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Debt capacity analysis for local governments.

Government Finance Review

| October 01, 2004 | McElravy, Jeff; Liang, Leo Yonghong | COPYRIGHT 2004 Government Finance Officers Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

Most local governments have capital and infrastructure needs that exceed the size of their capital budgets. To meet those needs, many jurisdictions finance major capital projects by issuing debt. When used appropriately, debt can serve as an effective fiscal policy instrument by matching streams of costs and benefits related to a capital asset throughout its useful life. Stretching out the burden of financing long-lived assets promotes equity among generations of taxpayers and helps to maintain stable tax rates. However, excessive reliance on debt, especially if it is used to finance operating expenditures, is often the first sign of fiscal strain. In short, debt is a ...

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