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Governmental Funds Debt Capacity

A. Discuss how the debt capacity of a governmental entity is determined.
b. Evaluate the effect of refunding or reorganizing existing debt obligations.
c. Analyze various funding alternatives that can be used to support debt obligation.
d. Describe how rating agencies evaluate governmental risk.

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a. Discuss how the debt capacity of a governmental entity is determined.
To determine the debt capacity of a government entity it is necessary to compare its total debt outstanding with annual debt service requirements. In addition, it is necessary to know how much remaining capacity is there in its pledged revenues and it is necessary to know what the outstanding debt of the entity is. After this the entity should evaluate if it can afford to issue extra debt? It is necessary to evaluate the pledged revenue capacity of all its revenues. Based on the historical revenues of the entity, the projected revenues are calculated, the sources of revenue and the projections for next five years need to be found, and debt ratios should be calculated. The debt service obligations need to be calculated, revenues and notes payable should be assessed, the proposed debt needs to be calculated and the total debt found. Measures of debt burden on the entity needs to be computed and evaluated. Each of these factors is important for ...

Solution Summary

This explanation provides you a comprehensive argument relating to debt capacity, support debt obligations and evaluate credit risk in government capacity. 578 words with references.