City Long Term Debt and Investments
Municipal Debt and Bond Information
Types of Municipal Debt
There are three distinct types of debt that can be issued by local government:
- General obligation (GO) debt is secured by the full faith and credit of the local government issuing the debt. The municipality pledges its tax revenues unconditionally to pay the interest and principal on the debt as it matures. If the debt is in the form of a bond, the bond owners have a legal claim on all the general income of the jurisdiction if a default occurs.
- Revenue debt is different from GO debt in its method of repayment. Unlike GO debt, which relies on taxation, revenue debt is guaranteed by the specific revenues generated by the issuer. For example, utilities can issue revenue debt with the revenues from customer utility bills guaranteeing the repayment of the debt.
- Special assessment debt is debt repaid from assessments against those who directly benefit from the project the funds have been used to finance. For example, if a special assessment bond is issued to pay for road improvements that benefit a specific subset of the population, the local government will develop an assessment roll for those properties benefiting from the improvement to repay the bond.
Long-term debt is a commonly used for financing large capital assets such as infrastructure, buildings, and large pieces of equipment. Issuing debt increases the total cost of the asset through the payment of interest, but it also allows local governments to acquire or build capital assets sooner by borrowing up front for assets that they could not otherwise fund from existing cash resources. By spreading out the debt payments over many years, local governments can also smooth out their expenses and create a more predictable cash flow.
Short-term debt can be used to cover a temporary cash flow deficit or provide for an interim method of financing until long-term borrowing has been secured.
What Are Municipal Bonds?
Municipal bonds are debt securities issued by states, cities, counties and other governmental entities to finance capital projects such as building new facilities, highways, or sewer systems. By purchasing municipal bonds, you are in effect lending money to the bond issuer in exchange for a promise of regular interest payments, usually semi-annually, and the return of the original investment, or “principal.” A municipal bond’s maturity date (the date when the issuer of the bond repays the principal) may be years in the future. Short-term bonds mature in one to three years, while long-term bonds won’t mature for more than a decade.
Generally, the interest on municipal bonds is exempt from federal income tax.
The two most common types of municipal bonds are the following:
- General obligation bonds are issued by states, cities or counties and not secured by any assets. Instead, general obligation are backed by the “full faith and credit” of the issuer, which has the power to tax residents to pay bondholders.
- Revenue bonds are not backed by government’s taxing power but by revenues from a specific project or source, such as highway tolls or lease fees. Some revenue bonds are “non-recourse”, meaning that if the revenue stream dries up, the bondholders do not have a claim on the underlying revenue source.
Visit the Municipal Securities Rulemaking Board (MSRB) Electronic Municipal Market Access (EMMA) page, and type "City of Las Cruces" in the Quick Search field.
An investment policy describes the parameters for investing government funds and identifies the investment objectives, preferences or tolerance for risk, constraints on the investment portfolio, and how the investment program will be managed and monitored. The Government Finance Officers Association recommends that all governments establish a comprehensive written investment policy, which should be adopted by the governing body.
Review the Investment Policy in the City's Municipal Code.