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GAP STRATEGIES <br />NO . 11 <br />Revenue Note from Inflation and Covera�e <br />A previous gap strategy discussed the issuance of general obligation and revenue <br />bonds using the uninflated revenue stream generated by the project. If 90% of the <br />tax increment is used (generating a coverage of 11 ����, approximately $52.00 M of <br />the potentially available $78.61 M in tax increment will be utilized. The remaining <br />tax increment, after issuance of bonds, is $26.62 M. After subtracting 10% of the <br />original t� increment, which represents the administrative fees, a balance of <br />$18.75 M remains. (The exact numbers are shown on the bottom line on the <br />analysis attached to Gap Strategy No. 7.) <br />$78.61 M total estimated available tax increment <br />less $52.00 M available for debt service on general obligation bonds <br />less $ 7.86 M 1(P/o of total estimated available tax increment for admin costs <br />$18.75 M available for debt service on revenue bonds <br />As the analysis suggests, the amount of increment fz�rfl inflation is very <br />substantial, totaling $18.75 million over the life of the district. If a 7% interest rate <br />or present value factor is applied to this revenue stream, its value is $5.27 million. <br />Since this revenue stream results only �mm inflation, it has little if any value to a <br />developer, lender or other holder. In order for a revenue note of this nature to be <br />marketed, it must be seasoned for ma�y years until the inflation has actually <br />occurred. <br />In order to facilitate projects, cities will frequently advance funds to a project as <br />internal loans or transfers and then will be repaid from the inflationary increases <br />occurring in futur� years. Again, this is a gap strategy that only works if a city has <br />funds and is willing to advance those funds. <br />Not reflected in the $18.75 revenue stream for the revenue note is the tax <br />increment used for the coverage of the general obligation or revenue bonds. The <br />amount being used for coverage is actually the 10% administrative fee. As another <br />gap strategy indicates, if this fee is reduced, it will make more revenues available <br />either for a revenue note or for bonds. <br />3� � �� <br />