Assess the city’s debt capacity
One way for city governments to cope with fiscal pressures is to use their debt capacity to manage liquidity. Cities can borrow to increase their cash on hand today, but there must be prudent and responsible plans in place to repay any new borrowing. Usually, a city's debt capacity is linked to the full value of the city's property tax base. Cities should understand their debt capacity and forecast their debt capacity if property values fall during the recession.
ASSESSMENT
Some questions to guide your thinking
- What method does your city use to estimate their debt capacity?
- What are the best and worst-case scenarios for the city’s debt capacity over the next three to five years?
- How much of the debt capacity is currently used?
Reading
Issuing bonds responsibly
Government Finance Officers Association (GFOA) 30 minutes
Which stakeholders are involved in issuing bonds? What legal and structuring considerations should local governments keep in mind? This report provides a basic understanding on issuing bonds as well as an overview of alternative financing products.
- Pages 3-4 provide a guide to creating a team for issuing bonds.
- Page 8 details city responsibilities during and after a bond sale.
Reading
Measuring how much debt you can afford
Handbook of Local Government Fiscal Health 10 minute skim
How much debt can a local government afford to take? This book chapter presents different ways to measure debt capacity and affordability, matching benefits with drawbacks and outlining innovative models that should be considered as well.
- Debt affordability is typically calculated using one of three methods: debt ceiling, bond-rating, or regression analysis.
- Page 15 contains a summary of existing models.
Reading
Benchmark and measure your debt capacity following best practices
Government Finance Officers Association (GFOA) 15 minutes
What are best practices when measuring debt capacity and benchmarking against other jurisdictions? This comprehensive report covers how to analyze debt capacity and implement debt policy for local governments. Simple analytical techniques and data collection can aid the design of fiscal policy.
- Many jurisdictions establish a debt policy but rarely do they conduct regular evaluations of its effectiveness.
- Pages 21-29 cover how to compare your city against a peer group and which indicators to study.
Reading
Issuing bonds responsibly
Which stakeholders are involved in issuing bonds? What legal and structuring …
Reading
Measuring how much debt you can afford
How much debt can a local government afford to take? This book chapter presents …
Reading
Benchmark and measure your debt capacity following best practices
What are best practices when measuring debt capacity and benchmarking against other …