i.3.1 Understanding the Work Each Public Agency Must Commit to When Using Debt Financing
Public agencies that choose to debt finance a capital project with debt that is issued as a municipal security assume legal and financial responsibilities imposed by state and federal laws and regulations meant to protect the interests of market participants and the public.10 Public agencies that issue debt in the private market, including bank loans, are likewise subject to legal and financial requirements imposed by the lender. Regardless of the type of debt, it is imperative that the public agency, BEFORE undertaking a debt financing, understand what these responsibilities are and what it takes to administer them.
Failure to adhere to the terms of a financial obligation may constitute a financial, market, or legal default, resulting in substantial adverse consequences. These may include rescheduling of payment obligations or escalating interest rates, denied access to capital or the imposition of extraordinary restrictions on future borrowing, or any costs associated with defending against civil actions brought by investors or other interested parties.