Subnational government debt financial management I: financing principles and policies

In the life of a community, debt issuance decisions can be of remarkable importance. This chapter covers the principles and policies that should guide such decisions. The capital financing decision is appropriately represented by the sale of long-term debt to secure resources for a major capital infrastructure investment. Such financing and investment decisions represent the essence of the debt management function, which is to contractually trade expected future revenues for a large infusion of current funds. Debt financing has an inevitable budgetary impact - the debt must be serviced over the life of the issue, and principal and interest payments may crowd out current and future spending. The sale of debt creates a future liability that must be repaid, often by pledging a variety or a combination of revenue streams, until the debt matures. The more that is paid in future debt service expenditures, the fewer funds available to finance other activities in the budget.