Create Viable Financing Strategies (post)

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The toolbox elements summarized in this section are presented in Table 3.1 and provide an introduction to funding programs available to small operations. In addition, Capital Recovery Tables are presented that are used to convert an up-front loan amount into annual payments. Capital Improvement Financing Summaries are presented to highlight common mechanisms for generating revenue to pay off debts associated with loans and other capital improvement costs. Information related to Cash Flow is also presented to assist small communities manage funds during a project’s development and construction.

Funding Program Summaries

Summaries of common funding program are presented in Element 3.1.  The funding program summaries present a general overview of many of the more common funding programs that are available to small communities for financing infrastructure projects.

How to Use the Toolbox Element

The summaries in Element 3.1 provide general characteristics of the common funding programs and requirements.  This information can be used by local staff and officials to begin to identify possible loan and grant funding opportunities, and in many cases initiate the funding process. Funding programs are competitive and complex; therefore, local agencies may need professional expertise to help them through the overall process.  Nonprofit assistance agencies (listed in Element 1.1) or the funding agencies themselves may be able to help as well.

A one-stop information shop about funding programs suited to small community infrastructure projects

Capital Recovery Tables

Capital Recovery Tables are presented in Appendix 3.2. The purpose of a Capital Recovery table is to convert a loan amount into an annual payment amount given a forecasted interest rate.  This is very useful when considering funding options and possible loan amounts so that annual costs to pay back loans can be calculated.  These annual loan repayment costs are also known as the debt service.  These debt service costs are part of the overall annual operating cost of a system and can then be factored into the overall rate setting process.

How to Use the Toolbox Element

The Capital Recovery Tables are used for selecting the appropriate Capital Recovery Factors (CRF). The appropriate CRF is selected by finding the intersection between the term of the loan on one axis and the interest rate on the other axis. The CRF is multiplied by the loan amount to yield the annual payment over the term of the loan.  This is a simple tool to help with planning annual costs and cash flow.

In some cases, more than one loan may be used and so the annual payment for each loan is determined separately and the resulting annual payments are added together. The terms of loans may be different or there may be other special repayment provisions and so annual payments may vary over time. Considering all costs and revenues for each year during the life of a project is valuable for forecasting long term cash flow.

Lookup tables to translate the portion of total project costs not paid by grant into annual debt service requirements met through a revenue mechanism

Capital Improvement Financing Summaries

Capital project financing summaries that provide information on three common types of debt financing are summarized in Appendix 3.3. There are a variety of financing methods that can be established by a local agency or tribe as a means to collect revenue and to pay the debt service on a loan for design and construction of projects. The following financing methods are presented in Appendix 3.3:

  • Enterprise Revenue Borrowing
  • Assessment or Special Tax Bonds
  • General Obligation Bonds

How to Use the Toolbox Element

The summary presented in Appendix 3.3 is meant as a simple introduction to several of the more common debt financing methods. A table is provided, which includes an overview of the major features of these common methods of repaying loans. Agencies wishing to consider financing options should consult a financing specialist to better understand the details of potential financing methods, attorneys needed, and their overall funding strategy.

Summary of strategy options for generating revenue to pay the annual debt service associated with capital improvement

Cash Flow Considerations

Cash flow is the management of all revenue and expenses associated with operating a system. Guidance for planning cash flow is presented in Appendix 3.4. Cash flow needs to consider all aspects of operating a system including operations, maintenance, depreciation, reserves, debt service, and other aspects of the system that include the inflow and outflow of cash. Cash flow should be based on considering all needs of the system based on the overall long term broad view of the utility management cycle. Short term or narrow view of expenses or revenues creates an unrealistic picture of cash flow and can lead to inadequate rates and charges, lack of appropriate maintenance and replacement, deferred costs, and future significant financial difficulties.

How to Use the Toolbox Element

The guidance provided in Appendix 3.4 is meant to provide an overview of the main considerations for cash flow management during the planning, design, permitting, and implementation of a project.  Agencies should retain specialist to help in the planning of cash management, especially in terms of Asset Management and capital improvement planning where existing infrastructure is inventoried and future costs are forecasted.  Specialized expertise should also be employed for conducting overall rate setting studies as this is the mechanism that will generate necessary revenue to operate the system over the long term. Additional information on capital improvement planning and rate setting can be found in Appendix 6.3 and Appendix 6.4.


Assists entities in understanding the funds needed to move a project through planning, design, and construction