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for TIF eligible costs) and showing a result if the developer did not receive assistance. Our analysis of the <br />proformas included a review of the development budget, projected operating revenues and expenditures, and <br />the project’s capacity to support annual debt service payments. The purpose of evaluating the operating <br />proformas is to understand the potential cash flow performance to assist with making the determination that 1) <br />tax increment assistance is necessary and 2) an appropriate level of assistance will be provided. <br /> <br />An additional measure of project need and financial feasibility is the Debt Coverage Ratio (DCR), which is a <br />calculation detailing the ratio by which operating income exceeds the debt -service payments for the project. If <br />the DCR is greater than 1.0 it indicates the project has operating income that is greater than the debt-service <br />payment by some margin; conversely if the DCR is less than 1.0 it indicates the project is incapable of meeting <br />its debt-service payment and would need to seek additional revenue sources in order to pay its debt. Typical <br />lending standards will require a DCR of greater than 1.0 as a measure of cushion in the event actual revenues <br />and expenses are different than projected. <br /> <br />The amount of debt financing available for the project is based on net operating income (NOI), which is lease <br />revenues less operating expenses. Due to the reduced revenues generated by the affordable housing units (6 <br />30%-units), the annual cash flow of the project will be limited and requires additional funding sources beyond <br />the traditional debt and equity as debt repayment is based on payments to be made to the lender with available <br />cash flow. Public funding including tax increment revenues from the City and other public agencies (grants) <br />provides the additional sources required to close the financial gap resulting from the reduced project revenues. <br /> <br />Thank you for the opportunity to be of assistance to the City of Little Canada. We will be prepared to discuss <br />the financial analysis and project financing components in greater detail at the May 11 City Council Workshop. <br />Please contact me at 651.368.2533 or Mikaela.huot@bakertily.com with any questions or comments.