1996-Annual Town Report - Laserfiche WebLink

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Capital projects may increase future expenses, decrease future expenses or may be cost-neutral. The funding of capital projects may fall within available revenues (taxes or fees) or new revenue sources (debt or capital exclusions). Projecting the impact that the proposed capital project has on the operating budget is important so that operating budget funding sources could also be identified or new funding sources recommended. 2. We should review capital projects in relation to impact on property tax limitation. a. Projects funded with current tax revenues should identify impact on annual operating budget. b. Projects funded with long-term debt and not exempted from Proposition 2'/z should identify impact on annual operating budgets. C. Projects funded with long-term debt and exempted from Proposition 2%z should identify impact on the annual tax rate and/or tax bills (debt exclusion). d. Projects funded with capital exclusion should identify impact on the current annual tax rate and/or tax bills (Capital Expenditure Exclusion). C. Debt Management Policies 1. We should not incur long-term debt without a clear identification of its financing sources. Long-term debt is generally used to fund capital projects that have a long useful life and are relatively expensive. Because of the debt service costs and annual appropriations necessary to retire this debt. there should be clear knowledge and commitment of revenue sources to pay these costs without com- peting with operating budgets for limited resources. 2. The town will assess betterments on all capital projects where applicable (e.g., water, sewers, streets, sidewalks, etc.). When specific benefits accrue to a property owner(s), the town will assess betterments according to state statutes and local policies.This funding source will contribute all or part of the cost associated with the capital project. 3. General fund debt service should not exceed 10-15% of general fund revenues. The credit rating agencies, such as Moody's Investor Services, consider debt service on net direct debt (i.e., non-self-supporting exceeding 20% of net operating revenues as a potential problem. Dramatic increases in debt service also suggest potential problem.Dramatic increases in debt service also suggest potential problems unless revenue sources increase to keep pace with these additions to fixed costs.The 10-15% benchmark provides a policy to apply to new projects and the growth of revenues to finance such projects. 4. The town will attempt to maintain a long-term debt schedule so that at least 50% of outstanding prin- cipal will be paid within ten (lo) years. Debt service costs include annual principal and interest payments. Debt service costs are also a signif- icant portion of fixed cost. A reasonable maturity schedule not only reduces interest costs but recog- nizes that capital needs will continue to be identified and recommended. Credit rating bureaus review these maturity schedules and future capital needs. I 13 �