FINANCIAL FEASIBILITY OF NEW FRONTIER TREATMENT CENTER FALLON, NEVADA

TECHNICAL REPORT UCED 2007/08-12 FINANCIAL FEASIBILITY OF NEW FRONTIER TREATMENT CENTER FALLON, NEVADA UNIVERSITY OF NEVADA, RENO

Financial Feasibility of New Frontier Treatment Center Fallon, Nevada Report Prepared by Robert R. Fletcher and Shannon Price Robert R. Fletcher is Emeritus Professor with the University of Wyoming and Research and Emeritus Professor with the University Center for Economic Development at the University of Nevada, Reno Shannon Price is a Research Analyst for the University Center for Economic Development and Department of Resource Economics at the University of Nevada, Reno University Center for Economic Development Department of Resource Economics University of Nevada, Reno Reno, Nevada (775) 784-1681 March 2008 The University of Nevada, Reno is an equal opportunity, affirmative action employer and does not discriminate on the basis of race, color, religion, sex, age, creed, national origin, veteran status, physical or mental disability or sexual orientation in any program or activity it operates. The University of Nevada employs only United States citizens and aliens lawfully authorized to work in the United States.

This publication, Financial Feasibility of New Frontier Treatment Center Fallon, Nevada, was published by the University of Nevada Economic Development Center. Funds for the publication were provided by the United States Department of Agricultural Rural Development and the United States Department of Commerce Economic Development Administration under University Centers Program contract #07-66-05878-01. This publication's statements, findings, conclusions, recommendations, and/or data represent solely the findings and views of the author and do not necessarily represent the views of the United States Department of Agriculture Rural Development, New Frontier Treatment Center, the United States Department of Commerce, the Economic Development Administration, University of Nevada, or any reference sources used or quoted by this study. Reference to research projects, programs, books, magazines, or newspaper articles does not imply an endorsement or recommendation by the author unless otherwise stated. Correspondence regarding this document should be sent to: Thomas R. Harris, Director University Center for Economic Development University of Nevada, Reno Department of Resource Economics Mail Stop 204 Reno, Nevada 89557-0204 UCED University of Nevada, Reno Nevada Cooperative Extension Department of Resource Economics

Financial Feasibility Of New Frontier Treatment Center Fallon, Nevada March 2008 Prepared for New Frontier Board of Directors Prepared by Robert R. Fletcher Professor Emeritus, University of Wyoming and Shannon Price University of Nevada, Reno Collaborating with University Center for Economic Development University of Nevada, Reno

Table of Contents PREFACE...II INTRODUCTION... 1 PROCEDURE... 2 ANNUAL CASH EXPENSES... 4 TABLE 1. PERSONNEL REQUIRED FOR FUTURE NFTC OPERATIONS.... 4 TABLE 2. ESTIMATED ANNUAL OPERATING EXPENSES DEBT RETIREMENT, CASH FLOW.... 6 NEED FOR SERVICE... 8 TABLE 3. NFTC 2006 ADMISSIONS OR "MET NEED" BY CATEGORY.... 10 FINANCIAL ANALYSIS... 12 TABLE 4. MAXIMUM FEE SCHEDULE, SLIDING SCALE, AND ACTUAL FEES COLLECTED, FY-2006... 12 TABLE 5. SENSITIVITY ANALYSIS FOR INCREASED CLIENTS AND PERCENT OF COLLECTIONS**... 14 TABLE 6. PROJECTED 5-YEAR CASH FLOW WITH PROFIT AND LOSS... 16 TABLE 7. MORTGAGE PAYMENT EXAMPLES... 17 TABLE 8. PROJECTED 5-YEAR BALANCE SHEET, NFTC... 18 TABLE 9. ASSUMPTIONS USED TO ESTIMATE BALANCE SHEETS, FY 2008-2012... 19 SUMMARY AND OTHER CONSIDERATIONS... 20 LIST OF REFERENCES... 22 ACRONYMS USED IN NEW FRONTIER TREATMENT CENTER (NFTC) REPORT... 24

Preface This report analyzes the financial feasibility of the Churchill Council on Alcohol and Other Drugs, dba New Frontier Treatment Center (NFTC), acquiring a building to replace their facility that burned in March 2007. This report is intended to compliment two other analyses that have been conducted for NFTC regarding the acquisition of a new facility. An Architectural Feasibility Report on the Silver Rose Assisted Living Facility in Fallon, Nevada was submitted by HMC Architects to fulfill a requirement of the USDA, RD for funding purposes. A market value appraisal on this property was conducted by Carter-Ott Appraisal Inc. in January 2008. The scope of this report assumes the Silver Rose Assisted Living Facility will be purchased for the NFTC residential program. No other alternatives have been given serious consideration. However, the cash flow needed for the assumed purchase price and debt repayment would apply to any facility. The report is formatted to address two specific but different objectives. The first objective is to estimate revenue and expenses, using specific stated assumptions, to determine the long-run financial viability of NFTC. The second objective is to explicitly address each item included in (Guide 5) RD Instruction 1942-A, FINANCIAL FEASIBILITY REPORT, (1-15-79), Rural Development, USDA. Two components, historical background of the existing NFTC facility and alternative analysis for replacing the facility are addressed in detail in the Architectural Feasibility report. Economic, demographic and government characteristics are presented in the appraisal report. This information will be supplemented as needed but not duplicated in this financial feasibility analysis.

Introduction In 1971 a group of Churchill County residents incorporated the Churchill Council on Alcohol and Other Drugs (CCAOD) as a not-for-profit corporation, registered with the Secretary of State. The New Frontier Treatment Center (NFTC) has been doing business under this corporation on a continuous basis since 1974. There has been a working arrangement between Churchill County and NFTC since the beginning. In 1974 the County agreed to provide facilities that allowed NFTC to offer 14 beds that could house 7 men and 7 women at any given time. After nearly a quarter-century a loan was acquired through the USDA in 1997 to construct a larger facility. A new building that doubled the NFTC capacity to 28 beds was constructed on County land. This Churchill County Government and not-forprofit alliance had a synergistic effect that served the community well for another 10 years. On March 26, 2007, a fire destroyed the 28 bed residential facility. The CCAOD Board of Directors and the NFTC staff feel it is important to replace the residential facility as soon as possible to minimize the disruption of service and maintain staff to continue the residential program. The purpose of this financial feasibility analysis is to estimate the operating costs and income from all sources to evaluate the financial capacity of NFTC to meet their operating expenses and service the debt on a building to house their entire operation. Two alternatives were originally considered; (1) to acquire land or a long term lease and construct a new building, or (2) to purchase an existing facility. The Silver Rose Manor, currently utilized as an assisted living facility, was one option. The architectural feasibility report [15] explains the alternative analysis the NFTC Board of Directors and staff followed to conclude purchasing the Silver Rose was their best alternative. 1

Procedure The specific objective of this report is to estimate the dollar amount of earned revenue, government grants and other contributions NFTC needs to generate to pay their operating expenses and have adequate funds for debt service to replace the building needed to resume their residential treatment program. There are several reasons to conduct a feasibility study; (1) new start-up business, (2) purchase of an existing business, (3) add new enterprise to an existing business, and (4) expansion of an existing business. Purchase of the Silver Rose will provide more beds which allows for expansion of the residential program. NFTC was planning a remodeling project at the time of the fire, which would add four beds to the residential program, increase their intensive outpatient program and add additional storage space. A market analysis, or market feasibility, is usually the first step in considering financial feasibility for economic competitive industries. NFTC provides treatment for alcohol and drug addiction, a social service that relies less on client payment and more on third party sources for the majority of their revenue which includes; government programs, insurance companies, charities, friends and family. Their charges for service are based on a sliding scale fee tied to the client s household income. NFTC does not deny service to those unable to pay. These two financial characteristics of the NFTC business model, reduced collections based on household income and inability to pay, provide a real challenge in estimating earned revenue. Historical cost data, for operating their 28 bed treatment center prior to the fire was used as a guideline to estimate future costs of operating the new facility. These costs are documented, indexed for inflation and adjusted to reflect operations in a replacement building. After total costs of operating and long term debt services have been 2

estimated, the need for substance abuse treatment is assessed. Estimates are then made for competition in the area served by NFTC. A sensitivity analysis estimates the potential impact of an increase in number of admissions and/or the percent increase in collection of fees that will be required to cover the costs. Managing annual cash expenses is the most critical but also the most controllable factor in maintaining NFTC as a financially feasible operation. The current level of management was considered in each step of the analysis and was assumed to continue into the future. Historical data was used to the greatest extent possible. The staff not only provided in-depth financial information and client characteristic data, but also reviewed report drafts to ensure all information had been properly interpreted. This interactive process with management is always helpful, but it becomes critical with a not-for-profit organization such as NFTC, for which there are few if any comparables. 3

Annual Cash Expenses Historical operating costs of the NFTC have been well documented by the staff and are available in annual financial statements and tax returns. Fire destroyed the building in March of 2007. Fiscal year 2006 (October 1, 2005 through September 30, 2006) is the last full year cost data is available that includes a full year for the residential program. The first step was to estimate personnel requirements for the expanded facility with 42 beds, a 50% increase in residential capacity. Table 1 describes the assumed distribution of the 36 fulltime equivalent (FTE) employees with $1,027,800 in annual salary requirements. The estimated salary compares to an actual payroll of $788,345 in FY 2006. The 36 FTE represent the staff needed to open the new facility and maintain the professional competence of current employees by reducing turn over. Table 1. Personnel Required for Future NFTC Operations. Personnel Categories FTE's $/FTE Total Payroll Administrative 11 $28,193 $310,120 Clinical 10 $35,578 $355,780 Residential 15 $24,128 $361,900 Total 36 $87,899 $1,027,800 Table 2 shows the estimated annual cash required for operations and debt retirement assuming a $1,500,000 real estate mortgage. The projected annual operating costs are based on actual costs reported for FY-2006. These reported expenses were modified and assumed to represent FY-2007 expenditures assuming operations had not been interrupted by the March 2007 fire. The major adjustments were in personnel costs. The actual wages and salaries for 2006 was $788,345. The higher estimate of $1,027,800 wages and salaries for FY-2007 assumes increased capacity of four beds that were in the planning stage at the time of the fire. This higher number also reflects the salary adjustment that helped NFTC 4

maintain qualified employees. One new position is assumed to be added each year beginning in FY-2008 because of increased work load as residential occupancy increases. A 4.2% annual increase in wage and salaries was used to maintain cost of living in the area and reward job performance. This number is justified based on annual wage and salary trend data published by the Bureau of Economic (BEA) analysis for Churchill County since 1969. Another adjustment in personnel costs is an assumed two percent contribution to a 403(b) defined contribution retirement plan. This will allow employees to tax defer a portion of their current income to fund their retirement. It is assumed this will actually save money in the long-run by reducing employee turn over and consequently the cost of training. The estimated gas and electric utility expenses are based on actual charges for the Silver Rose Manner [9]. The other utility category is assumed costs for water, sewer and solid waste, as actual costs were not available. Annual increases were assumed to reflect inflation plus economic conditions that could impact future energy costs. The real property taxes represent the Silver Manor actual costs, $11,717 and indexed up at eight percent annually to reflect the maximum increase under current law. Most other costs were assumed to have a two to three percent annual increase. The exceptions are food at 15%, natural gas and electricity at 4% and travel at 10%. The food and energy increases are assumed to reflect market forces, and the number of patients in the residential program will increase by approximately 10 percent annually until occupancy is back to a minimum of 65 percent capacity. The increase in travel assumes both an increase in costs and a small increase in actual travel. A meeting with appropriate NFTC staff on December 27-28, 2007, provided in-depth review to assure the data reflected NFTC operations as accurately as possible. 5

Table 2. Estimated Annual Operating Expenses Debt Retirement, Cash Flow. Operating Expenses FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 Personnel Wages and Salaries 1,027,800 1,105,968 1,187,418 1,272,290 1,360,726 1,452,876 FICA (7.65%) 78,627 84,607 90,837 97,330 104,096 111,145 Workers Comp (1.5%) 15,417 16,590 17,811 19,084 20,411 21,793 FUI & SUI (3.0% unemploy ins) 30,834 33,179 35,623 38,169 40,822 43,586 Health Insurance (11.5%) 118,197 127,186 136,553 146,313 156,483 167,081 Retirement 403(b) (2%) 20,556 22,119 23,748 25,446 27,215 29,058 Payroll Processing (300/MO) 3,600 3,708 3,819 3,934 4,052 4,173 Total Personnel $1,295,031 $1,393,356 $1,495,810 $1,602,566 $1,713,804 $1,829,713 Supplies Supplies/General and Office 52,626 53,679 54,752 55,847 56,964 58,103 Food Supplies 31,452 36,170 41,595 47,835 55,010 63,261 Household supplies 4,359 4,446 4,535 4,626 4,718 4,813 Postage 3,031 3,092 3,153 3,217 3,281 3,346 Equipment Purchase/Rental 15,000 15,300 15,606 15,918 16,236 16,561 Total Supply $106,468 $112,686 $119,642 $127,442 $136,209 $146,085 Services Professional Services 118,000 120,360 122,767 125,223 127,727 130,282 Lab Test/UA 5,000 5,100 5,202 5,306 5,412 5,520 Temporary Employees 3,866 3,943 4,022 4,103 4,185 4,268 Marketing Expense 15,000 16,500 18,150 19,965 21,962 24,158 Employment Advertisement 3,323 3,655 4,021 4,423 4,865 5,352 Recreation Expense 2,400 2,448 2,497 2,547 2,598 2,650 Dues and Subscriptions 2,000 2,040 2,081 2,122 2,165 2,208 Licenses and Fees 8,000 8,160 8,323 8,490 8,659 8,833 Seminars 19,046 19,427 19,815 20,212 20,616 21,028 Travel 38,190 42,009 46,210 50,831 55,914 61,505 Repairs and Maintenance 11,376 11,604 11,836 12,072 12,314 12,560 Vehicle Expense 6,000 7,500 9,375 11,719 14,648 18,311 Total Services $232,201 $242,746 $254,299 $267,012 $281,065 $296,675 Utilities and Telephone Electricity 33,108 34,432 35,810 37,242 38,732 40,281 Gas 11,434 11,891 12,367 12,862 13,376 13,911 Other 3,000 3,120 3,245 3,375 3,510 3,650 Telephone 15,000 15,300 15,606 15,918 16,236 16,561 Total Utilities and Telephone $62,542 $64,744 $67,027 $69,396 $71,854 $74,403 Taxes, Insurance and Misc. Real Property Tax 11,717 12,654 13,667 14,760 15,941 17,216 Business Liability Ins 22,347 22,794 23,250 23,715 24,189 24,673 Fire and Casualty Insurance 24,000 24,480 24,970 25,469 25,978 26,498 Miscellaneous Operating 6,000 6,120 6,242 6,367 6,495 6,624 Total Taxes, Ins. and Misc. $64,064 $66,048 $68,129 $70,311 $72,603 $75,011 Reserve for Capital Repairs 0 60,000 61,800 63,654 65,564 67,531 Total Cash Operating $1,760,306 $1,939,580 $2,066,707 $2,200,381 $2,341,099 $2,489,417 Debt Repayment $1.5M Mortgage Mortgage Payment annualized 81,000 81,000 81,000 81,000 81,000 81,000 Debt Service Reserve 8,100 8,100 8,100 8,100 8,100 8,100 Annualized Building Costs $89,100 $ 89,100 $89,100 $ 89,100 $ 89,100 $ 89,100 Total Annual Cash Required $1,849,406 $2,028,680 $2,155,807 $2,289,481 $2,430,199 $2,578,517 6

The annualized mortgage payment and debt service reserve are based on the RD, USDA example [13, payment example]. Each $500,000 of principal requires a monthly payment of $2,250 which is $27,000 (2,250 x 12) on an annual basis. There is also a debt service reserve requirement of $225 per month, $2,700 annually or 10 percent of the payment for principal and interest. The total debt service and reserve requirement is $29,700 per $500,000 per year. The assumed mortgage, $1.5 million will require three $500,000 units or $89,100 annual cash flow. It is further assumed the contribution to the reserve will continue beyond the level required by USDA and used for future capital replacement needs. This reserve account should also smooth out the cash flow problems experienced in the past and allow monthly mortgage payments to be made in a prompt and timely manner. These cost estimates are assumed to allow NFTC to continue their current level of outpatient care and provide a replacement for their Residential Inpatient programs. The next step is to identify the need for the services they are prepared to provide. 7

Need for Service A market analysis is usually conducted to determine the revenue that could be derived by selling an economic good or service where the price and quantity determine the demand for that good or service. A market analysis is not the appropriate methodology for this report. The need for treatment of individuals for substance abuse is an estimate made by a government agency in Nevada. Economic forces or local economic conditions are not directly related to the need for service. NFTC provides treatment for alcohol and drug addiction, a social service that relies on payment from third party sources including; government programs, insurance companies, charities, friends and family. Substance Abuse Prevention and Treatment Agency (SAPTA) reports the number of people treated for substance abuse in Nevada in 2004 [1]. This fact sheet also reported 2,226 people had to wait an average of 24 days for admission to treatment services in 2006. Utilizing the number treated in the state or the met need and the total need from the Substance Abuse Mental Health Services Administration (SAMHSA) National Survey on Drug Use and Health (NSDUH 2004), they were able to estimate the unmet need. The total number of people estimated in need of service was 180,000 approximately 8.6 percent of the population. The met need from all sources was estimated at 33,983 leaving an unmet need of 146,017 or 81 percent. SAPTA recognizes these estimates contain a degree of error and even if the met need is double the estimate, or 67,966, there is still an unmet need of 112,034. Using their population estimate of 2,094,627 the unmet need is equal to 5.35 percent of the population. The 5.35 percentage is assumed to apply to all geographic areas of the state and include both adolescents and adults in the population. 8

The NFTC has historically served most of northern and eastern Nevada on a limited basis. Their residential program, based in Fallon, emphasizes Churchill County, but draws clients from the Reno and Carson City area. The Nevada State Demographer estimated the 2006 Churchill County population to be 27,371 [Table A-2]. Using the 5.35% estimate for unmet need indicates there are approximately 1,464 potential clients in Churchill County. However, the unmet need or potential clients who reside in the County do not translate directly into demand for the NFTC services. There are an additional 15,000 potential clients within a one hour drive of Fallon in the Reno-Carson City area. Churchill County has supported the NFTC residential program for over 10 years and should be able to continue in the future. NFTC employs a multi-disciplinary staff which includes licensed and certified addiction counselors, marriage and family therapists and social workers. Five NFTC staff members have received certification for Creating Lasting Family Connections (CLFC) and six employees have received extensive training in the Parent Child Assistance Program (PCAP) and in Project CHOICES. NFTC strives to ensure its staff is culturally and linguistically representative of the populations served. Presently, the organization employs and/or contracts with four persons of Native American decent, five persons of Hispanic descent, two persons with disabilities, one African American and five current employees are former consumers of the social services continuum in rural Nevada. NFTC employs two Spanish-speaking staff which, other than English, is the primary language spoken in this area. The organization is strongly rooted in the community and has well-established relationships with other community-based organizations, the medical and military communities, social services, the local Native American Tribes and the business community. 9

The organization invests significant resources into its sustainability by engaging in annual strategic planning and on-going resource development. NFTC has a diverse funding stream and is experienced in managing multiple projects. NFTC has provided critical service to Churchill County and surrounding communities on a continual basis for over 30 years. Their mission is to promote the health and welfare of the individual, family, and community through a comprehensive continuum of substance abuse and other related wellness services [2, p11]. The best measure of future need for NFTC services can be gleaned from past performance. Table 3. NFTC 2006 Admissions or "Met Need" by Category. County Admissions Outpatient Inpatient Male Female Carson 15 2 13 10 5 Churchill 194 131 63 122 72 Clark 6 1 5 3 3 Douglas 12 0 12 7 5 Elko 51 39 12 34 17 Humboldt 37 26 11 29 8 Lander 1 0 1 0 1 Lincoln 7 7 0 0 7 Lyon 39 11 28 19 20 Mineral 14 8 6 7 7 Nye 8 4 4 6 2 Pershing 63 54 9 33 30 Washoe 80 7 73 38 42 White Pine 26 17 9 13 13 All Counties 553 307 246 321 232 Statewide 1 0 1 1 0 Nevada 554 307 247 322 232 Out-of-State 9 0 9 4 5 Total 563 307 256 326 237 Table 3 shows the number and type of their 2006 admissions. Every Nevada County had residents served by NFTC in 2006 with the exception of Esmeralda. In analyzing the number of admissions it is not surprising to find that Churchill County represented the largest number 10

of admissions, 194 total with 131 outpatient and 63 residential or inpatient. What is interesting, and an indication of the NFTC competitiveness, is Washoe County admitted 73 inpatients or 10 more than Churchill. Total admissions shown in Table 3 include both fee paying clients and those covered by contract such as drug courts. A review of available information on Nevada drug and alcohol treatment centers [3] and the appropriate economic census data indicates NFTC has minimal competition in the area they serve. The next step is to define the relationship between the met need and client fees generated for revenue. Those fees will then be combined with anticipated government grants, charitable gifts and contributions and government contracts to estimate total funding from all sources for a break-even analysis. 11

Financial Analysis NFTC has a maximum fee schedule for different categories of service which are shown in the first data column of Table 4. NFTC does not deny service to anyone because of inability to pay and have adopted a sliding fee schedule. A patients charge depends on the level of their household income adjusted for the number of persons in the household. The sliding fee is then applied to the maximum chargeable amount. Table 4. Maximum Fee Schedule, Sliding Scale, and Actual Fees Collected, FY-2006 Maximum Fees Sliding Scale Actual Receipts Actual % Maximum Actual % Slid Scale Outpatient Group $40 $15.70 $8.20 20.5% 52.2% Outpatient Individual $75 $29.44 $15.38 20.5% 52.2% Intensive Outpatient $125 $49.06 $25.63 20.5% 52.2% Detox $450 $176.63 $92.25 20.5% 52.2% Residential III.1 $225 $88.31 $46.13 20.5% 52.2% Residential III.5 $225 $88.31 $46.13 20.5% 52.2% People in the lowest household income category pay 15% and represent 60% of patients. The next level of household income pay 40% of the maximum charge and represents 10% of households. At the upper level of income 15% of the households pay 75% of the charges and 15% pay 100% or the total maximum allowable charges for the services received [9]. On average this works out to 39.25% of the maximum charges billed to patients that are not covered by a government contract or other arrangement. Column 2, Table 4 shows the average billing for service using the sliding scale. However, NFTC only collects a little over 52% of the sliding scale charges billed which is only 20.5% of the maximum charges. The non-collected fees are turned over to a collections agency from which they receive approximately $800 per month from delinquent accounts. In 12

FY-2006 approximately $603,400 was billed on sliding fees. These billings resulted in $340,400 collections of which $315,200 represented inpatient charges. Sensitivity analysis can be used to determine the degree to which revenue can be increased by holding the occupancy rate constant and increasing the percent of the sliding scale fees collected or increase occupancy and hold collections constant. These are two variables over which management has some control. The economic viability of the NFTC will depend to a large extent on how these two factors are managed. The increase in number of beds is assumed to increase number of admissions, if not the occupancy rate. There are also indications that the collection rate has been increasing with the current management [9]. Table 5, column 1 shows an additional $24,620 would be collected from 20 additional admissions per year assuming current client fees. This is an increase of approximately eight percent based on an assumed 256 admissions in the base year. Reading on down column 1 shows the increased revenue anticipated from an additional 20 admissions per year, with no change in collections. The first row in Table 5 shows the amount of additional revenue provided from a 2% incremental increase in collections from the $603,400 of sliding schedule fees actually billed and holding the number of admissions constant. It is assumed that occupancy can be increased by 20 each year and that an additional 2% of fees billed using the sliding scale can be collected each year for the next five years. Reading down and across the Table shows the dollar amount of additional revenue realized for the increased number of admissions and the increase in the percentage of fees collected. For example, 80 more admissions and a 10 percent increase in client fee collections would generate an additional $158,820 in annual revenue. 13

Table 5. Sensitivity Analysis for Increased Clients and Percent of Collections** 0% 2% 4% 6% 8% 10% 0 0 12,068 24,136 36,204 48,272 60,340 20 24,620 36,688 48,756 60,824 72,892 84,960 40 49,240 61,308 73,376 85,444 97,512 109,580 60 73,860 85,928 97,996 110,064 122,132 134,200 80 98,480 110,548 122,616 134,684 146,752 158,820 100 123,100 135,168 147,236 159,304 171,372 183,440 120 147,720 159,788 171,856 183,924 195,992 208,060 140 172,340 184,408 196,476 208,544 220,612 232,680 160 196,960 209,028 221,096 233,164 245,232 257,300 ** Rows represent increments of 20 additional clients = $1,231 per client while Columns represent 2% incremental increase in client fee collections. Table 5 provides estimates of increased cash from operations that will be available under varying assumptions for the number of admissions and rate of collections. This estimated revenue over the next five years is combined with other funding sources including grants, contracts, contributions and client fees to estimate total cash available for annual operations and long-term debt repayment. Table 6 shows all sources of estimated revenue over a five year period. Money is available from two broad categories. State and Federal grants and contributions are a major source of support for NFTC, but are not directly tied to the quantity of services provided. Earned income comes from client fees and service contracts. Column 1, FY-2007 represents the base year and is used to estimate the amount of support and earned income over the next five years. There was not a residential program for the last six months of the base year because of the fire. However, the staff was able to maintain most of the support funding and pursue new grants and contracts on anticipation of acquiring a new building. In the base year, grants and contribution support, account for $1.05 M, 54% of total available cash. It is estimated grants and contributions will increase to $1.285 M by FY-2012 but represent only 49.6% of total cash available. Earned income is projected to account for 50.4% of available 14

cash in FY-2012 because of increased admissions and the percentage increase in client fee collections. Projected operating expenses are also listed in Table 6. These expenses represent the aggregated categories of expenses shown in Table 2. The reserve for capital repairs is intended to cover capital repairs on the building as needed and other capital equipment such as automobiles. Debt repayment assumes a $1.5 M USDA Rural Development loan with monthly payments based on $2,250 per $500,000 principal [13] plus 10% set aside as a debt service reserve. Table 7 shows the monthly and annual mortgage payments for a conventional loan based on 3.5%, 4.0% and 4.5 % interest rates and terms of 30, 35, and 40 years. These annual cash flow estimates assume a level of management provided by the current staff. There is a projected net profit of $92,182 or 4.2% of available cash in FY-2008 and $12,426 or 0.48% in FY-2012. 15