Public Administration Question

Using the information below, forecast the costs associated with each alternative and perform a sensitivity analysis. For the sensitivity analysis, focus on the construction overrun cost and change the discount rate to 5%. Perform a separate sensitivity analysis for each component. Make sure to show your work and to present the NPV for each relevant alternative and under each condition recalculated for the sensitivity analysis. Use Appendices 7.2 and 7.3 on pages 309-310 in the Patton, Sawicki, and Clark textbook to calculate discount costs.

A Community Pool Proposal

The City of Greenbow is interested in developing a community pool. The city council has proposed the idea as a way to bring the community together and be more attractive to young families looking to relocate in the area. In turn, it is expected that the community could economically grow and benefit by attracting new businesses to support a growing city. Greenbow is an older community with an average citizen age of 49.7. Recently, the city has seen a decline in economic growth and a number of locally operated businesses have closed. The city is not a densely populated community with approximately 175,000 residents living in the 160 square mile city limit area. The Greenbow downtown area is located in the center of city and is surrounded by the suburbs.

Four of the six city council members fully support the idea with minimal concern about project costs. Two members oppose the idea on the grounds of long-term debt generated by the project. These two members are interested in other low-cost ideas for how to spur economic development and growth in the community.

You have been hired as a policy analyst for the city. Below is the information pertaining to three alternatives identified by the city council regarding the community pool idea. The project forecasts are made for a 30-year time span. The discount rate is 4%.

Alternative 1 Do Not Install a Community Pool

• Details: The two dissenting city council members suggest that no community pool should be developed. The current city budget does not permit excess spending for the city parks and recreation department. This alternative does not include the development and construction of a community pool. This alternative maintains the current status quo.
• Cost: None
• # of City Jobs Created: None
• Community Building: None
• Economic Growth for the City: None
• Attracting Young Families into the City: None

Alternative 2 City-County Community Pool

• Details: The City of Greenbow will partner with Washington County (the county where the city is located; There are 375,000 residents in the county including the Greenbow population) to develop a community pool for use by city and county residents. The proposed pool would be located on the outskirts of Greenbow city limits in a middle-income area. The county expects the city to cover 60-65% of the initial project costs. In addition, the city would primarily be responsible for staffing and managing the aquatic facilities long-term. The city would generate approximately $100,000 in revenue per year. All of the cost estimates are calculated for the citys expenses/benefits and does not include county buy-in.
• Costs:
  • Construction Costs: $850,000 (potential overrun of 20%)
  • Annual Staffing: $250,000
  • Annual Maintenance/Supplies: $20,000
  • Repaint (year 10, 20, 30): $30,000
  • Water Pump Rebuild and Cleaning (year 8, 16, 24): $10,000
• # of City Jobs Created: 2 Full-Time/40 seasonal
• Community Building: Medium-High/5 on a scale (1-10/ 1=worst & 10=best)
• Economic Growth for the City: Medium/4 on a scale (1-10/ 1=worst & 10=best)/3 new businesses in the first year of pool operation
• Attracting Young Families into the City: Medium/3 on a scale (1-10/ 1=worst & 10=best)/ Residents attracted to the edge of the city and may not live in the city

Alternative 3 A City Built and Operated Community Pool

• Details: The City of Greenbow will develop a community pool for use by city residents. County residents can use the pool but will be charge more for daily access. The proposed pool would be located near the city center with both lower and middle-income areas surrounding the pool. The city will cover 100% of the initial project cost and will be responsible for operating the pool. The city would generate $130,000 in revenue per year.
• Costs:
  • Construction Costs: $1.3 million (potential overrun of 20%)
  • Annual Staffing: $300,000
  • Annual Maintenance/Supplies: $25,000
  • Repaint (year 10, 20, 30): $35,000
  • Water Pump Rebuild and Cleaning (year 8, 16, 24): $14,000
• # of City Jobs Created: 3 Full-Time/40 seasonal
• Community Building: Medium-High/7 on a scale (1-10/ 1=worst & 10=best)
• Economic Growth for the City: Medium-High/5 on a scale (1-10/ 1=worst & 10=best)/4 new businesses in the first year of pool operation
• Attracting Young Families into the City: Medium-High/4 on a scale (1-10/ 1=worst & 10=best)/ Residents attracted to the center of the city and live within city-limits