WASHINGTON COUNTY APPROVED BUDGET
FY 2026
Debt Affordability Analysis
One of the major sources of funding for capital projects is debt. Debt is issued to match the cash flow requirements of the Capital Improvement Plan, while considering the effect of the tax burden on citizens. Therefore, along with the development of the Capital Improvement Plan, an annual debt affordability analysis is performed to evaluate the effect of debt service costs on operating budgets and to utilize long- term financial planning. The key factor in the issuance of debt is the understanding that effective debt management is critical to the overall financial management of the County. Therefore, issuance of debt is done in conformance with the County’s Debt Policy, which is an integral component of the County’s financial management program. Accordingly, critical to sound financial and debt management is the continuing evaluation of the County’s ability to afford and plan for the issuance of debt. In this regard the County has instituted a self-imposed requirement that an annual debt affordability analysis be performed. The analysis provides a method by which the County’s debt position can be evaluated, tested for stress and affordability, and compa red to other jurisdictions, “Peer Group”, that are considered comparable to the County. The analysis provides the County Commissioners and citizens with a way to assess the impact of bond issuance and allows for informed decisions regarding financing proposals and capital spending priorities. The County undertakes the debt capacity analysis on an annual basis in conjunction with the issuance of bonds and the formulation of the long-range Capital Improvement Plan. This comprehensive and routine analysis of debt capacity provides assurance that the amount of debt issued by the County is affordable. It also ensures that an appropriate balance is maintained between the County’s capital needs and its ability to pay for them. To determine the County’s debt affordability, a peer group was established for comparison. The Peer Group consists of counties that share similar characteristics in various areas, including but not limited to, population, region, bond rating, and budget thresholds. Also, our sample of counties was based on size and income indicators, such as per capita income, property values, access to interstate highways, and revenue generation.
The Peer Group contains nine other Maryland counties: Howard, Frederick, Harford, Carroll, Charles, St. Mary’s, Cecil, Wicomico, and Calvert.
As with any business, including County government, it is important to develop strategic objectives, including prudent borrowing limits. The debt ratios used by the County are relevant benchmarks used to measure its debt position. Establishing an acceptable range for the debt ratios has allowed the County to continually monitor its debt position and provide a mechanism for calculating debt capacity. The information provided by the ratios assists the County in the capital budgeting decision process, including prioritizing capital spending. Measures of debt affordability are sensitive as they are impacted by the amount of outstanding debt and changes in both demographic and economic factors. Changes in demographic factors such as population growth and personal income affect debt ratios. Economic cycles can have major impacts, both positive and negative on targeted ratios and debt capacity. This volatility demonstrates the need for assessing changes in projected debt capacity on an annual basis.
2026 Budget Document
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