Talking Stick - July/August 2011 - 35

escalation that is higher for rental rates and lower for operating expenses results in greater net operating income that can provide needed debt capacity. However, higher rental rates can depress occupancy, and lower allowances for operating expense can compromise service and maintenance quality. Consequently, escalation rates are often more the product of negotiation and compromise than of inﬂation forecasting. Whatever the rates applied, the revenues and expenditures that result are brought together in cash ﬂow analyses that describe for lenders the ﬁnancial performance expected of the individual capital project(s) and the overall housing system. Revenue and expenditure projections extend, year by year, across the anticipated period of indebtedness. In each analysis, the ﬁrst step is to deduct operating

expenses from operating revenues to reveal net operating income. Next considered are debt service and any other mandatory transfer obligations that are already in place and those that must be assumed to ﬁnance the proposed project(s). Given a speciﬁed repayment term and interest rate, debt capacity, then, is the amount of debt that can be amortized by annual debt service payments equal to annual net operating income. This, however, is a measure of maximum, rather than practical, debt capacity because nonmandatory transfers, as previously mentioned, often are claims on income that an institution cannot or will not forgo. Consequently, where such claims exist, funds actually available for debt service must be reduced accordingly. Also, an institution may voluntarily constrain

its debt capacity in order to enhance marketability and attract lower interest rates for its debt. A common means by which this is done is for the borrower to demonstrate that net operating income will cover debt service by a ratio comfortably greater than one to one. Coverage ratios between 1.20 and 1.30 are typical. Housing ofﬁcers who consider debt ﬁnancing for facility expansion and campus improvements will surely encounter questions not addressed in these pages. Colleagues, consultants, ﬁnancial ofﬁcers, online resources, and reference libraries are sources of additional information that can be TS called upon for assistance.
C. Joseph Carter
is a principal of The Carter Consultancy. is a partner with MGT of America, Inc.

Cynthia P. Balogh

JULY + AUGUST 2011

35

Talking Stick - July/August 2011

Table of Contents for the Digital Edition of Talking Stick - July/August 2011

Talking Stick - July/August 2011
Contents
Online Now
Vision
Just In
Your ACUHO-I
Transition
Res Life
Facilities
Turn the Page
Calendar
Balancing Act
Making Gender-Neutral Housing Work
Conversations
First Takes
Reporting Out
Welcome
Snapshot
Talking Stick - July/August 2011 - intro
Talking Stick - July/August 2011 - BB1
Talking Stick - July/August 2011 - BB2
Talking Stick - July/August 2011 - Talking Stick - July/August 2011
Talking Stick - July/August 2011 - Cover2
Talking Stick - July/August 2011 - 1
Talking Stick - July/August 2011 - 2
Talking Stick - July/August 2011 - Contents
Talking Stick - July/August 2011 - Online Now
Talking Stick - July/August 2011 - 5
Talking Stick - July/August 2011 - Vision
Talking Stick - July/August 2011 - 7
Talking Stick - July/August 2011 - Just In
Talking Stick - July/August 2011 - 9
Talking Stick - July/August 2011 - 10
Talking Stick - July/August 2011 - 11
Talking Stick - July/August 2011 - 12
Talking Stick - July/August 2011 - Your ACUHO-I
Talking Stick - July/August 2011 - 14
Talking Stick - July/August 2011 - Transition
Talking Stick - July/August 2011 - 16
Talking Stick - July/August 2011 - Res Life
Talking Stick - July/August 2011 - 18
Talking Stick - July/August 2011 - 19
Talking Stick - July/August 2011 - Facilities
Talking Stick - July/August 2011 - 21
Talking Stick - July/August 2011 - 22
Talking Stick - July/August 2011 - 23
Talking Stick - July/August 2011 - Turn the Page
Talking Stick - July/August 2011 - 25
Talking Stick - July/August 2011 - 26
Talking Stick - July/August 2011 - Calendar
Talking Stick - July/August 2011 - Balancing Act
Talking Stick - July/August 2011 - 29
Talking Stick - July/August 2011 - 30
Talking Stick - July/August 2011 - 31
Talking Stick - July/August 2011 - 32
Talking Stick - July/August 2011 - 33
Talking Stick - July/August 2011 - 34
Talking Stick - July/August 2011 - 35
Talking Stick - July/August 2011 - Making Gender-Neutral Housing Work
Talking Stick - July/August 2011 - 37
Talking Stick - July/August 2011 - 38
Talking Stick - July/August 2011 - 39
Talking Stick - July/August 2011 - 40
Talking Stick - July/August 2011 - 41
Talking Stick - July/August 2011 - 42
Talking Stick - July/August 2011 - 43
Talking Stick - July/August 2011 - Conversations
Talking Stick - July/August 2011 - 45
Talking Stick - July/August 2011 - 46
Talking Stick - July/August 2011 - First Takes
Talking Stick - July/August 2011 - Reporting Out
Talking Stick - July/August 2011 - 49
Talking Stick - July/August 2011 - 50
Talking Stick - July/August 2011 - 51
Talking Stick - July/August 2011 - 52
Talking Stick - July/August 2011 - 53
Talking Stick - July/August 2011 - Welcome
Talking Stick - July/August 2011 - 55
Talking Stick - July/August 2011 - Snapshot
Talking Stick - July/August 2011 - Cover3
Talking Stick - July/August 2011 - Cover4
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