Agenda - 08-20-1991 - Laserfiche WebLink

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0 factor arise, and the issue becomes one of how to deal with a stream of payments over a number of years in the future. First, there is a need to cut off the analysis off at some point. A common cut -off point is 25 years, although a period as long as 45 years and a period as short as 15 years have been used. Title VI, Chapter 460, of the 1987 Session Laws establishes a cut- off point by requiring Orange County to "estimate the total cost of improvements ... that will be needed...during a reasonable planning period not to exceed 20 years." The task then becomes the provision of fair and reasonable consideration for annual payments toward capital improvements costs over the next 20 years. This is done by calculating the present value for each annual payment. Payments received in the future have a lower value than in the present. The difference between the future and present value is interest. Assuming an interest rate of six percent (6 %), $100 to be received one year from now is worth $94.34 in the present. The method for calculating the present value is to divide the future amount, $100, by one plus the interest rate (expressed in decimal form), or $100 divided by 1.06 equals $94.34. The difference, $5.66, is interest at 6 %. Likewise, $100 to be received two years in the future is worth $89 at present. The way to calculate this is to divide the amount due in two years by the square of one plus the interest rate. For three years, the factor of one plus the interest rate would be cubed, and so forth. The general formulation is thus: Present Value = Future Amount n (1 + i) where n is the number of years between the present and when the amount is to be received, and i is the interest rate. Dedicated Funding Sources. Dedicated funding sources are the easiest to deal with. A State grant for the purpose of school construction is an example of a dedicated funding source. Motor fuel taxes and other highway user charges are examples of such funding for road improvements. Anne Arundel County provides an example of how such grants are incorporated into school impact fee calculation. As mentioned previously, the average public school cost per student is $12,767. The cost for a single- family unit with an average of 0.6977 public school students is $8,907. In Maryland, the State provides funds to school districts to build schools. Over the previous five years, the State of Maryland has provided 52.9 percent of total school construction costs. The local cost was then 47.1 percent or $4,193 for a single - family home. The calculation incorporates the State contribution toward the cost of accommodating new public school students. One advantage of this method is that impact fees would decline if State aid were to be increased. Unfortunately, exactly the opposite is happening, and this characteristic pinpoints a