What Happens When You Build It, But They Never Come?

Forty-five miles southwest of the Twin Cities sits the exurb of New Prague, a town with state-of-the-art infrastructure but crushing debt. It’s an example of what happens when the “Ponzi scheme” underlying sprawl development comes crumbling down.
November 7, 2012, 9am PST | Erica Gutiérrez
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Planned at the height of the "exurban boom", New Prague is now feeling the consequences of borrowing $30 million to build a state-of-the-art sewer plant for residents that never came.

In an unsustainable effort to recoup some of its spending, New Prague has repeatedly raised utility rates for its smaller-than-expected number of homeowners and businesses. David Peterson reports, "New Prague raised its rates by 35 percent in 2009, 31 percent in 2010 and 25 percent in 2011 and 2012" but according to the City Administrator Michael Johnson, more jumps are needed to "get those rates to the level needed to cover the debt." This poses a problem when considering that water rates in Minnesota's exurbs are already much higher than in its metro areas, asserts Jeff Freeman, executive director of the Public Facilities Authority.

New Prague is not alone in this situation. Other exurbs such as Avon and North Branch find themselves in the same boat, reports Peterson, strapped for cash and considering draconian measures to payback past borrowing. Like some of these cities, New Prague is now contemplating another budgetary option: long-term debt refinancing. However, "New Prague's financial consultants cautioned that [this would mean] an extra $8.45 million in long-term interest costs for a community of about 7,000," writes Peterson.

For New Prague, there are some signs of hope, however, including a slight resurgence in housing starts, and the announcement of a factory expansion and new jobs. City officials like Johnson still remain cautious, "There's no way to develop any forecast." he says.

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Published on Tuesday, November 6, 2012 in Star Tribune
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