A Primer on Merritt's Approach to Tax-Backed Debt Statements
Generating consistent, accurate, and comparable financial information is of the utmost importance to Merritt Research Services. In order to achieve this goal, it is paramount that we clearly define each of our fields. Nowhere is this more important than the debt analysis section of the tax-backed sectors. These fields are often difficult to standardize due to the variations of presentation and the abundance of long term debt vehicles available to municipal issuers. Regardless of the presentation, the guidelines below should help users better understand the process Merritt employs when generating our debt information.
General Obligation Debt [GODebt]: This field includes any debt that has the full faith & credit, and, in the case of local municipal entities (i.e., non-States), ad valorem taxing power of the municipal entity as either the primary or additional security. This includes all types of General Obligation Bonds listed in the Governmental Activities as well as any G.O. debt in the Business Type or Component Unit(s) Activities that are also a tax supported obligation of the same governmental unit ("double-barreled" bonds).
Guaranteed Debt [GuarDebt]: This field includes any type of debt to which the government has pledged its guarantee to ensure payments are made to bondholders. With this type of debt, States and sometimes local governments are legally required to make payments for any type of shortfall of the primary obligor.
Other Debt [OthDebt]: This field includes all other types of Governmental Activities debt which are backed by some form of the borrower's ability to access taxes or the general fund. These obligations may include, Appropriation Debt, Certificates of Participation, Notes Payable, Loans, Capital Leases, Financing Agreements/Obligations, Installment Debt, and any Short-Term Obligations (which can include RANs, BANs, TANs, Commercial Paper, or Lines of Credit). Those types of obligations listed under Business Type and Component Unit Activities are NOT included in the debt analysis.
Total Direct Debt [TotDirDebt]: This field is the aggregate total amount of G.O. Debt plus Other Debt. For State sector credits, this amount includes Guaranteed Debt.
Self-Supporting Debt [SelfSupportDebt]: This field includes debt that was issued to fund a specific revenue producing project or has a specific revenue source pledged for its repayment as opposed to more secure general (e.g., property tax) revenues. Examples of debt that Merritt would consider self-supporting include G.O. Revenue Bonds, Sales Tax Bonds, and Tax Increment Financing (TIF) Bonds, to name a few. This field will also include any G.O. Bonds listed in the Business Type or Component Unit Activities as well as short- term debt (aside from BANs) that are reported as being self supporting or in the case of short term debt, as likely to be repaid on schedule. Merritt relies on disclosure from the debt note to help determine the self-supporting nature of the bonds, but it should not be relied upon as an official verification.
Net Direct Debt [NetDirDebt]: This field is the Total Direct Debt minus the Self- Supporting Debt. This field will typically include debt that is payable from the general revenues of a municipal entity such as G.O. Debt listed in Governmental Activities, Certificates of Participation, Notes Payable, Loans Payable, Capital Leases, Financing Agreements / Obligations, Appropriation Debt, Installment Debt, and BANs (Bond Anticipation Notes).
Moral Obligation Debt [MoralObligDebt]: Under a moral obligation pledge, a municipal entity indicates its intent to appropriate funds in the future if the primary Obligor defaults. The municipal entity's obligation to honor the pledge is moral rather than legal because future legislatures cannot be legally obligated to appropriate the funds required.
Overlapping Debt [OverlapDebt]: This field represents a municipality's share of the debt issued by its political subdivisions or the special districts sharing its geographical area. It is usually determined by the ratio of assessed valuation of taxable property lying within the corporate limits of the municipality to the assessed valuation of each overlapping district.
Total Direct & Indirect Debt [TotDir&IndirDebt]: This field represents the sum of Total Direct Debt plus Moral Obligation Debt.
Net Direct Debt & Overlapping Debt [NetDD&OverlapDebt]: This field includes Net Direct Debt plus Overlapping Debt.
Short-Term Debt (Outstanding at Year End) [STDGov]: This field (a display field only) indicates how much of the debt listed is Short Term Debt. Examples include RANs, BANs, TANs, Commercial Paper, or Lines of Credit.
Short-Term Debt (Issued During Fiscal Year) [STDGovIss]: This field (a display field only) indicates how much short-term debt the State issued during the current fiscal year. Approximately 45 percent of State CAFRs provide us with the information needed to populate this field.