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NYS Comptroller

THOMAS P. DiNAPOLI

The Academy for New York State's Local Officials

Capital Planning and Budgeting: A Tutorial for Local Government Officials

Module 2 - The Capital Budget

Financing: Debt Affordability

There are four measures of debt affordability, and planners should use a mix of these measures in assessing debt capacity:

  1. Debt service as a percent of total revenue - A measure of a local government's financial capacity. It is an indicator of whether a locality can meet existing debt obligations and still take on additional debt without crowding out other operational needs.
  2. Overall debt per capita - This is commonly used because it allows an easy comparison across local governments; however, it does not capture the ability of the local government to repay debt.
  3. Overall outstanding debt as a percent of real property value - Captures the relative wealth of the locality.
  4. Overall outstanding debt as a percent of personal income - This also gauges a local government's fiscal capacity to repay debt.

It is now easier than ever to get the data to conduct these analyses. Through Open Book New York, data on local government finances is just a click away. With the exception of per capita income information (which is available through www.census.gov), all data needed to conduct a debt affordability analysis is available for each local government in New York State for up to 12 years.

There is no single threshold for what is a “healthy” level of debt. Planners need to look at trends and compare their locality to similar communities, both near by and statewide.

For a more detailed discussion of this topic, see our Local Government Issues in Focus report entitled Layers of Debt: Trends and Implications for New York's Local Governments [pdf].

  Next: Types of Debt