During the recession and slow recovery, high consumer and other debt has come under scrutiny for spurring the recession and blockading a quick recovery. Federal and even state government debt has also come under scrutiny. But local debt levels are not widely known, especially on a macro basis.
A debt-spin around the largest cities in the Ninth District shows that municipal debt varies considerably on a per capita basis. Total bonded debt was collected for the five largest cities in each of the four states entirely in the Ninth District, plus three cities combined for Wisconsin and the Upper Peninsula of Michigan (see chart).
West Fargo, N.D., has the largest amount of bond debt at nearly $5,000 per capita. In contrast, Billings, Mont., has just $203 of bond debt per capita. Similarly, average per capita debt among the state’s five largest cities was highest in North Dakota ($2,639) and lowest in Montana ($555), with Minnesota ($2,250) and South Dakota ($1,466) in the middle.
The form and proportion of that debt also differs among cities, but is largely predicted by a city’s home state. Cities typically borrow by issuing either general obligation (GO) or revenue bonds. GO bonds are repaid through general tax revenue, backed by the full faith of the issuer (a city, in this case) that local taxes can and will be increased if necessary. Revenue bonds, on the other hand, are repaid by revenue derived from the project being financed by a bond issue (a public parking ramp, for example).
Cities use these two tools to varying degrees. For example, a high percentage of municipal debt for Minnesota and Wisconsin cities is general obligation debt. Minneapolis has nearly 88 percent of its debt funded through GO bonds. The opposite is true of cities in the Dakotas. Only 7 percent of total debt among North Dakota’s five largest cities is GO debt. South Dakota cities use revenue bonds exclusively because state statutes preclude cities there from issuing a lot of general obligation debt.