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56 Guidebook for Developing and Leasing Airport Property Grant eligibility should be discussed early on in the project with the FAA, the state aeronau- tical agency and with economic development organizations, because while grant funds are often an important component of the project, they typically have limitations and restrictions on their use. Grant funds, once applied to the development project, are generally viewed as equity and will satisfy only a percentage of the development cost; therefore, additional resources needed typ- ically translate into debt. If an airport acquires debt to fund a project (either partially or in whole), the debt repay- ment cost must be offset through revenue derived from the project. The airport sponsor must be reasonably certain that the revenue generated from a given development project will be sufficient to offset the expenses incurred. These considerations will not only include debt expense, but also any additional liabilities that will be incurred through the operation of the facility. Simply put, the airport sponsor needs to determine whether or not the benefits out- weigh the costs. 5.1.2 Quantifying Benefits--Pro Forma Analysis Regardless of the type of development an airport is seeking, the airport sponsor should make every attempt to ensure that the project is financially beneficial for the airport, now and into the future. By examining the financial implications and comparing the revenues versus the expen- ditures of the project, the airport sponsor can evaluate, through pro forma analysis of potential financing and lease agreement scenarios, how elements in the proposed lease agreement will impact the airport's financial position. A pro forma analysis is a projection of the expected costs and revenue associated with the con- struction and operation of an airport facility. Before the decision as to whether the airport spon- sor should play the role of developer or not, the airport sponsor should go through a pro forma analysis and determine whether the direct and indirect benefits that can be derived from such an arrangement outweigh other opportunities available to the airport sponsor. Direct benefits would typically include rents and financial gain, while indirect benefits might include increased aircraft operations that stimulate fuel-flowage revenue. Economic impact and job creation may also be considered either direct or indirect benefits, but more so from a community perspective than an airport sponsor perspective. In an unbiased pro forma analysis, a strict separation of benefits directly attributable to the airport can be considered to ensure that the best interest of the airport is served and strict compliance with grant assurances is maintained. The level of detail of the pro forma is left to the discretion of the airport sponsor and often is dictated by the complexity of the proposed project. However, there are core elements that must be included when projecting the financial impact to the airport, including the following: Financing Costs: This represents the annual dollar figure required to service the debt associ- ated with the project (principal and interest). Obviously, the more this number can be reduced, either through developer financing or grants, the better the financial position for the airport. O&M Costs: Depending on what is stipulated in the lease agreement, the airport sponsor may be responsible for all or a portion of facility maintenance. In addition, operation expenses such as utilities and security may be incurred by the airport to a level that is stipulated in the lease agreement. These costs are often estimated per square foot, based on benchmarks from sim- ilar facilities, increased annually with use of some widely-accepted metric such as the Con- sumer Price Index (CPI). Lease Revenue: This is the anticipated annual revenue that will be derived from the facility once occupied. When accounting for anticipated lease revenue, be sure to account for any escalation clauses in revenue projections.