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State Government Debt Management: The Forgotten Tool in the Financial Manager’s Triage Bag  

Author:  Craig L. Johnson.; Sharon N. Kioko.; Janey Q. Wang.

Source: Volume 31, Number 01, Spring 2010 , pp.21-40(20)

Municipal Finance Journal

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Governments must service the debt they issue by making principal and interest payments until the debt matures. At debt issuance, they have a choice of structuring the debt service schedule. The authors find that state government general obligation debt service structures are very front-loaded, which can heighten annual budgetary problems during an economic downturn. The paper compares the traditional rules for understanding and summarizing debt service structures with three new measures: Debt Service Average Life (DSAL), Debt Service Average Maturity (DSAM), and Debt Service Duration (DSDuration). They find that these measures provide a useful alternative to the current “rules of thumb” used for structuring debt service and recommend that governments use these measures to better manage their debt service burden relative to their annual budgetary demands.

Keywords: Debt Service; True Interest Cost; Debt Service Life Average; Debt Service Duration; Debt Service Average Maturity

Affiliations:  1: School of Public and Environmental Affairs at Indiana University; 2: Maxwell School of Citizenship and Public Affairs, Syracuse University; 3: San Francisco State University.

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