Page 112 - City of Watauga FY22 Adopted Budget

BUDGET OVERVIEW

➢ Capital Expenditure Financing: There are three methods of financing capital
requirements:
o Current revenues.

o Fund balance/retained earnings, as allowed.
o Debt.

Debt financing includes general obligations bonds, revenue bonds,
certificates of obligation, and lease/purchase agreements. Guidelines for
assuming debt are described in the Debt section, below.

➢ Capital Projects Reserve Fund: A fund may be established and maintained to
accumulate proceeds from the sale of real property, and transfers from the
General Fund undesignated fund balance. This fund should be used to pay
for capital improvements and equipment with an expected life of greater than
10 years.

• Debt: Establish guidelines for debt financing that will provide capital equipment
and infrastructure improvements while minimizing the impact of principal and
interest payments on current revenues.

➢ Use of Debt Financing: Debt financing, including general obligation bonds,
revenue bonds, certificates of obligation, and lease/purchase agreements
shall be used only when capital assets cannot be financed from current
revenues or when the useful life of the asset or project exceeds the payout
schedule of any debt.
➢ Assumption of Additional Debt: Additional tax supported debt should not be
assumed without conducting an analysis to determine the community’s ability
and desire to support additional debt service payments.
➢ Affordability Targets: An objective analytical approach should be used to
determine whether new general-purpose debt could be assumed beyond
what is retired each year. Generally Accepted Standards of affordability
should be used in the analysis. These include debt per capita, debt as a
percent of taxable value, debt service payments as a percent of current
revenues and current expenditures, and the level of overlapping net debt of
all local taxing jurisdictions. The direct costs and benefits of the proposed
expenditures should be examined. The decision to assume new debt should
be based on the costs and benefits, plus the ability to assume the new debt
without detriment to the City or its citizens.
➢ Debt Structure: Debt payments should be structured to ensure level
repayment. Level payment schedules improve budget planning and financial
management.
➢ Debt Limits: Article XI, Section 5, of the State of Texas Constitution does not
provide for a statutory debt limit for cities. However, it does state: “Cities may
levy, assess and collect such taxes as may be authorized by law or by their

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