What does a Debt Affordability Analysis examine?

A Debt Affordability Analysis focuses on evaluating the capacity of a municipality's tax base or revenue-generating ability to support existing and proposed debt obligations. This analysis is essential for understanding whether a jurisdiction can take on additional debt without risking its financial stability or credit rating.

By examining the relationship between projected revenues (such as property taxes, sales taxes, or other income) and the debt service requirements, managers can assess whether the local government can comfortably meet its financial commitments. This involves looking at ratios such as debt-to-revenue and debt service-to-revenue ratios, ensuring that any new debt aligns with the overall financial health of the community.

While other factors like economic growth or effectiveness of capital investments are important for broader financial planning and strategy, they are not the direct focus of a Debt Affordability Analysis. This type of analysis specifically targets the capacity of the tax base to support debt, making it a critical tool for prudent fiscal management and responsible borrowing practices.