A City's Debt Service

The amount spent on debt service in relation to total revenues is a critical indicator of financial condition. There is no question that the use of debt to help smooth costs over time can be very beneficial for cities. It provides stability so that cities are not forced to make radical changes in property tax rates from year to year in response to lumpy capital costs. Furthermore, it ensures that future users pay their share of the costs of providing public goods and services. However if the ratio of debt to revenue is increasing over time, and in particular if that ratio grows to exceed 20 percent, a city is probably relying too much on debt and not growing its revenue at a sustainable rate to meet expenditures.