How and Why Municipalities Use Debt to Help the City
What is the City of Rhome’s Bond rating and why is it important?
As of the spring of 2023, the City had an A+ bond rating! This allows us to finance projects at a lower interest rate and also shows that we have been good stewards of the funds that we have already borrowed. You may compare our bond rating as a tool that is similar to your own personal credit rating. It helps lenders evaluate the likelihood of the City repaying the loans on time. City’s bond ratings are determined using a variety of financial factors, such as: debt management per capita, overall financial performance, economic outlook based on tax base, income, population, employment numbers, etc.
Why would Rhome borrow money or issue bonds? Rhome may use borrowed funds to pay for capital projects, such as: road construction, city related facilities, water lines, sewer needs, and other infrastructure projects. The debt is generally spread out over several years (also known as intergenerational equity), thus – reducing the burden for repayment across the life of the repayment schedule. You may compare this to a family who takes out a mortgage on a home or property in order to pay it back over time. It also allows you to pay in installments rather than emptying your savings account to pay for the building/house/land all up front.
The use of debt also means that the repayment of the asset is done over the useful life of the project – such as a waste water treatment plant, roadway replacement/building/maintenance, and facility construction or land purchase. This helps ensure that the resident who live in Rhome as of today (and are paying taxes to the City), do not pay for the entire cost of the project or asset which will be used for many years. The future residents of Rhome (as the community continues to expand) will also help repay the debt over the next 20, 30 or 40 years.