ordinance for the Plan is adopted. 11. Completion of a legal description of the Area that is typically done outside of the urban renewal plan consultant s contract. This legal description must be complete by the final action in front of City Council. 12. Timing of the adoption of a Plan is important. There are two important factors in timing. The first is which tax roll will be used to establish the frozen base. If the Plan is adopted and the 30- day period for a non-emergency ordinance occurs prior to the certification of the FY 16/17 tax roll by the County Assessor (typically in October), the frozen base that is established for the Area uses the FY 15/16 assessed values. This potentially captures increases in assessed value growth as well as any new growth that will come on the tax roll in FY 16/17. However, there are Elaine Howard Consulting, LLC ECONorthwest 23

a number of properties that will transfer to public ownership and therefore not have an assessed value, reducing the frozen base. This will occur in the October 2016 tax roll. It is recommended that any adoption of an urban renewal plan for the area occur after the FY 2016/17 tax roll is certified in October of 2016. The second important timing factor is when increment will begin. If the Plan is adopted prior to Jan 1, 2017, increment will be distributed in FY 2017/18. If the Plan is adopted after Jan 1, 2017, the first increment is distributed in FY 2018/19. The process of preparing and adopting an urban renewal plan typically takes 4-6 months. Elaine Howard Consulting, LLC ECONorthwest 24

BACKGROUND INFORMATION Klamath Falls Urban Renewal Feasibility Study What is Urban Renewal? Urban renewal is a state-sanctioned program used by over 70 cities and counties in Oregon to help them, through partnerships with the private sector, implement adopted plans to revitalize specified areas within their jurisdiction. Urban renewal, through the provision of tax increment financing (TIF), can provide for capital improvements such as parks, water and waste water infrastructure, parking facilities, and transportation improvements that stimulate private investment and attract new businesses, jobs, and residents. It can also be used to assist with development activities that are approved in an urban renewal plan, such as storefront improvement loans, property acquisition, and site preparation. In Oregon, planning and analysis associated with the creation of a new urban renewal area is guided by state statute (ORS Chapter 457). The statutes stipulate that urban renewal area plans must find the proposed urban renewal area is eligible for urban renewal because of existing blight, typified by conditions such as deteriorated buildings and lack of adequate infrastructure. The plan must also contain goals and objectives, authorized urban renewal projects, a limit on the expenditures, specific provisions regarding acquisition and disposition of land, and provisions regarding how the plan may be amended in the future. There are no specific statutory requirements for a feasibility study. What is Tax Increment Revenue? Tax increment financing is the primary funding tool used within urban renewal areas. Tax increment revenue is generated within a URA when the assessed value within that area is frozen (often called the frozen base). Any taxes generated within that area from growth in assessed value ( excess value ) through either appreciation or new investment becomes the increment. Expected new development and substantial rehabilitation is termed exception value and becomes part of the excess value. Taxing jurisdictions continue to collect tax income from the frozen base. Taxes off the assessed value above the frozen base is allocated to the urban renewal area. This is a two-step process. First the assessor determines the increase in value above the frozen base and the taxes that would be generated off that increase in value, then the assessor assigns a portion of that amount to each property tax bill in the city of Klamath Falls. This is called division of taxes. This does not mean individual property tax bills increase, it only means a portion of their tax bill is allocated to the urban renewal agency for use in the urban renewal area. The taxes are distributed in this way due to a legal decision in Shilo Inn Portland/205, LLC v. Multnomah County, City of Portland and the Portland Development Commission (April 18, 2002). The urban renewal area then can obtain loans or issue bonds to pay for identified public improvements and/or investments in private projects that are in the public interest. The tax increment is used to pay debt service on these projects. What is Maximum Indebtedness? Maximum indebtedness (MI) is the amount of the principal of indebtedness included in a plan pursuant to ORS 457.190 and does not include indebtedness incurred to refund or refinance existing indebtedness. This is the total amount that can be spent from tax increment proceeds for projects, programs and administration during the life of an urban renewal plan. Elaine Howard Consulting, LLC ECONorthwest 25

What is Revenue Sharing? Klamath Falls Urban Renewal Feasibility Study In 2009, the Oregon Legislature enacted HB 3056, which, among other things, established a system of revenue sharing for urban renewal areas. These revenue sharing provisions only apply to urban renewal areas approved after 2009 and older urban renewal areas that have been amended to increase maximum indebtedness since 2009. When urban renewal areas attain certain thresholds of annual tax revenue, some of this tax revenue is released from the urban renewal area and shared with the other taxing districts. When tax revenues reach 10% of the urban renewal area s maximum indebtedness, then a portion of the TIF above that level is shared with overlapping taxing districts (specifically 25% of the TIF above this threshold remains with the urban renewal area, and the remaining 75% of TIF is returned to taxing districts). Additionally, when TIF revenues for the URA reach 12.5% of the maximum indebtedness, TIF revenues for the URA are capped at the amount, with all TIF revenues above 12.5% of maximum indebtedness being shared with overlapping taxing districts. The analysis for the area studied indicates it would not begin revenue sharing in a projected 30 year lifetime of the Area under any of the three scenarios. How does Oregon Property Tax Work? Citizen initiatives have changed the way that property taxes are raised in Oregon, and have limited the growth of assessed value and property tax revenues for taxing jurisdictions. Measure 5, passed in 1990, introduced tax rate limits. Measure 50 passed in 1996, cut taxes, introduced assessed value growth limits, and replaced most dollar-limited levies (an amount) with permanent tax rate limits. Measure 5 introduced limits on the taxes paid by individual properties. It imposed limits of $5 per $1,000 of real market value for school taxes and $10 per $1,000 of real market value for general government taxes. These limits apply to all property taxes, other than those levied to repay voterapproved general obligation bonds. Under Measure 50, most levies were replaced by permanent limits on tax rates. The permanent rate limit is fixed, and does not change from year to year. In addition to the permanent rate, taxing districts may impose general obligation bond levies and local option levies. The sum of all the tax rates (including permanent rates, local option levy rates, and rates for bonds and other levies) of all taxing districts in a given levy code area is known as the consolidated tax rate. Property Taxes and School Funding Although schools levy property taxes, these local property tax revenues do not have a direct impact on funding for local school districts. This is because the state equalizes school funding using a formula that takes into account property tax revenue generated at the local school district level, and revenue from the state s coffers generated by the statewide income tax, Oregon Lottery, and intergovernmental revenues. Allocation of state revenues to local school districts comes in the form of general purpose grants. The primary driver of the state allocation is the number of students in each district. The state multiplies the number of students by the general purpose grant, with some adjustments for teacher experience and other factors. Regardless of local property tax collections, each school district still receives the same Elaine Howard Consulting, LLC ECONorthwest 26

amount of funding per student, with state funding making up the difference between local property tax revenues and the general purpose grant amount. What is Compression? Some jurisdictions in Oregon do not receive the full amount of property taxes that should be levied, due to compression, which occurs as a result of the rate limits enacted by Measure 5. These rate limits apply to the real market value of properties, rather than to the assessed value. If taxes to be raised on an individual property exceed the Measure 5 limits ($5 per $1,000 of real market value for education, or $10 per $1,000 of real market value for general government), and the difference between the real market value and the assessed value is not great enough, then the tax bill for that property is reduced or compressed. Compression loss means some properties pay less in taxes than are calculated by the product of the assessed value and consolidated tax rate. Due to the tax rates in Klamath County relative to the Measure 5 limits, general government taxing districts could experience compression. The general government tax rate shown in Exhibit 7 exceeds the $10 per $1,000 limitation. Note that urban renewal can have an impact on compression losses, because urban renewal changes the effective tax rates of an area. Urban renewal is sometimes referred to as division of taxes. That means that a portion of the taxes that would go to a jurisdiction like the City of Klamath Falls is instead divided off and sent to an urban renewal agency. The process that the County Assessor uses to collect tax increment revenues for urban renewal areas results in a portion of each jurisdictions tax rate being carved off, and turned into a new urban renewal tax rate. A side effect of this process is that education districts that are impacted by urban renewal have their rates reduced a small amount, and that amount is added to the general government side of the compression equation. This means that Klamath Falls existing urban renewal district helps to lower the compression losses that might be experienced by education taxing districts. Similarly, a new urban renewal area in Klamath Falls would also help to reduce compression losses for education districts. However, if there is compression in general government, the creation of a new urban renewal area would add to the compression issue for general government. If the City decides to pursue a new urban renewal area, they will want to do a more thorough analysis of compression in the proposed Area. What are Enterprise Zones? Much of the industrial area in this feasibility study is also in an Enterprise Zone (Exhibit 18). However, at the time of this study, none of the properties were receiving Enterprise Zone benefits. If properties begin using these benefits, it will have an impact on projected tax increment revenues as Enterprise Zone benefits are tax abatements. The following information is from the Business Oregon website. In exchange for locating or expanding into any enterprise zone, eligible (generally non-retail) businesses receive total exemption from the property taxes normally assessed on new plant and equipment. Subject to local authorization, timely filings and criteria the benefits include: Construction-in-Process Enterprise Zone Exemption For up to two years before qualified property is placed in service, it can be exempt from local taxes, which can cover more property than the regular exemption for commercial facilities under construction. Elaine Howard Consulting, LLC ECONorthwest 27

Three to five consecutive years of full relief from property taxes on qualified property, after it is in service. Depending on the zone, local incentives also may be available. Criteria for Qualifying Projects For the basic, three-year enterprise zone exemption period, the business needs to: increase full-time, permanent employment of the firm inside the enterprise zone by the greater of one new job or 10% (or less with special-case local sponsor waivers); generally have no concurrent job losses outside the zone boundary inside Oregon; maintain minimum employment level during the exemption period; enter into a first-source agreement with local job training providers; and satisfy any additional local condition that has been established (only) in an urban zone. Criteria for extended tax abatement (for a total of four or five years of exemption) This includes the criteria for the three-year enterprise zone exemption as well as the following: compensation of new workers must be at or above 150% of the county average wage as set at the time of authorization. there needs to be local approval by written agreement with the local zone sponsor (city, port and county, or tribe); and the company also must satisfy additional requirements that the local zone sponsor may reasonably request in the agreement. Elaine Howard Consulting, LLC ECONorthwest 28

Exhibit 18. Enterprise Zone Map for Klamath Falls Elaine Howard Consulting, LLC ECONorthwest 29