The project decision

Step 1 of 3. What the choice moves

Where this sits

This sits under the money model: one piece of work, three ways to pay for it, and one balance that absorbs whichever is chosen.

The picture

Every box here is at the end of an arrow out of the funding plan, except the debt service already promised.

• Funding plan to What the work costs, which year
• Funding plan to What the lender puts in, how much
• What the lender puts in to Debt service on the new borrowing, repaid
• What the rates bring in to Cash carried into the next year
• What the work costs to Cash carried into the next year
• What the lender puts in to Cash carried into the next year
• Debt service already promised to Cash carried into the next year
• Debt service on the new borrowing to Cash carried into the next year

The idea

A council deciding how to pay for a piece of work is choosing which year the money leaves. Spending cash takes it all in one year. Borrowing takes a smaller amount every year for several years and costs interest. Putting the work off takes it later and costs a year of construction inflation. The promises already made to lenders sit outside all three.

The detail

At thirty percent above the adopted schedule the work costs 1,050,000 dollars in FY2029 on two of the plans and 1,102,500 a year later on the third, because a year of waiting is a year of construction inflation. The debt service already promised is 500,000 dollars a year on every plan and in every year.

What the work costs, done in FY2029 the same under two of the three plans

Debt service already promised flat across every plan and every year

In the room

A buyer asks We want to borrow for this. Does that put us in breach?

You say Not by itself. Your covenant counts the senior lien, and a subordinate borrowing sits underneath it. What moves your coverage is what you charge.

Never say Borrowing is safe for you.

The covenant on the screen is invented, and the one binding a real utility is a sentence in its own ordinance that somebody has to read.

Where it touches the work

The plan the learner switches is one of two controls over a table computed once at build time, and a combination the table does not hold comes back as a refusal.

Before the question

Move the funding plan through all three settings. Which of these four is the same in every year under every plan?

The line the plan leaves alone

Choose one.

• What the work costs
• What the lender puts in
• The debt service already promised
• The cash carried into the next year

Where to go next

• Switch the plan again and watch which bars stay where they are.
• Now look at the year the money actually leaves.

Step 2 of 3. The year the money leaves

Where this sits

This sits under the project decision, on the balance every one of the three plans ends up passing through.

The picture

Everything the plan moves arrives at one balance, and that balance is the only line that can go below zero.

• Funding plan to What the work costs, which year
• Funding plan to What the lender puts in, how much
• What the lender puts in to Debt service on the new borrowing, repaid
• What the rates bring in to Cash carried into the next year
• What the work costs to Cash carried into the next year
• What the lender puts in to Cash carried into the next year
• Debt service already promised to Cash carried into the next year
• Debt service on the new borrowing to Cash carried into the next year

The idea

A capital plan is affordable over five years and unaffordable in one of them at the same time. The balance carried from each year into the next is where that shows up. In a year that ends below nothing somebody does not get paid, and a comfortable five-year total does not change it.

The detail

At thirty percent above the adopted schedule the deepest year on the adopted plan ends about 48,500 dollars below zero. Under the borrowing plan the deepest year ends about 581,500 dollars above it, and the closing balance after five years is 204,000 dollars lower.

The deepest year, adopted below zero

The deepest year, borrowing above zero

Closing balance against the adopted plan lower by the interest

In the room

A buyer asks Our five-year plan balances. Why are you asking about one year?

You say Because the year is what you have to fund. If FY2029 comes up short you need a line of credit that year, however the five years add up.

Never say You will run out of money in FY2029.

A projection under one set of assumptions is not a forecast, and a room hears the second when you say the first.

Where it touches the work

The deepest year is read off the table as one whole-horizon figure at the combination the question was asked at, and the question pins that combination when it is asked.

Before the question

Rates are set thirty percent above the adopted schedule. Against the adopted plan, where does the borrowing plan leave the worst year of cash?

Where the worst year ends

Choose one.

• Higher than the adopted plan
• Lower, and still above zero
• The same
• Below zero

Where to go next

• Save the adopted plan, switch to borrowing, and read the two together.
• Now say what none of this settles.

Step 3 of 3. What the covenant does not see

Where this sits

This sits under the project decision and reaches across to the covenant model, which is where the sentence being read comes from.

The picture

Nothing the funding plan reaches is inside the ratio the ordinance tests.

• Funding plan to What the work costs, which year
• Funding plan to What the lender puts in, how much
• What the lender puts in to Debt service on the new borrowing, repaid
• What the rates bring in to Cash carried into the next year
• What the work costs to Cash carried into the next year
• What the lender puts in to Cash carried into the next year
• Debt service already promised to Cash carried into the next year
• Debt service on the new borrowing to Cash carried into the next year

The idea

A covenant is a sentence in a document, and a ratio is what somebody computes from it. When the sentence can be read two ways, there are two ratios, and they can fall on opposite sides of the multiple the document sets. The choice between them is a question about the document and it is not a question about the money.

The detail

At ten percent above the adopted schedule, FY2032 reads 1.18 with the general fund transfer subtracted and 1.28 with it left out. The ordinance sets 1.25. Same projection, same year, one reading under and one reading over.

FY2032, transfer subtracted under the multiple

FY2032, transfer left out over the multiple

What the ordinance sets a multiple of debt service

In the room

A buyer asks So are we in compliance or not?

You say Under one reading of 5.03(b) you are, and under the other you are not, in one of the five years. Your bond counsel decides which reading the document supports, and I can show you both.

Never say You are in compliance.

Nothing here reads a real ordinance, and saying it about a named agency on the strength of a teaching example is the mistake this whole repository refuses.

Where it touches the work

Both readings are computed by the same engine over the same projection, and the two are reported as two separate figures so that a screen cannot quietly show one of them under the other one name.

Before the question

The council asks whether borrowing for this project puts Cedar Hollow in breach of its rate covenant. Answer them, and say where you read it.

What you tell the council

Ninety words at most.

Where you read it

Choose at least one. The last option is a real answer.

• The multiple the ordinance sets
• Coverage with the transfer subtracted
• Coverage with the transfer left out
• Nothing in this table

Where to go next

• Read the worked answer, then change any line you would now mark differently.
• Ask somebody to read it. Nothing on this screen settles a claim about a real utility.