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Debt Capacity <br />Overview <br />This section of the CIP discusses the affordability of future bond issues for unfunded projects. <br />There are two ways to look at debt capacity. The first is to look at the capacity to issue debt <br />under the legal constraints imposed on the City. The second is to look at the affordability of that <br />debt recognizing there is a limit to the City's ability to repay obligations. <br />The City has used only about 10% of its more than $400 million of legal debt capacity for <br />general obligation bonds as of June 30, 2006. The City's Budget Committee has determined that <br />it would not be prudent for the City to issue debt up to that legal limit. The City has Financial <br />Management Goals and Policies that include the following debt management guidelines. These <br />guidelines were reviewed and approved by the Budget Committee in 2007. <br />• Net direct debt as a percentage of real market value shall be a maximum of 1.0%. <br />• A minimum of 50% of net direct debt shall be retired within 10 years. <br />• Maximum annual debt service on all General Fund-backed debt shall be limited to 10% <br />of General Fund expenditures in the year in which the debt is issued. Of this amount, <br />long-term debt that has a primary pledge of General Fund resources shall be no more than <br />5% of General Fund expenditures. <br />These limits define the affordable level of debt that could be issued under the CIP. The table <br />below shows the current levels for the City's debt affordability ratios. <br /> As of <br />Debt Affordability Ratios June 30, <br /> 2006 <br />Net direct debt as a percentage of real market value shall be a <br />maximum of 1.0%. 0.3% <br />A minimum of 50% of net direct debt shall be retired within 10 years. 76% <br />Maximum annual debt service on all General Fund-backed debt shall 3.3% <br />be limited to 10% of General Fund expenditures in the year in which <br />the debt is issued. <br />Net direct debt includes all of the City's general obligation bonds except for the Airport issue <br />that is paid from Airport revenues and 50% of the Atrium bonds. The City excludes the pension <br />bonds from the definition of net direct debt. <br />The City's debt ratios have an impact on its credit rating. The City is rated "Aa2" by Moody's <br />Investors Service and has maintained adouble-A rating since 1957. When Moody's last <br />evaluated the City's credit, it noted that the City's credit strengths included the low debt burden <br />with an above average repayment schedule. In addition, Moody's noted that even after possible <br />issuance of an additional $100 million of bonds for parks and a new City Hall, the City's debt <br />City of Eugene 2008 - 2013 Capital Improvement Program <br />28 <br />