Question

In preparation for a proposed bond sale, the city manager of the City of Appleton requested that you prepare a statement of legal debt margin and a schedule of direct and overlapping debt for the city as of the December 31 year end. You ascertain that the following bond issues are outstanding on that date:

Convention center bonds	$	2,800,000
Electric utility bonds		2,300,000
General obligation serial bonds		2,700,000
Tax increment bonds		1,900,000
Water utility bonds		1,300,000
Transit authority bonds		1,400,000

You obtain other information that includes the following items:

1. Assessed valuation of real and taxable personal property in the city totaled $190,000,000.
2. The rate of debt limitation applicable to the City of Appleton was 4 percent of total real and taxable personal property valuation.
3. Electric utility, water utility, and transit authority bonds were all serviced by enterprise revenues. By law, such self-supporting debt is not subject to debt limitation.
4. The convention center bonds and tax increment bonds are subject to debt limitation.
5. The amount of assets segregated for debt retirement at December 31 is $2,000,000.
6. The city’s residents are also taxed by Clyde County for 25 percent of school district and health services debt. The school district has $18,000,000 in outstanding bonds, while health services has $5,000,000 in debt. Finally, one-third of the $1,200,000 of regional library outstanding debt is paid by taxes assessed on Appleton residents.

Prepare a statement of legal debt margin for the city as of December 31 year end.

Prepare a schedule of direct and overlapping debt for the city as of December 31 year end

Answer 1

Requirement 1

Statement of legal debt margin

Particulars	Amount	Amount
Assessed value of property		190,000,000
Rate of debt limitation		4%
Amount of debt limitation		7,600,000
Outstanding long-term indebtedness
Subject to debt limit
Convention centre bonds	2,800,000
General obligation serial bonds	2,700,000
Tax incremental bonds	1,900,000
Total long term debt	7,400,000
Less: deductions
Amount accumulated for debt retirement	(2,000,000)
Net debt subject to limitation		5,400,000
Legal debt margin : amount available for future indebtedness		2,200,000

Requirement 2

schedule of direct and overlapping debt

Governmental unit	General obligation bonds	Estimated percentage applicable	Estimated share of overlapping debt
Clyde count school district	18,000,000	25%	4,500,000
Clyde county health services	5,000,000	25%	1,250,000
Regional library	1,200,000	33.33%	399,960
Overlapping debt total	24,200,000		6,149,960
City direct debt	7,400,000	100%	7,400,000
Total direct and overlapping debt	31,600,000		13,549,960

Note that the city also has 2300,000 + 1300,000 + 1400,000 = 5,000,000 of self-supporting revenue bonds outstanding, which are backed by the full faith and credit of the city, should enterprise revenues be insufficient to make debt service payments.