Niektoré aspekty zadlženia miestnych samospráv
SOME ASPECTS OF MUNICIPAL DEBT

Summary/Abstract: Debt financing has become an important revenue source in public sector since fif-ties. The growing role of local government finance in public finance system mainly in providing public services and financing local infrastructure evokes disputes on munici-pal debt in theory and praxis. Local governments borrow money for two primary reasons: to provide cash-flow for short term spendings and to finance public capital projects such as roads, water and sewer systems. Even if using loans for current spending is considered to be inappropriate there are some occasions when it is acceptable. Predominantly, it is quite reasonable for local authorities to use short term borrowing to offset irregular flows of revenues as well as to cover current expenditures that were not foreseen. However, borrowing is one of the most potent activities in local government capital financing. Capital development can rarely be covered by current revenues and grants. The theory of public finance suggests that current spendings should be covered by cur-rent revenues while capital expenditures should be financed through borrowings and other capital revenues. Borrowing is considered as a natural or the best way to finance capital expenditures. The main argument for it concerns the issue of inter-generational equity suggesting to spread the burden of payment for investment project also to the future generations. In this way capital spendings benefit people for years to come and repayments and the interest on the loans will be paid for future taxes. To apply this principle ideally, the period of the loan used to finance a given project should be the same as the expected life of the capital which it is used to finance and the repayments should be made throughout the course of the period. The increased quantity of local debt in both absolute and relative terms has in-creased the importance of credit analysis for both local governments and creditors. The credit analysis is primarily concerned with the credit risk assessment. There are three main approaches to debt capacity assessment. The simplest one sets ratios of debt service to annual recurrent revenues. The basic formula of the second method is based on recurrent revenues after meeting current expenditures. The third approach includes credit evaluation indicators. A range of indicators have been pro-posed within this method, and the most used is the debt burden indicator comparing the total outstanding debt to the recurrent revenues. By law the local government in most countries has been given possibility to incur debt to finance local needs. It does not mean that there is no danger of an excessive debt burden on public finance There are several reasons why some countries decided for limitation of local government borrowing.

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