Are you looking to closely monitor your debt service levy and/or tax rate? An important part of doing so is monitoring the debt service cash balance (line 11 on Form 4-B).
In 2014, legislation was introduced by the State Legislature that limited the amount of cash balance local units of government could carry in debt service funds. Prior to 2014, units could levy enough to cover not only their total payments for the upcoming budget year, but also enough to end that budget year with an additional six months of funds. In other words, debt essentially carried a 50% operating balance.
Maximum allowable debt service operating balances are calculated on a per debt basis. Debt originally issued before July 1, 2014 can still carry the 50% operating balance. For debt issued after June 30, 2014, the allowable operating balance is 15% of the next budget year’s payments. Over time, this change results in debt service cash balance declines as debt with a 50% operating balance gets replaced by debt with a 15% operating balance.
Why does this matter? If the decline in operating balance is unforeseen or not properly managed, you may be faced with an unexpected dip in the debt service levy and tax rate one year, followed by a spike the following year. In addition, school corporations eligible for the protected taxes waiver should pay close attention to the operating balance to help evaluate and plan for future use of the waiver.
For more information on this topic, or to learn how Baker Tilly municipal specialists can help, contact our team.
Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and wholly-owned subsidiary of Baker Tilly Virchow Krause, LLP, an accounting firm.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax advice, if any, contained in this communication was not intended or written to be used by any taxpayer for the purpose of avoiding penalties.