Essay Example on Capital budgeting is a process that includes the Planning








Capital budgeting is a process that includes the planning for the future financial obligations of any organization A capital budget specifically outlines the manner in which expenditures and investments will be pursued Debt capacity refers to the limit beyond which the debts of an organization should not exceed Even though the debt capacity is focused on the determination of limits it is also a measure of an organization's ability to borrow funds State and local capital investments are a major share of total budget decisions in any given year They usually rely on different forms of borrowing to finance capital investments Lee et al 2008 Prince William County uses The Principles of Sound Financial Management to set very policies on the limits of how much debt the County is permitted to incur The level of annual debt service should not exceed 10 of total revenue or 3 of land book assessments During unforeseen circumstances the need for roads parks public safety and school facilities will quickly consume the remainder of our debt capacity This can happen when unusual and unexpected circumstances like Snowmageddon of 2010 a paralyzing and crippling blizzard that had major and widespread impact in the Northeastern United States

This storm was the second of four nor'easters that occurred during the 2009 2010 winter This storm brought heavy snow to the Northeast s population The snow removal budget for Prince William County was greatly exceeded because this huge storm was not factored into the debt capacity The County must either increase its revenues or it must reduce its capital improvement plan either of which will create additional debt capacity If this doesn't happen the only other alternative upon reaching capacity is to suspend debt issuances and employ cash to capital until further capacity becomes available It is important to note that this alternative would significantly slow down the construction of needed facilities In order for the New York State Government to reduce the high debts it is extremely important that alternative funding options are established Seeking the assistance of the federal government of the United States of America is one of the most practical alternatives for the Prince William County Government to fund its debt obligations In addition to seeking assistance from the federal government of the United States of America another funding alternative for the county government is the maximization of revenues collected throughout the state Governmental entities can use debt funding grants permits recreation service fees annual appropriation or leasehold financing and private developers Refunding has several importance for example there are possibilities of taking loans that are payable at low interest rate and the maturity date can be extended 

The problems associated with that include the government having expanded the time of the original debt This provides a short term budgetary saving only In the United States local governments borrow from investors and financial institutions by issuing bonds To finance the county expenditures it agrees to pay investors or lenders a financial return at a future time Lee et al 2008 Debt reorganization is often an opinion or decision between the groups affected by the changing of terms of services and debts that exist In most cases they favor the debtor There are a variety of ways in which reorganization can be carried out They include the following debt assumption which guarantee a new structured organization to takes over the outstanding debt and become answerable for the debt A state can decide to take over the debts of a struggling city that cannot meet its financial needs Debt restructuring is another way where the city can request for the change of some terms and condition that could favor them in an effort to settle their debts promptly Prince William County is growing rapidly

The demand for services creates a demand for the financial infrastructure to support them Whether it is additional police and fire personnel with for public safety or more schools for the growing student population or more roads to ease traffic congestion the County will be looking to utilize its Triple AAA credit rating to provide low cost financing for these projects The effect of refunding or reorganizing existing debt obligations of the Prince William County Government is a great way towards dealing with the debt problems facing the state It is however important to out point the fact that the success of these kinds of methods strongly focus on the effectiveness of implementation of the plan One of the best ways to reorganize existing budget obligations is whereby the government emphasizes upon the debts with the highest interest rates These kinds of debts must always be prioritized since they can dramatically hamper the state's ability to undertake other financial obligations In addition to prioritization of debts based on interest rates another reorganization strategy is the reduction of the total expenditures incurred by the state government This will create an additional financial kitty that should be directed towards servicing the state debts Lee et al 2008 Local governments still consider it to be financially sane to borrow funds to meet all of the needs and demands of its citizens Debt financing provides a way for future generations to share the costs as well as the benefits Lee et al 2008 Innovations in municipal bonds and other ways governments use to give them access to capital for credit has not been enough The role of privatization in financing and operating public infrastructure has become commonplace in both industrial and developing countries Lee et al 2008 The process of determination of debt capacity has shown that the three most essential measures are outstanding debts property value and total annual revenues Reorganization of the existing debt obligations could significantly reduce the total debt of the Prince William County government Increment of less sensitive tax and seeking the assistance of the federal government are two of the most important funding alternatives for the state

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