Alternatives Development, Project Justification, and Financial Realities Financial Considerations Joe Hebert Manager, Financial Analysis and PFC Branch, FAA Office of Airports joe.hebert@faa.gov 1
Overview Discuss the connections between planning, environmental, and financial processes and actions Highlight considerations in the planning process that are most important to supporting sound financial decisions Describe some of the tools needed in developing sound project financial decisions Provide an overview of FAA project financial review in particular Benefit-Cost Analysis (BCA) 2
Planning Considerations for Financing Decisions STRESS Consistency between planning, environmental, and financial data STRESS Importance of planning data to financing decisions Strong project justification supported by sound planning (quantitative and qualitative information to support conclusions) Clear and sound links to and between each process Supportable forecasting information related to the FAA Terminal Area Forecasts (TAF) 3
Planning Considerations for Financing Decisions Given the time to develop a project, it is important to consider whether using multiple forecasts may aide decisions makers In particular, looking at more than one TAF may add perspective not available with just one forecast example recent activity declines in 2008 TAF and effects on environmental and funding reviews Considering that projects take years to plan and construct and have long useful lives (20 years or more), looking at forecasts in more depth provides a better perspective for critical financial decisions 4
Tools for Sound Financial Decisions Explore all available funding sources Understand the pros and cons of each source Make realistic decisions on funding for each source Utilize well-developed and thorough cost estimates to the greatest extent possible Make use of multiple scenarios The more complicated the project (and the more costly), more and varied sources are needed Maximize local resources 5
Benefit-Cost Analysis BCA requirements use FAA Airport Benefit-Cost Analysis Guidance, dated December 15, 1999, Describes the information and analysis to be contained in a BCA. Airport capacity projects that require $5,000,000 or more in AIP discretionary funding Must fairly assess financial uncertainties Need broad planning and financial pictures to address these uncertainties BCAs depend on forecasts, but also on how benefits are defined (helpful to apply sensitivity analysis to get a handle on uncertainties) Project benefits are measured against project costs what benefits and how are they quantified (or not) To what extent can the project benefits be quantified? 6
Benefit-Cost Analysis Additional FAA guidance relating to BCA s Planning Information Needed for FAA Headquarters Review of Benefit Cost Analysis (BCA) Dated March 31, 2006 This guidance identifies airport planning information required by FAA Headquarters (HQ) for its review of BCA prepared for AIP discretionary grant and LOI purposes While this guidance is aimed at FAA field offices and regions, the information can be helpful in preparing a BCA for submission to the FAA 7
Other Financing Considerations Funding resources and costs are considered at several points in the project planning Simple estimates of affordability in the planning process Project cost estimates and affordability considerations in the environmental process Federal funding decisions (supported by BCAs or other analyses), including LOI decisions LOI decisions utilize methodology outlined in Program Guidance Letter 07-03 BCA integral component Financing template Cost estimates 8
Summary Overview of connections between planning, environmental, and financing decisions Looked at important considerations in planning that effect financing decisions Described some tools that are important to sound financing decisions Looked at BCA considerations as well as a brief description of LOI decisions Questions? 9