Usually, the revenues that will serve as the funding source for debt service will also serve as the revenues that will secure the debt. Sometimes, however, the source of revenue used to fund debt service is different from the source of revenue used to secure the debt. In the example of the city financed parking facility, the city may decide that it will use the parking revenues to repay the debt but may still opt to use general fund revenues to secure the debt.
This decision hinges on the answers to three questions:
- What sources of revenues are sufficiently creditworthy to serve as security for the debt?
- What sources of revenues are legally permissible to serve as security for the debt?
- What risks to the mission of the public agency or to the funding of higher priority needs are implicated by using a source of revenue as security for the debt?