When dealing with funding a capital projects program, the government should consider available funding sources. Potential sources available would be 1) annual revenue, 2) an unexpected surplus of funds a county may have from a prior year, 3) earmarking certain revenues for capital projects such as park and recreation fees, 4) impact or user fees which would be specific revenues for a specific project, and 5) grants and/or donations and debt related instruments. Most capital projects use debt related instruments to fund the projects. These instruments consist of 1) capital outlay notes (CON), 2) revenue bonds, 3) capital leases, 4) special obligation bonds, and 5) general obligation bonds. The predominant debt instruments are capital outlay notes and general obligation bonds.

It is a recommended practice that governments establish a debt financing policy which considers per capital debt ratios, multi-year debt service budgets, fund balance policies, and other ratios and statistics related to debt management. Below are various terms and definitions which the government agency should be aware.

Limit on Amount of Outstanding Debt

Since nearly all services rendered by the county are required by the state and require sizeable investments in capital improvements, counties are not limited as to the amount of indebtedness.  T.C.A. § 9-21-103.  However, when a county's debt ratio of outstanding debt to property values exceeds the state average or a national standard recognized by firms who trade municipal bonds, the county may pay a higher interest rate or be unable to issue additional bonds.  When a county faces this problem, the county's financial advisor can offer alternatives to fund proposed projects.