In this paper, we are going to be studying the capital budgeting process for the city of Ft. Lauderdale, Florida. This will be accomplished by focusing on: how the debt capacity is determined, examining the effects of refunding / reorganization on existing debt obligations and analyzing alternatives that can be used. Once this takes place, is when we can show how these factors will impact the budgetary strategies used by officials.
Capital Budgeting
Over the last several years, different levels of government have been facing a variety of challenges when it comes to budgetary issues. For the city of Ft. Lauderdale, the Department of Public Safety is encompassing 60% of their total expenditures every year. This is because it includes areas such as police and fire / rescue services. At the same time, many of these departments are subdividing into other areas of specialization. To fully understand the way different events have impacted the city requires: examining how debt capacity is determined, studying the effects of refunding / reorganization on existing debt obligations and analyzing alternatives that can be used. Together, these elements will offer specific insights as to as the long-term effects of various activities on the budget and possible tactics for dealing with them. ("Comprehensive Annual Financial Report," 2012)
Discuss how the debt capacity of the governmental entity is determined.
The debt capacity is determined for the entire city of Ft. Lauderdale using a complicated formula. This involves analyzing the total amounts of current debt in comparison with the sinking fund and revenues. These figures are compared with the needs of city and bonds can be issued to address specific needs. This is used by the city council, to set a limit of 12% for all revenues collected in contrast with outstanding liabilities. ("Comprehensive Annual Financial Report," 2012) ("Statistical Section," 2012)
In the case of the Department of Public Safety, they have to remain within these guidelines. This is because, they are receiving their financing directly through the city's general revenues fund. To qualify, the department has to be in compliance with these provisions. Otherwise, there is the possibility that they could see a decrease in funding. During the last two years, the total amounts of spending have been increasing from $181 thousand to $187 thousand. This is a sign that the department is following the basic guidelines of the city for their debt obligations of 12% in comparison to all total revenues. ("Comprehensive Annual Financial Report," 2012)
For example, the Department of Public Safety will receive a percentage of the funds collected from various general obligation, capital lease and revenue bonds. These are provided to them in the form of additional financing for different activities. While the city, is responsible for repaying the loan to investors. This makes the department directly answerable to city officials (which means they have to follow their policies and procedures). ("Comprehensive Annual Financial Report," 2012) ("Statistical Section," 2012)
Evaluate the effect of refunding or reorganizing existing debt obligations.
In the last two years, the city has been focused on paying down their debt. This is a part of a longer term effort to reduce the outstanding obligations while interest rates are low. To achieve these objectives, officials have been increasing the size of sinking fund and paying off the highest yielding obligations first. At the same time, they have been refinancing under a new program with a lower interest rate. ("Comprehensive Annual Financial Report," 2012) ("Statistical Section," 2012) (Lee, 2012)
The net effects are that property taxes and the total amounts of debt have increased. While the sinking fund, is also rising, in order to continue with the debt exchange program. The below table is illustrating these changes over the last two years.
Outstanding Debt in Contrast with Property Taxes 2010 to 2011
Year
Sinking Fund
Net General Bonded Debt
Percentage of Taxable Property Value
2010
$328,423
$34.13 million
.12
2011
$16.04 million
$49.84 million
.20
("Statistical Section," 2012)
These figures are showing how the reorganization has caused the overall levels of debt and taxes to increase. This is from additional funds being required to exchange higher interest securities with lower yielding ones. During this process, the total amounts of debt and taxes will be more from the additional levels of liquidity that are required. However, over the long-term, this will help the city to reduce what they are paying in interest. ("Comprehensive Annual Financial Report," 2012) ("Statistical Section," 2012) (Lee, 2012)
Analyze various funding alternatives that can be used to support debt obligation.
You’re 81% through this paper. Sign up to read the full paper.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.