Chapter 1. Legally Incurring Debt – State Law Restrictions on Public Agency Debt and Revenues

Local public agencies37 in California, like those in other states, have only the powers given to them by state law. The powers held by California public agencies vary. The scope of these powers affects whether and how a particular public agency can borrow, and on what terms, and the revenue sources available to it. This chapter provides an overview of the statutory and legal framework within which California local public agencies may incur debt and obtain the funds needed to repay it, including legal sources of authority to borrow (See Section 1.1), state constitutional limits on that authority (See Section 1.2), exceptions to the state constitutional debt and revenue limits (See Section 1.3), revenue sources available to public agencies (See Section 1.4), the limits on those sources, and related matters.

The objective of this chapter is not to provide an exhaustive list of all the laws that apply to a particular public agency and its issuance of debt or to provide all of the details of applicable state law. Rather, the chapter is designed to provide sufficient understanding of these laws to allow public agency officials to consult with legal counsel and other advisors. Different provisions affect public agency issuers in varying ways, depending in part upon the type of entity from a constitutional perspective (such as a city, county, district or other agency or authority) and upon the revenue source to be used for debt repayment (e.g., taxes vs. enterprise revenues).38