PA 581 Week 7 DQ 1 Debt Policy Statement
b b b b b b b b
Youbarebthebchiefbfiscalbofficerbforbabmunicipalitybandbhavebbeenbdirectedbbybthebmayor'sbofficebtobleadbthebdevelop
mentbofbabwrittenbdebtbpolicybstatement.bYoubarebawarebofbthebrisksbofbborrowingbmoneybandbthebgravebimportanc
ebofbstrongbinternalbcontrols.bWhatbmustbbebincludedbinbthisbpolicybifbitbisbtobbebeffective?b
Thisbsectionblistsboptionsbthatbcanbbebusedbtobviewbresponses.
CollapsebAllbbbb PrintbViewbbbb ShowbOptionsbbb
Responses
Responsesbareblistedbbelowbinbthebfollowingborder:bresponse,bauthorbandbthebdatebandbtimebthebresponse
bisbposted.
SortbbybResponseb SortbbybAuthorb SortbbybDate/Time*b
(anbinstructorbresponse)
DebtbPolicybStatement:bIntroductionb(Scen 2/15/2015b1:28:23b
ario)b ProfessorbMaleckaiteb AM
DearbAll,b
WelcomebtobWeekb7,bThread#1!bPleasebconsiderbthebscenariobabovebandbfeelbfreebtobsharebyo
urbideas!b
Dr.bM
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/15/2015b11:32:21b
enario)b AyelebKuevib AM
Ibbelievebthatbdevelopingbabdebtbpolicybstatementbisbeffective.bOnebformbbybwhichbthebgovernme
ntbgeneratesbrevenuebisbtobborrowbfunds.bInbdoingbso,btheybarebablebtobacquirebresourcesb(service
s,betc.)bforbthebpublic’sbuse.bConsequentially,bwhenbborrowingbfunds,bgovernmentbmustbkeepbinb
mindbonebimportantbprinciple-
thatbis,bifbtheybviolatebfiscalbsustainability,bultimately,btheybimpactbtheblivesbofbthosebpayingbthebt
axesbandbthosebwhobarebdependentbuponbthesebservices.bAccordingbtobthebtext,b“debt-
servicebcostsbcanbimpairbthebabilitybofbthebborrowerbtoboperatebnormally.bHence,bthebfundamenta
lbrulebofbdebtbpolicybis:bdobnotbissuebdebtbforbabmaturityblongerbthanbthebfinancedbproject'sbusefulb
life.bThebreasonbforbthisbisbthat,bifbthebdebtblifebexceedsbusefulblife,bthebproject'sbtruebannualbcostbh
asbbeenbunderstated,bandbpeoplebwillbcontinuebtobpaybforbthebprojectbafterbthebprojectbisbgone.bIfbt
hebusefulblifebexceedsbthebdebtbperiod,bthebannualbcostbhasbbeenboverstated,bandbpeoplebwillbrecei
,vebbenefitsbwithoutbpayment.bBybstatingbandbexplainingbthebpurposebofbthebdebt,bonebwouldbbeba
blebtobbetterbdeterminebthebneedsbforbsuchbdebt;bEssentially,bthisbdemonstratesbsomebtransparenc
ybasbitbrelatesbtobborrowingbandbincurringbdebtsbwithinbthebgovernment.
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/15/2015b2:25:08b
enario)b DerekbJamesb PM
bbbbbbbb "Identifyingbandbmanagingbmarketbriskbinvolvesbexaminingbthebfinancialbch
aracteristics of the revenues and other cash flows available to the governmen
b b b b b b b b b b b
t to service its borrowings, and choosing a portfolio of liabilities which matche
b b b b b b b b b b b b
s these characteristics as much as possible. When they are available, hedgin
b b b b b b b b b b b
g instruments can be used to move the cost and risk profile of the debt portfoli
b b b b b b b b b b b b b b b
o closer to the preferred portfolio composition."
b b b b b b bb
Prepared by the Staffs of the International Monetary Fund
b b b b b b b b
and the World Bank
b b b
GuidelinesbforbPublicbDebtbManagement
Retrieve From: http://www.imf.org/external/np/mae/pdebt/2000/eng/index.ht
b b
m#4-4
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/15/2015b4:57:10b
enario)b StephaniebMccallab PM
Thebdebtbpolicybmustbincludeblong-
termbandbshortbtermbwaysbofbpayingbbackbmoneybasbwellbasbriskbmanagementbplans.bForbexample,bifbt
hebHRbdepartmentbhadbtobborrowbfundsbinborderbtobimplementbabnewbpayrollbsystembandbonlinebtraini
ngbwithinbthebdepartment.bHowever,babhugebbudgetbcutbwillboccurbinbthebnextbfiscalbyear.bAbplanbmustb
bebenactedbinborderbtobintroducebthebeffectsbofbtakingbthisbrisksbofbgoingbthroughbwithbthisbprojectborb
notbgoingbthroughbwithbthisbproject.bGovernmentsbusebtheb"spendbthebmoneybbeforebtheybgetbit"bmet
hod,bwhichbcanbhavebabbadbeffectbonbthebcity.bb
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/17/2015b6:40:18b
enario)b AngelybAlbab PM
, Modified:2/17/2015b7:01bPMb
Abformalbdebtbpolicybisbanbessentialbpartbofbeffectivebfinancialbmanagementbandbshouldbbebincor
poratedbintobabcounty’sbcapitalbimprovementbprogram.bTherebarebseveralbreasonsbtobestablishbabd
ebtbpolicy.bFirst,bitbestablishesbthebparametersbforbthebissuancebofbdebt,bwhichbhelpbpreventbexcee
dingbacceptableblevelsbofbindebtedness.bSecond,bdebtbpoliciesbgivebinvestorsbandbratingbagencies
bevidencebofbthebcounty’sbcommitmentbtobsoundbfinancial bmanagement.bThird,bdebtbpoliciesbpro
videbconsistencybandbcontinuitybforbpublicbpolicybdevelopmentbandbhelpbguidebcountybdecisionb
makers.
Borrowingbprovidesbfundsbtobacquirebresourcesbforbcurrentbpublicbuse.bThebdebtbf
rombthatbborrowingbmustbbebrepaid,bwithbinterest,binbthebfuture.bTherefore,bborro
wingbcommitsbfuturebbudgets.bBecausebofbthebcontractualbrigidity,bdebtbmustbbebi
ssuedbwithbcarebbecausebunwisebusebcanbdisruptbtheblivesbofbthosebpayingbtaxesba
ndbexpectingbservicesbinbthebfutureb(i.e,bviolatesbfiscalbsustainability).bDebt-
servicebcostsbcanbimpairbthebabilitybofbthebborrowerbtoboperatebnormally.bThebfun
damentalbrulebofbdebtbpolicybis:bdobnotbissuebdebtbforbabmaturityblongerbthanbthebfi
nancedbproject'sbusefulblife.bIfbthebdebtblifebexceedsbusefulblife,bthebproject'sbtrueb
annualbcostbhasbbeenbunderstated,bandbpeoplebwillbcontinuebtobpaybforbthebproject
bafterbthebprojectbisbgoneb(Mikesellb640)
Mikesell,bJohn.bFiscalbAdministration,b8thbEdition.bWadsworth,b01/2014.bVital
Bookbfile.
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/18/2015b10:07:51b
enario)b JanniebGafiukb PM
NicebdefinitionbAngely,bofbthebformalbdebtbpolicybyoubposted.bbbbVerybsolidbpointbyoubmentionbaboutb'b
orrowingbfundsbtobacquirebresourcesbforbcurrentbpublicbuse'.bbThebdebtbpolicybshouldbentailbabdescripti
onbofbcostsbpertainingbtobnewbpolicies/initiativesbtobbebundertakenbinbthebcomingbbudgetbyearbandbthe
bpotentialbofbfuturebreturnsbborrowedbfundsbforbcitizenbprojectsbwillbyieldbinbthebmidbandblongbterm.bJu
stbtobaddbabfewbmorebintobthebdebtbpolicybscopebofbareasbthatbcouldbbebincluded.
Thebformalbdebtbpolicybshouldbemphasizebthebpolicybstrategybintendedbforbvariousbsectorsbandbprovid
ebaggregatebestimatesbforbcurrentboutlaysbandbinvestmentsbalongbwithbthebgroundbworkbperspectivebo
nbhowbeachbsectorbwillboperatebinbtermsbofbbudgetballocations.bb“Itbalsobwouldbincludebinformationbonb
thebdifferentbelementsbofbexpenditurebonbabfunctionalbandbeconomicbclassificationbanbupdatebofbthebe
stimatesbissuedbinbthebpreviousbyear,basbwellbasbanybunanticipatedbchangesbinbthebrolebofbabsector.”bPr
oposalsbforbintergovernmentalbgrants,btheballocationbofbresourcesbamongbstatebandblocalbgovernmentb
b b b b b b b b
Youbarebthebchiefbfiscalbofficerbforbabmunicipalitybandbhavebbeenbdirectedbbybthebmayor'sbofficebtobleadbthebdevelop
mentbofbabwrittenbdebtbpolicybstatement.bYoubarebawarebofbthebrisksbofbborrowingbmoneybandbthebgravebimportanc
ebofbstrongbinternalbcontrols.bWhatbmustbbebincludedbinbthisbpolicybifbitbisbtobbebeffective?b
Thisbsectionblistsboptionsbthatbcanbbebusedbtobviewbresponses.
CollapsebAllbbbb PrintbViewbbbb ShowbOptionsbbb
Responses
Responsesbareblistedbbelowbinbthebfollowingborder:bresponse,bauthorbandbthebdatebandbtimebthebresponse
bisbposted.
SortbbybResponseb SortbbybAuthorb SortbbybDate/Time*b
(anbinstructorbresponse)
DebtbPolicybStatement:bIntroductionb(Scen 2/15/2015b1:28:23b
ario)b ProfessorbMaleckaiteb AM
DearbAll,b
WelcomebtobWeekb7,bThread#1!bPleasebconsiderbthebscenariobabovebandbfeelbfreebtobsharebyo
urbideas!b
Dr.bM
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/15/2015b11:32:21b
enario)b AyelebKuevib AM
Ibbelievebthatbdevelopingbabdebtbpolicybstatementbisbeffective.bOnebformbbybwhichbthebgovernme
ntbgeneratesbrevenuebisbtobborrowbfunds.bInbdoingbso,btheybarebablebtobacquirebresourcesb(service
s,betc.)bforbthebpublic’sbuse.bConsequentially,bwhenbborrowingbfunds,bgovernmentbmustbkeepbinb
mindbonebimportantbprinciple-
thatbis,bifbtheybviolatebfiscalbsustainability,bultimately,btheybimpactbtheblivesbofbthosebpayingbthebt
axesbandbthosebwhobarebdependentbuponbthesebservices.bAccordingbtobthebtext,b“debt-
servicebcostsbcanbimpairbthebabilitybofbthebborrowerbtoboperatebnormally.bHence,bthebfundamenta
lbrulebofbdebtbpolicybis:bdobnotbissuebdebtbforbabmaturityblongerbthanbthebfinancedbproject'sbusefulb
life.bThebreasonbforbthisbisbthat,bifbthebdebtblifebexceedsbusefulblife,bthebproject'sbtruebannualbcostbh
asbbeenbunderstated,bandbpeoplebwillbcontinuebtobpaybforbthebprojectbafterbthebprojectbisbgone.bIfbt
hebusefulblifebexceedsbthebdebtbperiod,bthebannualbcostbhasbbeenboverstated,bandbpeoplebwillbrecei
,vebbenefitsbwithoutbpayment.bBybstatingbandbexplainingbthebpurposebofbthebdebt,bonebwouldbbeba
blebtobbetterbdeterminebthebneedsbforbsuchbdebt;bEssentially,bthisbdemonstratesbsomebtransparenc
ybasbitbrelatesbtobborrowingbandbincurringbdebtsbwithinbthebgovernment.
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/15/2015b2:25:08b
enario)b DerekbJamesb PM
bbbbbbbb "Identifyingbandbmanagingbmarketbriskbinvolvesbexaminingbthebfinancialbch
aracteristics of the revenues and other cash flows available to the governmen
b b b b b b b b b b b
t to service its borrowings, and choosing a portfolio of liabilities which matche
b b b b b b b b b b b b
s these characteristics as much as possible. When they are available, hedgin
b b b b b b b b b b b
g instruments can be used to move the cost and risk profile of the debt portfoli
b b b b b b b b b b b b b b b
o closer to the preferred portfolio composition."
b b b b b b bb
Prepared by the Staffs of the International Monetary Fund
b b b b b b b b
and the World Bank
b b b
GuidelinesbforbPublicbDebtbManagement
Retrieve From: http://www.imf.org/external/np/mae/pdebt/2000/eng/index.ht
b b
m#4-4
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/15/2015b4:57:10b
enario)b StephaniebMccallab PM
Thebdebtbpolicybmustbincludeblong-
termbandbshortbtermbwaysbofbpayingbbackbmoneybasbwellbasbriskbmanagementbplans.bForbexample,bifbt
hebHRbdepartmentbhadbtobborrowbfundsbinborderbtobimplementbabnewbpayrollbsystembandbonlinebtraini
ngbwithinbthebdepartment.bHowever,babhugebbudgetbcutbwillboccurbinbthebnextbfiscalbyear.bAbplanbmustb
bebenactedbinborderbtobintroducebthebeffectsbofbtakingbthisbrisksbofbgoingbthroughbwithbthisbprojectborb
notbgoingbthroughbwithbthisbproject.bGovernmentsbusebtheb"spendbthebmoneybbeforebtheybgetbit"bmet
hod,bwhichbcanbhavebabbadbeffectbonbthebcity.bb
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/17/2015b6:40:18b
enario)b AngelybAlbab PM
, Modified:2/17/2015b7:01bPMb
Abformalbdebtbpolicybisbanbessentialbpartbofbeffectivebfinancialbmanagementbandbshouldbbebincor
poratedbintobabcounty’sbcapitalbimprovementbprogram.bTherebarebseveralbreasonsbtobestablishbabd
ebtbpolicy.bFirst,bitbestablishesbthebparametersbforbthebissuancebofbdebt,bwhichbhelpbpreventbexcee
dingbacceptableblevelsbofbindebtedness.bSecond,bdebtbpoliciesbgivebinvestorsbandbratingbagencies
bevidencebofbthebcounty’sbcommitmentbtobsoundbfinancial bmanagement.bThird,bdebtbpoliciesbpro
videbconsistencybandbcontinuitybforbpublicbpolicybdevelopmentbandbhelpbguidebcountybdecisionb
makers.
Borrowingbprovidesbfundsbtobacquirebresourcesbforbcurrentbpublicbuse.bThebdebtbf
rombthatbborrowingbmustbbebrepaid,bwithbinterest,binbthebfuture.bTherefore,bborro
wingbcommitsbfuturebbudgets.bBecausebofbthebcontractualbrigidity,bdebtbmustbbebi
ssuedbwithbcarebbecausebunwisebusebcanbdisruptbtheblivesbofbthosebpayingbtaxesba
ndbexpectingbservicesbinbthebfutureb(i.e,bviolatesbfiscalbsustainability).bDebt-
servicebcostsbcanbimpairbthebabilitybofbthebborrowerbtoboperatebnormally.bThebfun
damentalbrulebofbdebtbpolicybis:bdobnotbissuebdebtbforbabmaturityblongerbthanbthebfi
nancedbproject'sbusefulblife.bIfbthebdebtblifebexceedsbusefulblife,bthebproject'sbtrueb
annualbcostbhasbbeenbunderstated,bandbpeoplebwillbcontinuebtobpaybforbthebproject
bafterbthebprojectbisbgoneb(Mikesellb640)
Mikesell,bJohn.bFiscalbAdministration,b8thbEdition.bWadsworth,b01/2014.bVital
Bookbfile.
RE:bDebtbPolicybStatement:bIntroductionb(Sc 2/18/2015b10:07:51b
enario)b JanniebGafiukb PM
NicebdefinitionbAngely,bofbthebformalbdebtbpolicybyoubposted.bbbbVerybsolidbpointbyoubmentionbaboutb'b
orrowingbfundsbtobacquirebresourcesbforbcurrentbpublicbuse'.bbThebdebtbpolicybshouldbentailbabdescripti
onbofbcostsbpertainingbtobnewbpolicies/initiativesbtobbebundertakenbinbthebcomingbbudgetbyearbandbthe
bpotentialbofbfuturebreturnsbborrowedbfundsbforbcitizenbprojectsbwillbyieldbinbthebmidbandblongbterm.bJu
stbtobaddbabfewbmorebintobthebdebtbpolicybscopebofbareasbthatbcouldbbebincluded.
Thebformalbdebtbpolicybshouldbemphasizebthebpolicybstrategybintendedbforbvariousbsectorsbandbprovid
ebaggregatebestimatesbforbcurrentboutlaysbandbinvestmentsbalongbwithbthebgroundbworkbperspectivebo
nbhowbeachbsectorbwillboperatebinbtermsbofbbudgetballocations.bb“Itbalsobwouldbincludebinformationbonb
thebdifferentbelementsbofbexpenditurebonbabfunctionalbandbeconomicbclassificationbanbupdatebofbthebe
stimatesbissuedbinbthebpreviousbyear,basbwellbasbanybunanticipatedbchangesbinbthebrolebofbabsector.”bPr
oposalsbforbintergovernmentalbgrants,btheballocationbofbresourcesbamongbstatebandblocalbgovernmentb
