Debt Service
The annual cost of repaying outstanding municipal debt — including both principal payments and interest on bonds and other borrowings.
How It Works
Debt service is a fixed obligation that must be paid regardless of economic conditions. It typically consumes 5-15% of a city's general fund budget. High debt service crowds out discretionary spending on services. Financial analysts watch the debt service coverage ratio (revenue available for debt service divided by debt service costs) as an indicator of fiscal health. A ratio below 1.0 means the city cannot cover its debt payments from operating revenue.
Related Terms
- Municipal Bond — A debt security issued by a city, county, state, or other government entity to finance capital expenditures. Interest income is generally exempt from federal income tax.
- General Obligation Bond (GO Bond) — A municipal bond backed by the full faith, credit, and taxing power of the city — meaning the city pledges to raise taxes if necessary to repay bondholders.
- Debt Per Capita — A city's total outstanding debt divided by its population — a key metric for comparing debt burdens across cities of different sizes.
About This Definition
This definition is part of the CitySpend Municipal Finance Glossary — 59 terms explaining how city governments fund and manage public services. All definitions are written in plain language for taxpayers, journalists, students, and municipal bond investors.