FY 2025 BUDGET BOOK - Flipbook - Page 74
City of Eustis Debt to Income Ratio and Borrowing Capacity
Debt-to-income (DTI) ratio is a financial metric that compares the amount of debt the City
has compared to its overall income. It provides an indication of the City’s financial health
and its ability to manage and repay its debt obligations based on its income sources.
A higher DTI indicates a larger amount of debt relative to income, which can be a sign of
financial strain and potential challenges in meeting debt repayment requirements.
Conversely, a lower DTI ratio indicates a healthier financial position with a more
manageable level of debt compared to income.
The C i t y ’s DTI ratio is an important consideration for lenders, investors, and credit
rating agencies when evaluating the City’s creditworthiness and financial stability. A lower
DTI ratio helps when evaluating the City’s borrowing capacity and its ability to take on
additional debt for capital projects or infrastructure improvements.
Maintaining a healthy DTI ratio is crucial for the City’s long-term financial sustainability. It
ensures that the City can meet its debt obligations while continuing to provide essential
services and invest in its growth and development. Monitoring and managing the City’s DTI
ratio is essential for prudent financial planning and responsible fiscal management.
See Table 11 for the City’s debt obligation as of September 30, 2023.
DTI = (Total Overall Debt Service / Total Annual Revenue FY) *100 (11,304,445 / 49,936,542)
*100 = 22.64%
The C i t y ’s present Debt-to-Income (DTI) ratio i s 22.64% and falls well below the City’s
policy of a DTI range of 28-36%. This range is considered healthy and financially sound.
Borrowing capacity refers to the maximum amount the City can borrow to finance various
projects, initiatives, or infrastructure improvements. It represents the available financial
resources that the City can utilize for debt to invest in its development and continue to meet
its financial obligations.
The borrowing capacity of the City is determined by several factors, including its financial
stability, revenue sources, existing debt obligations, creditworthiness and legal constraints. It
is typically evaluated based on various financial ratios and guidelines set by regulatory bodies
or financial institutions.
A higher borrowing capacity indicates that the City can access more funds for capital investments
or public projects. This enables the City to undertake essential infrastructure improvements,
fund public services, stimulate economic growth or address urgent community needs. Proper
financial planning, debt management strategies, and monitoring of the City’s financial health
are crucial to maintaining a healthy borrowing capacity and ensuring the City’s long-term
financial well-being.
The City currently has a borrowing capacity of $10,092,701, equivalent to $1,009,270 per
year for the upcoming ten-year period. This borrowing capacity is determined using the
formula:
Borrowing Capacity = (Total Annual Revenue * Debt-to-Income Ratio) - Total Annual debt
Service.
Based on the City’s financials (ACFR) for FY 2022/23, with a total revenue of $49,936,542, a
Debt-to-Income Ratio of 22.64%, and a total borrowed debt service amount paid in FY 2023
amounting to $1,211,744, the calculation is as follows:
72
