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4. Loans The cash flow projects potential cash deficits, as discussed above. The deficits are primarily the result of assumed on-going ERAF payments to the State as a result of State budget deficits. The cash flow assumes that short-term loans can be advanced to the Agency, as necessary, to meet any future year deficits. The projection assumes that the Agency may borrow from the Housing Fund in order to meet the ERAF payments. Non- ERAF deficits are assumed to be funded from other Agency financing sources. Loan principal and interest (assumed at 6%) to be paid, on a pay-as-you-go basis, within the subsequent fiscal years. The short-term loans may be funded from any allowable source outlined above. C. PROPOSED FINANCING METHOD, ECONOMIC FEASIBILITY, AND REASONS FOR INCLUDING TAX INCREMENT FINANCING The anticipated costs to implement a program of revitalization in the Merged Project Area will require significant participation from the Agency as it implements activities that promote and achieve the stated goals and objectives of the Amended Plan. Economic feasibility of the Merged Project Area has been determined based upon a comparative cash flow analysis of the anticipated costs for implementation of the proposed redevelopment program to the resulting projected resources expected to be generated over the life of the Merged Project Area. The financial feasibility cash flow summarized on Table 4 was created to represent one scenario of economic feasibility and similar to Tables 5 through 7F are based upon information provided to KMA in February 2004. At the discretion of the Agency, other funding sources discussed above may also represent viable funding alternatives for economic feasibility of the Amended Plan. Although the Agency may consider other funding sources permitted in the Amended Plan, not all of the funding sources may be available or be feasible for the Agency to use in financing the anticipated costs and revenue shortfalls. In the event that neither the City nor the private market acting alone could fully bear the costs associated with revitalization of the Merged Project Area, the implementation of a redevelopment program utilizing tax increment revenues must be considered as a viable financing tool. Page 26 of 190 Report to the City Council for the Merger of the Santa Ana Redevelopment Projects Keyser Marston Associates, Inc. Page 21 PA0403012.SNT A:CK:gbd 19090.003.004106/28104 75D-36