How is a municipality's capacity for borrowing calculated?

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Multiple Choice

How is a municipality's capacity for borrowing calculated?

Borrowing capacity is the remaining headroom a municipality has under its debt limit. The debt limit sets the maximum total debt allowed; to find how much more debt can be issued, you subtract what is already outstanding (existing debt) from that limit. That difference is the remaining capacity to borrow. Why the other ideas don’t fit: adding the existing debt to the limit would imply exceeding the cap, which isn’t allowed. Using gross debt minus unissued debt mixes what’s already borrowed with authorized-but-not-yet-borrowed amounts, which isn’t the standard measure of current capacity. Net assets minus liabilities relates to net position, not the ability to incur new debt.

Borrowing capacity is the remaining headroom a municipality has under its debt limit. The debt limit sets the maximum total debt allowed; to find how much more debt can be issued, you subtract what is already outstanding (existing debt) from that limit. That difference is the remaining capacity to borrow.

Why the other ideas don’t fit: adding the existing debt to the limit would imply exceeding the cap, which isn’t allowed. Using gross debt minus unissued debt mixes what’s already borrowed with authorized-but-not-yet-borrowed amounts, which isn’t the standard measure of current capacity. Net assets minus liabilities relates to net position, not the ability to incur new debt.

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