Each year, the City completes a debt capacity assessment, as part of the budget process, to ensure that proposed debt is affordable and contributes to the financial strength of the City. The debt capacity is the upper limit on the dollar amount of capital improvements that the City can afford to fund from debt. Based on policy direction for tax- backed debt, the affordability limit is based on assuming tax revenues of no more than the effective tax rate plus 3 percent annually; equal to approximately 3% annual revenue increase other than from new value to the tax roll.
- For property tax supported debt, maximum capacity is determined by an amount of annual debt service that the City can support within the proposed tax rate allocation for debt based on assumed growth in assessed valuation, using market rates for average annual interest costs and principal payments.
- For revenue debt, maximum capacity shall be determined by the amount of annual debt service that the City can absorb within a proposed rate structure that has been reviewed with City Council and which can support the proposed debt within the additional bonds test as defined in the revenue bond covenants. The City shall not exceed debt capacity as defined through bond covenants, or fall below bond coverage ratios for additional revenue bonds.
When determining debt capacity, the City takes the following into consideration: Existing debt obligations; revenue and expenditure trends; various measures of debt burden on the community; ratios such as debt per capita, debt to assessed value and taxable value per capita; Statutory or constitutional requirements and market factors such as interest rates, credit ratings or market status.