Fairbanks Village Plaza * P.O. Box 9305, 16236 San Dieguito Road, Suite 3-28, 

Rancho Santa Fe, CA  92067 * Tel: (858) 381-4390 * Fax: (858) 832-8938

DATE:  September 26, 2014

TO:  Mr. Ed Lewis

Mr. Dennis Peglowski

  BUTTE COMPANIES

FROM: Timothy P. Sullivan

Shaun McCutcheon

MEYERS RESEARCH LLC 

SUBJECT: Executive Summary:  Fiscal Impact Analysis for Easy Street, a Mixed-Use Condominium Community Located in Carefree, Arizona

As we understand it, Butte Companies is planning to develop a 70-unit luxury condominium community with ground floor retail known as Easy Street in Carefree, Arizona.  Butte Companies is known for developing luxury condominium product in North Scottsdale and this project will be Butte’s entrance into the Carefree residential market.  

Butte Companies has requested that the Meyers Research team analyze the fiscal impact the Subject Project will likely yield in terms of tax revenues generated from its residents that ultimately benefit the Town of Carefree. Revenues are generated primarily through such vehicles as speculative construction cost tax revenues, sales taxes generated from condominium sales (at closing), sales tax generated from the retail uses included at the Subject Project (restaurants and in-line retail), and sales tax generated from Easy Street residents’ retail expenditures throughout the Town of Carefree.  It is our understanding that the entire Subject Project is scheduled for construction to start in spring 2016, and we estimate that construction completion of Phase 2 will occur in early 2019. Tax revenue estimates are the estimates of Meyers Research and are not a representation of the developer, Butte Companies.

We have examined the tax revenue implications of the Subject Project over a long-term period (20 years) to show both annual and aggregate tax revenues.  The fiscal impact analysis is derived from the following four tax revenue sources:

1) Speculative construction cost tax revenues – the Town of Carefree generates tax revenues from the costs of construction of new development. The tax revenues are 4.0% of construction cost, after adjusting for the taxable amount (excluding labor costs and other taxes).  The tax is paid monthly over the construction period timeframe. The following items are not included in the speculative construction tax revenue calculation as they are not taxable: architecture and engineering; permits and fees; condo insurance; property taxes; capital construction loan interest, fees and points; marketing and advertising; FF&E; sales office set-up costs; legal and accounting; development overheads; land; sales office operations and payroll. 

2) Condominium sales tax revenues – in addition to construction cost taxes, the Town of Carefree collects taxes from condominium sales revenue, at closing.  The speculative tax collected at condominium closings considers total revenue minus construction costs (used in calculating speculative construction tax revenue), and is calculated in a similar manner to the speculative construction cost tax.  

3) Easy Street commercial property sales tax revenues – the sales tax revenues generated from commercial space within Easy Street, which is planned for upscale, fine dining restaurants and in-line retail shop space.

4) Residents’ retail spending propensities in Carefree – the sales tax generated from residents who will occupy the Easy Street condominium units and purchase goods and services in Carefree.

EXECUTIVE SUMMARY OF KEY FINDINGS

Based upon our research and analysis, we believe that the Easy Street project represents a sizeable economic impact source for the Town of Carefree in terms of generating significant annual tax revenues for the city. During its initial five years (construction and sales period) we estimate that the project will deliver approximately $2,290,000 in tax revenues for the Town of Carefree.  The following table summarizes these tax sources and corresponding revenues:

We have estimated the fiscal impact of the Easy Street project going forward over a 20 year timeframe. To conduct this exercise, we have considered estimates for such variables as commercial tenant sales revenue growth, and increases in income and inflation impacting residents spending capacities over time. We estimate that the project will deliver approximately $7.88 million in tax revenues for the Town of Carefree over a 20 year period (2016 to 2036).  The following table summarizes these tax sources and corresponding revenues:

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This document is a summary of our full Memorandum of Opinion fiscal impact report, which includes additional explanation of methodology and detailed calculations.  This document is on file with Butte Companies and is available upon request.