CandleFocus Glossary Editor
Overlapping debt is a form of borrowing used by multiple local and state governments to fund public activities and services. Generally, the debt burden is shared among the jurisdictions and the borrowing cost associated with overlapping debt can have an effect on the credit rating and long-term outlook of any municipality.
Because the debt is apportioned between multiple jurisdictions, overlapping debt is typically used to finance large projects that require multi-jurisdictional cooperation, such as public infrastructure or school systems. For example, when repairing a bridge that spans a river between two cities, the debt incurred for the repair is distributed between both cities.
In some cases, local governments have set up specific authorities to issue overlapping debt. These are called “fiscal authorities,” and they provide a mechanism for issuing debt outside of the local government’s normal authorization process. These authorities can also provide a way to circumvent normal budgeting constraints, such as when a municipality cannot legally borrow the funds necessary to fund a project. This allows local governments to borrow money to finance projects that may not be part of their normal budget.
Although overlapping debt and fiscal authorities can help leverage money to finance large projects, it can also lead to an increase in total spending, debt, and tax burdens. For example, a school system funded with overlapping debt may require additional revenue to pay back the debt, resulting in higher taxes on the overall population. Additionally, overlapping debt may have a ripple effect on other areas of the budget due to debt service ratio requirements and other borrowing constraints.
Overall, overlapping debt can be a useful financing tool for municipal governments. However, it is important for local and state governments to take a careful look at the associated risks and costs of overlapping debt before entering into any agreements. The key is to be aware of the potential effects of overlapping debt, as it can have a long-term impact on the financial outlook of a municipality.
Because the debt is apportioned between multiple jurisdictions, overlapping debt is typically used to finance large projects that require multi-jurisdictional cooperation, such as public infrastructure or school systems. For example, when repairing a bridge that spans a river between two cities, the debt incurred for the repair is distributed between both cities.
In some cases, local governments have set up specific authorities to issue overlapping debt. These are called “fiscal authorities,” and they provide a mechanism for issuing debt outside of the local government’s normal authorization process. These authorities can also provide a way to circumvent normal budgeting constraints, such as when a municipality cannot legally borrow the funds necessary to fund a project. This allows local governments to borrow money to finance projects that may not be part of their normal budget.
Although overlapping debt and fiscal authorities can help leverage money to finance large projects, it can also lead to an increase in total spending, debt, and tax burdens. For example, a school system funded with overlapping debt may require additional revenue to pay back the debt, resulting in higher taxes on the overall population. Additionally, overlapping debt may have a ripple effect on other areas of the budget due to debt service ratio requirements and other borrowing constraints.
Overall, overlapping debt can be a useful financing tool for municipal governments. However, it is important for local and state governments to take a careful look at the associated risks and costs of overlapping debt before entering into any agreements. The key is to be aware of the potential effects of overlapping debt, as it can have a long-term impact on the financial outlook of a municipality.