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EXHIBIT 2 COMMENTARY ON HYPOTHETICAL ~SCAL PLAN FOR REDEVELOPMENT AGENCY PURPOSE. Exhibit C was prepared jointly by the City Manager and Executive ~r of the Redevelopment Agency solely to illustrate a plan of poten- tial revenue and expenditure projections for redevelopment and their re- lationship to C.D. funds and City general funds. Because of the fiscal crisis now facing the downtown redevelopment project due to the reduction in current tax increment revenue from $670,000 to $30,000, the goal here has been to provide a $5,000,000 working capital fund next fiscal year so that construction projects can proceed as planned and begin to generate tax increment funds which hopefully should provide sufficient additional funds within the next three years to provide for annual redemption of the initial $5,000,000 bond, and shortly thereafter generate additional cash flow for additional tax increment bonds. REVENUES ~ity General Funds. For the current and previous fiscal years, the 'City has loaned tax funds to the Redevelopment Agency to initiate the downtown project. These loans are projected to continue for one full additional fiscal year and perhaps a small portion of the next. Hopefully, they will not be required after that as tax increment funds and possibly other revenue sources - such as resale of agency proper- ties, increase. C.D. Funds. As commented upon in Exhibit B, these C.D. funds can be Used for any HUD-approved project within the redevelopment area in compliance with the H.C.D. Act of 1974, thus providing significant flexibility in their use. Specific projects would have to be identi- fied to secure HUD approval. For example, a portion of these C.D. revenues could be "earmarked" for the development of a redevelop- ment project in the Delhi Area and "broken out" of the general opera- tions expenditure classification for this purpose. C.D. Funds. This $72,000 is specifically for completion of the down- town senior citizens' housing projected as explained in Exhibit B. Revenue Bonds. This $5,000,000 revenue bond is essential to provide ~orking capital soon to continue the downtown redevelopment project and enable it to become self-supporting financially within three to five years. The initial bond is possible only with a legally-binding commitment of $250,000 of City tax funds for ten consecutive years, plus the use.of tax increment funds from the project, to repay this bond principal and interest. However, as this fiscal projection indicates, this guarantee or pledge hopefully would never actually require the repayment of $250,000 in tax funds yearly because C.D. funds could be utilized the first year for an "approved" project, and subsequent annual bond repayments could be made with a combination of bond reserves and tax increment funds. As tax increment funds grow annually, a smaller portion of bond reserves would be needed for debt retirement and, hopefully within two or three years the tax increment funds would be totally sufficient for annual debt retire- ment, and hopefully after the third year would "generate" sufficient cash flow income to provide additional bonding capacity. As a safe- guard, should tax increment not materialize sufficiently within a period of three years or whatever period the Agency (City Council) deemed reasonable, any unspent bond reserves and/or the assets of the Redevelopment Agency (mainly land) could be used to retire the debt. The Redevelopment Director recommends this approach and will review its legal soundness with bond counsel. Tax Increment. Because of the proportion of assessment error which reduced'our anticipated income this year from $670,000 to $30,000, it is impossible to make income projections here with much certainty