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Choosing the most appropriate timing for your project

One of the most critical yet often overlooked elements in project financing is time. It can be both a friend and an enemy, depending upon the circumstances. It is a friend to communities when it allows them to adjust to the concept of the project, but it also an enemy if too much time elapses and the community begins to believe the project will never happen. It is a friend when it's used to accumulate surplus revenues that can be used to reduce project costs, but it is also an enemy when construction costs are escalating on a month by month basis. If funding from a particular source is not available for years, the benefits of the lower interest rate or grant must be weighed against the increased cost of waiting. This is especially true if the amount of financial assistance is not likely to be increased in response to the higher cost. To determine the best timing for your project, ask yourself these questions:

(1) Without regard to financing considerations, when is the best time to undertake this project?
There is a strong incentive to undertake projects as quickly as possible and complete them as soon as possible. The authority is likely incurring an interest cost on funds advanced for the project, and this cost increases day by day until the project is completed and the authority begins collecting increased customer revenues. Also, most engineering design work is time-sensitive. Conditions change daily: New homes are constructed, property ownership changes, and other utilities may be constructed or relocated. If too much time has elapsed, additional engineering cost to update design drawings before a project can be bid is likely.

(2) Can the project be economically segmented?
Sometimes different funding sources are available for particular areas within the same township, borough, or city. We recently completed a project with a total project cost of $6.5 million that was funded through five separate programs from four state agencies. The financing we received totalled nearly $1 million. Taken as a whole, the project area would have qualified for only about a fourth of that funding. However, by carefully looking at each sub-area within the project and establishing it as its own mini-project, additional funding was obtained. Each of the project segments was bid simultaneously and even within the same bid documents, so that any additional cost would be minimal.

Project scope and timing are each very useful tools that will help make projects affordable. They rely principally on saving money, and a dollar saved is worth two dollars of debt service—even at subsidized rates. They are relatively easy to use and have an added advantage in that they provide an opportunity for each board member to become involved with the specifics of the project. Why something is being done in a certain way or why a particular strategy was adopted should no longer be a mystery to anyone. Familiarity with these details allow you pass what I term the "supermarket" test, which is just another way of describing the many questions that you are likely to receive from members of the community. As a former authority board member myself, I can recall being stopped in my local supermarket and asked about the details of the project we were undertaking. It is truly embarrassing not to have the answers.

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© 2008 Herbert, Rowland & Grubic, Inc.