A discussion of the problem and significance of state debt affordability, an analysis of the leading methods to measuring and controlling debt affordability at the state level, and recommendations to state debt managers.
Written in 2005; 4,861 words; 6 sources; APA; $ 123.95
Paper Summary:
A state government's ability to balance the competing objectives of affordability, flexibility and capital demands can be challenging. One of the important objectives of a debt policy is to define the measures of debt affordability. This paper analyzes the prevailing literature on state debt affordability. It investigates the methods of debt affordability assessment that state governments currently practice and finds that states typically have an informal approach to addressing key policy elements regarding state debt and state debt managers often have no clear standard for measuring affordability. The writer presents two methods for addressing the problem of affordability: A generational model that attempts to determine how much debt is being shouldered by each generation and a relative affordability model that compares states' ratios of debt to resources available. In response to the literature, recommendations are made arguing for the importance of including affordability assessments in debt policy, the implementation of more formalized policies dealing with state debt affordability, the refinement of the generational model for use at the state level, and the use of the relative affordability model as a tool for debt managers.
From the Paper:
"Debt has become one of the most important tools of contemporary state governments. It is used to finance a plethora of each state's ventures every year. Since 1975, the outstanding state debt has doubled nearly eight times, resulting in a $548 billion dollar tab as of the year 2000. Generally, this debt is non-guaranteed and issued by different entities created by the state which are not bound by traditional centralized oversight and control. This long-term debt is typically issued to finance capital expenses (Brecher, Richwerger, & Van Wagner, 2003). These capital expenses can take many forms, ranging from homeless shelters to sports stadiums and everything in between (Robbins & Dungan, 2001)."
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