Question

Why is important for a local or state government establishing a statutory debt limit and get
a good debt margin?

What are the purposes and debts types that a debt service fund account for?

What types of long-term debts a local or state government can issue?

What are the purposes, characteristics, and financing sources for capital projects funds?

Answer 1

The statutory debt limit often referred to as the debt ceiling, is the limit to the amount of debt that the U.S. government can take on to meet its legal obligations. These obligations include things like paying for Social Security, military salaries, Medicare and tax refunds. It also includes interest payments on existing debt. Once the government reaches the statutory debt limit, it cannot take on new obligations.

Government debt, also known as public interest, public debt, national debt and sovereign debt, contrasts to the annual government budget deficit, which is a flow variable that equals the difference between government receipts and spending in a single year. The debt is a stock variable, measured at a specific point in time, and it is the accumulation of all prior deficits.

A central government with its own currency can pay for its nominal spending by creating money although typical arrangements leave money creation to central banks. In this instance, a government issues securities to the public not to raise funds, but instead to remove excess bank reserves (caused by government spending that is higher than tax receipts) and '...create a shortage of reserves in the market so that the system as a whole must come to the [central] Bank for liquidity.

Treasury and Government Bonds

Bonds are debt instruments with fixed terms of repayment and with fixed interest payments made during the life of the bond. Bond interest is paid at regular intervals throughout the life of the bond, but the capital is only repaid, in full, at the end of the loan term specified on the bond. Bonds can be bought and sold on financial markets. Bonds are used to raise funds by governments at the federal, state and local level. Federal government bonds with maturity dates of 30 years from the time of issue are known as Treasury Bonds

A capital projects fund is used in governmental accounting to track the financial resources used to acquire and/or construct a major capital asset. Once the asset has been completed, the fund is terminated.

Capital projects funds are "limited life funds:" they exist for the life of the project and are then closed . 2. Surplus monies in the fund at closing are transferred either to a debt service fund or to the general fund .

Typically, there are four major areas to explore: government funding, private fundraising, partnerships and other sources and project financing. Depending on the nature of your project, there are a range of government grant programs at the municipal, provincial and federal level that fund community capital projects.