Bond Bank Medians- How do we Compare?
The Bond Bank is regularly asked by our borrowers about the overall level of debt that appropriate for towns, school districts, and other units of government.
This complicated but essential question boils down to a few considerations for communities:
- What amount of debt service can be incurred while maintaining an affordable tax burden or other municipal fee structure;
- What amount of debt is appropriate before crowding out other important areas of community spending; and,
- What amount of debt will lenders provide and at what cost?
These questions inform the related concepts of debt affordability and debt capacity. In addition to statutory considerations, these concepts drive local government analysis of how much debt to incur as part of capital planning efforts.
The answers to the first of the above question surrounding debt affordability is perhaps the most perplexing as it can represent both the values of a community as well as their position next to financial benchmarks derived from peer communities.
The Bond Bank benefits from the ability to observe many communities through our Pooled Loan Program and SRF activities in which we regularly review financial statements from across Vermont. Over the past few years this dataset was refined to inform the publication of the attached Vermont Bond Bank Debt Medians that will be published annually going forward.
These medians provide a starting place within a larger capital and debt planning analysis to measure overall debt affordability. The GFOA, for example, advocates for the use of benchmarking to tackle questions of debt capacity.
What the medians cannot accomplish, however, is conclusively answer questions of debt affordability. One community may wish to exceed benchmarks temporarily or permanently to accomplish long-standing community goals such as overcoming historic legacies of underinvestment or other unique self-determined considerations.
The Bond Bank believes that the Vermont Bond Bank Benchmarks nevertheless provide a critical starting point for planning purposes given the highly unique characteristics of Vermont’s communities that warrant custom benchmarking versus national local government debt measures.
Please see the 2020 Vermont Bond Bank Debt Medians case study for the data and reach out to the Bond Bank with questions or to discuss the implications for your community.
Email Ashley Lucht at firstname.lastname@example.org or call 802.861.0074