As its name suggests, debt capacity measures a government’s ability to take on debt. It’s a way that leaders and stakeholders can determine the affordability and risk of potential debt— and ensure decisions are made in the best interest of both present and future stakeholders.

Of course, debt agreements require both a lender and a borrower. This article will look at how a government can measure debt capacity, develop policies to support improved analysis, and provide examples for the measures used by the City of Franklin, Tennessee. Kristine Brock offers a nuanced take on assessing and tracking debt capacity. She draws on her experience in financial leadership for Franklin, Tennessee to explore this issue from the vantage point of the municipal borrower. Steve Murray, who heads Fitch’s U.S. Public Finance Southwest Tax-Supported group, provides a deep dive into how rating agencies apply criteria to determine risk—and understand the unique circumstances of municipal borrowers.

• Publication date: February 2021
• Authors: Kristine Brock and Steve Murray