i.4.2.1 Decision #1 – Choose the funding source
Depending upon their authorities, some public agencies have multiple revenue sources from which they can repay borrowed money. See Chapter 1 – LegallyIncurring Debt – State Law Restrictions on Public Agency Debt and Revenues. Most cities, for example, can choose to fund debt service from general taxes (which typically include sales taxes and property taxes), revenue sources like enterprise systems (such as a water system), or special taxes or assessments. Determining which funding source should be used to pay debt service generally hinges on two questions:
- Is there a funding source that is most fair and appropriate given the need that is being financed?
- Is the funding source vulnerable to interruption or adverse changes that would unduly endanger the public agency’s ability to meet its service mission if it is committed to repayment of debt?
A city seeking to finance the construction of a parking facility, for example, may consider funding its debt service from its general fund or from the revenues of the parking facility. On one hand, the parking revenues could be the best choice because the debt will finance the construction of the parking facility, while using general fund revenues could jeopardize the use of those revenues for more important priorities. On the other hand, the city may conclude that the parking revenues are insufficient or are not reliable enough to pay debt service.