Hello there.
There might be some variation as to how these benchmarks are labeled,
but I will provide a series of general obligation debt and
affordability benchmarks as recommended by an article on the Bergman
Capital website. You will also find some figures which I cannot
verify as they can only be computed through a specific knowledge of
where you are located, such as per capita income relative to area,
state, and national averages.
Also, whether there is undue economic dependence on a limited amount
of employers or even in just one industry is a cause for concern in
playing with the numbers. "In terms of local taxpayers/employers, the
nature of their industries and growth prospects are evaluated, as is
the importance of the local facility to the company’s overall
operations. Property taxpayer concentration in which one taxpayer
makes up more than 5% of the tax base or the top ten taxpayers make up
more than 30% of the tax base, may be a basis for concern." - Quoted
section above from Bergen Capital Incorporated website.
""General fund debt service/general fund expenditures – 10%"" - This
is the top figure that is practical. At rates above 10% of
expenditures or revenues, it may be a budgetary concern and you seem
to be right on the cusp. "This concern is mitigated to the extent
that amortization is above average and the debt service structure is
declining as opposed to back loaded or level." - Quote from Bergen
Capital Incorporated website
""Net Debt per capita $1000"" - "Debt per capita is a good initial
indicator of local debt burden and the ability of local residents to
support such debt through taxes. However, the use of this financial
ratio has limitations. It does not measure the corporate presence in
the area or the relative wealth of residents in the area. More
reflective of ability to pay, is the local debt as a percentage of the
market value of real estate. This measure, unlike per capita debt,
considers overall wealth of the tax base and accounts for variations
in the residential and commercial/industry composition and mix and, by
extension, who pays the debt." The line below represents the figures
which would apply in this case and combines two parts of your question
into one.
""Debt/Assessed valuation – 6.00%"" - The average range of total debt
as a percentage of (assessed) market value is 2%-5%. Below 2% is low.
Above 6% is high and above 10% may constitute a credit risk. Once
again you are on the seeming "cusp."
""Fund balance/General fund revenue – 7.50%"" - "Balance sheet
analysis focuses on liquidity and the level of fund balance. The
borrower’s current position (cash and investments less current
liabilities and predetermined expenses) is reviewed, and trends in
accounts receivable and interfund payables are analyzed. A general
(operating) fund balance is the “rainy day fund” of a tax-exempt
entity. The unreserved fund balance remaining after expenses is
equivalent to what retained earnings are for a taxable entity.
Generally, as a cushion against potential revenue and expenditure
volatility, an unreserved fund balance equal to 5% of expenditures and
transfers or current revenues and transfers is regarded as a sound
level." Your fund balance is half again as high. - Quote from Bergen
Capital Incorporated website
""Debt/full value – 1.60%"" -
""Net Debt to income 5.50%"" - These last two figures once again
depend on economic factors related directly to your local area and
must be computed accordingly. You can learn about all the multiple
layered factors involved in the article "Credit Discussion of General
Obligation Bond Issues" below.
However, the figures I can identify and verify seem to have your
community within the "working norms" of such a bond issue. While
'presumption' has its arrogance and weaknesses, one would presume
based on the verifiable figures, that those numbers which need local
information to compute would also fall within the "working norms." At
least the odds are in that direction.
I have relied heavily on quotes for this answer due to the nature of
the information provided. 'Paraphrasing,' or making a personal
interpretation may distort meaning sufficiently to cause un-needed
complications.
"Credit Discussion of General Obligation Bond Issues"
( http://www.bergencapital.com/research/files/GOCRITERIA.htm ) - From
website of Bergen Capital Incorporated. "Bergen Capital, Inc. is a
national investment banking and trading firm specializing in the
underwriting and distribution of fixed-income securities."
To obtain even more detailed analyses of General Obligation issues:
( http://www.kennyweb.com/kwnext/kwlogin.html ) - This is a part of
the Standard & Poor's website dealing with G.O. issues. Membership is
required. There is a two week free trial membership offered but when
I called the number, it is an "opt out" membership. In other words,
they get you signed up and you have to notify them within two weeks
that you want to quit.
Search - Google
Terms - general obligation bonds, general obligation bond
affordability benchmarks
If I may clarify anything before giving a rating, please ask.
Cheers
digsalot |
