In Washington State, debt capacity refers to the legal limit on how much money a city can borrow through bonds or loans. It ensures that cities don’t take on too much debt and remain financially stable.
How It Works
- Debt Limit Based on Property Value: A city’s borrowing limit is based on a percentage of its total assessed property value (the taxable value of all properties within the city).
- State-Defined Limits: Washington State law (RCW 39.36.020) sets different maximum debt limits depending on the purpose of the borrowing.
- Types of Debt Limits
1. General Purpose Debt (Without Voter Approval)
- Up to 1.5% of the city’s total assessed property value.
- Funded through existing revenue (like taxes and fees).
- Example: A city issues bonds to buy police cars or improve parks.
2. General Purpose Debt (With Voter Approval)
- Can increase up to 2.5% with voter approval.
- Funded by an additional property tax (voter-approved bonds).
- Example: A city asks voters to approve bonds to build a new community center.
3. Utility Debt (With Voter Approval)
- Additional 2.5% limit for public utilities (like water, sewer, electricity).
- Funded by utility rates or special taxes.
4. Open Space & Parks (With Voter Approval)
- Another 2.5% can be used for parks, open space, and recreation facilities.
Total Maximum Debt Limit
- A city cannot exceed 7.5% of its total assessed property value in total debt, even with voter approval.
Why It Matters
- Prevents excessive borrowing: Ensures cities don’t overextend financially.
- Protects credit ratings: Helps cities maintain good financial health and secure lower interest rates.
- Requires voter approval for major projects: Keeps taxpayers involved in big spending decisions.
City of Des Moines Debt Capacity
Note: The total indebtedness for general purposes with or without a vote cannot exceed 2.5% of the value of taxable property. The general purposes indebtedness includes debt for capital leases without a vote. The legal limit for capital leases debt (RCW 35.42.200) is included in the 2.5 percent and does not constitute extra allowable debt.
The 1.5 percent is the maximum limit for general purposes without a vote (councilmanic debt). A council may choose to allocate any portion of this debt capacity to the "voted" category. If done so, this 1.5 percent of the indebtedness available without vote is to be proportionately reduced by the excess "voted" debt over 1 percent.