How much, when, and why should a government borrow? While the answers to these questions depend on your government’s short-term and long-term goals, by adopting a written debt management policy you can help management and your governing body be on the same page when it comes to financing. An effective debt management policy provides a consistent framework for decision-making by identifying which expenses can be financed, establishing borrowing limits and legal requirements, creating debt structure, and setting long-term financial planning objectives.
When creating your government’s debt management policy, not only does it need to align with other initiatives, such as capital improvement programs and fund balance policies, but, according to Government Finance Officers Association (GFOA) recommendations, it also needs to address the following key points:
- Debt limits
- Debt structuring practices
- Debt issuance practices
- Debt management practices
- Use of derivatives
Once developed, it’s important to conduct regular reviews to ensure your debt management policy continues to align well with your government’s current state and future outlook. Adherence to a debt management policy indicates that a government is well managed and is likely to adhere to its debt obligations. Ultimately, this policy serves as a tool to improve your government’s transparency and accountability and increases citizen, rating agency, and capital market confidence in your government. A debt management policy is just one of a number of important plans that your government should have in place to help ensure a common understanding between management and the governing body.
For more information on this topic, or to learn how Baker Tilly Tilly state and local government specialists can help, contact our team.