3 Accounting
3.10 Compliance
3.10.5 Limitation of Indebtedness
3.10.5.10 The amount of debt a government may incur is limited by the State constitution (constitutional debt limit) and individual statutes (statutory debt limit). Debt limits are based on total taxable property value and vary by type of government. Each government should calculate its available debt capacity each time it is considering issuing additional debt.
The Department of Commerce provides governments with a spreadsheet to assist in the Calculation of Limitation of Indebtedness for the government. If the specific entity type is not available, use the general spreadsheet. With the proper inputs and adjustments, this spreadsheet can be used by any municipality to compute both its constitutional and statutory debt limits.
3.10.5.40 What is the difference between the constitutional debt limit and the statutory debt limit?
The constitutional debt limit is the maximum debt a government would ever be allowed. Statutory debt limits are usually set at a much lower level based on the Legislature’s perception of what is a safe and reasonable amount for each government type to carry.
There is one difference in what debt is included in these calculations. Although state law (RCW 39.36.060) allows local governments to exclude state and federal government loans from the statutory debt limit, these government loans are not excluded from the constitutional limit (RCW 39.69.030).
Example – Assume a city has taken out Public Works Trust Fund loans that are considered to be general obligation debt and equal to 1% of its assessed valuation. These loans are excluded from the statutory debt limit calculation (1.5%), but not from the constitutional debt limit calculation (also 1.5%). Its statutory margin of indebtedness without a vote would still be 1.5%. However, it could only issue an additional 0.5% of non-voted debt because to issue any more would exceed the constitutional limit.
Note that many government loans (including some of the Public Works Trust Fund loans) are not considered a debt for purposes of calculating debt limits because they are revenue debt payable solely from specified revenue sources, rather than being a general obligation of the government. [1] Therefore, these revenue debts are outside both the statutory and constitutional debt limit calculations.
3.10.5.50 For information on what debt is included, constitutional and statutory debt limits by government type, and assistance with calculations please see the Department of Commerce’s website.
Footnotes
[1] Debt is defined as borrowed money payable from taxes (State ex rel. Witter v. Yelle, 65 Wn.2d 660, 339 P.2d 319 (1965); Troy v. Yelle, 36 Wn.2d 192, 217 P.2d 337 (1950). Because most of the Public Works Trust Fund loans are utility infrastructure loans in which user fees payable into special funds are pledged for repayment, these loans fall under the special fund doctrine and are considered revenue bond debt, rather than a debt of the municipality. (Municipality of Metropolitan Seattle v. Seattle, 57 Wn.2d 446, 357 P.2d 863 (1960)).