What is meant by the limitation on outstanding debt?

The limitation on outstanding debt refers to restrictions imposed on how much a government or municipality can borrow based on its revenue-generating capacity. This concept aims to ensure that any debt incurred remains within manageable levels relative to the entity's ability to service that debt.

By tying borrowing limits to revenue, entities can avoid overextending themselves financially, which could lead to default or hinder their ability to provide services. For instance, a municipality may have rules in place that prevent it from borrowing more than a certain percentage of its annual revenue or operating budget. This type of regulation promotes fiscal responsibility and helps maintain financial stability, which is crucial for long-term sustainable growth.

In contrast, the other choices do not accurately capture the essence of the limitation on outstanding debt. A cap on total allowable funds raised is more general and does not specifically connect to revenue levels. Policies that encourage high-risk investments are unrelated to debt limitations, as they deal with investment strategies rather than borrowing constraints. Lastly, asserting that this limitation only applies to short-term financing overlooks the broader application of debt limitations, which can encompass both short-term and long-term obligations.