Assuming that the assessed valuation of property within the City of Smithville is $342,581,818 and the legal general obligation debt limit is 8 percent of assessed valuation, prepare a schedule in good form showing calculation of the legal debt limit, debt subject to the limit, and debt margin at the end of 2023 (see Illustration 6-3 for an example). A note at the bottom of the schedule should disclose the bonds authorized but unissued, as described in the introductory paragraph of Chapter 5 of the City of Smithville cumulative problem. This will inform the reader that additional debt issuances are pending

Chapter 5 Intro

Chapter 6 Intro:

Example:

During late 2022, the voters of the City of Smithville authorized tax-supported bond issues totaling $9,000,000 as partial financing for projects to construct the extension of streets and the related curbs, culverts, and storm sewers in the city. The estimated total cost of the projects, which are expected to extend over the next three years, was $11,200,000. In addition to the bond financing, voters also approved a special 1 cent sales tax to assist in financing the projects. The sales tax begins January 1, 2023 and will continue for seven years. The sales tax is projected to generate $380,000 each year. a The City of Smithville created a Street Improvement Bond Debt Service Fund to be used to retire the bonds issued for the purposes described in Chapter 5 of this cumulative problem, and to pay the interest on the bonds. The $3,000,000 face value of bonds issued during 2023 are dated January 1, 2023, but were not issued until February 1, 2023. Because bondholders will receive six months of interest on July 1, 2023 in the total amount of $37,500, they were required to pay $6,250 on the date of issue to pay the city for unearned interest from January 1 to February 1. The bonds bear interest of 2.5 percent per annum. The first interest payment of $37,500 is due July 1, 2023. Subsequent semiannual interest payments will be made January 1 and July 1 of each following year until the maturity of the bond. Bonds in the amount of $750,000 are to mature five years after the date of the bonds (January 1, 2028), and $150,000 is to mature January 1 of each year thereafter until all the bonds have been retired. Thus, these bonds are deferred serial bonds as discussed in Chapter 6 of the textbook. Make entries as instructed in the following paragraphs. Bond covenants related to this bond issue require the city to levy property taxes sufficient to make principal and interest payments until the bonds have been retired. The city council has approved a resolution to enable a property tax levy, beginning in fiscal year 2024. As the bond issue did not occur until February 2023, the city will not levy debt service property taxes until next year. ILLUSTRATION 6-4 Legal Debt Margin CITY AND COUNTY OF DENVER, COLORADO Legal Debt Margin Information Last 10 Fiscal Years (in thousands) Calculation of Legal Debt Margin for Fiscal Year 2019 Total Estimated Actual Valuation $171,449,490 Maximum general obligation debt, limited to 3% of total valuation $ 5.143,485 842,856 Outstanding bonds chargeable to limit Less amount reserved for long-term 154.464 debt Net chargeable to bond limit 688,392 Legal Debt Margin-December 31 $ 4,455,093 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Debt limit $2,494,539 $2,314,276 $ 2.300.923 $2,387.441 $2.426,732 $3,006,108 $3,173,188 $4,042,333 $4,182.245 $5,143,4 976,103 902.541 862.872 877,426 802,891 731.437 632.050 516,069 586,087 689,3 Total net debt application to limit Legal debt $1,518,436 $1,411,735 $1,438,051 margin $1,510,015 S1,623,841 $2,274,671 $2,541,138 $3,526,264 $3,596,158 $4,455,0. Total net debt applicable to the limit During late 2022, the voters of the City of Smithville authorized tax-supported bond issues totaling $9,000,000 as partial financing for projects to construct the extension of streets and the related curbs, culverts, and storm sewers in the city. The estimated total cost of the projects, which are expected to extend over the next three years, was $11,200,000. In addition to the bond financing, voters also approved a special 1 cent sales tax to assist in financing the projects. The sales tax begins January 1, 2023 and will continue for seven years. The sales tax is projected to generate $380,000 each year. a The City of Smithville created a Street Improvement Bond Debt Service Fund to be used to retire the bonds issued for the purposes described in Chapter 5 of this cumulative problem, and to pay the interest on the bonds. The $3,000,000 face value of bonds issued during 2023 are dated January 1, 2023, but were not issued until February 1, 2023. Because bondholders will receive six months of interest on July 1, 2023 in the total amount of $37,500, they were required to pay $6,250 on the date of issue to pay the city for unearned interest from January 1 to February 1. The bonds bear interest of 2.5 percent per annum. The first interest payment of $37,500 is due July 1, 2023. Subsequent semiannual interest payments will be made January 1 and July 1 of each following year until the maturity of the bond. Bonds in the amount of $750,000 are to mature five years after the date of the bonds (January 1, 2028), and $150,000 is to mature January 1 of each year thereafter until all the bonds have been retired. Thus, these bonds are deferred serial bonds as discussed in Chapter 6 of the textbook. Make entries as instructed in the following paragraphs. Bond covenants related to this bond issue require the city to levy property taxes sufficient to make principal and interest payments until the bonds have been retired. The city council has approved a resolution to enable a property tax levy, beginning in fiscal year 2024. As the bond issue did not occur until February 2023, the city will not levy debt service property taxes until next year. ILLUSTRATION 6-4 Legal Debt Margin CITY AND COUNTY OF DENVER, COLORADO Legal Debt Margin Information Last 10 Fiscal Years (in thousands) Calculation of Legal Debt Margin for Fiscal Year 2019 Total Estimated Actual Valuation $171,449,490 Maximum general obligation debt, limited to 3% of total valuation $ 5.143,485 842,856 Outstanding bonds chargeable to limit Less amount reserved for long-term 154.464 debt Net chargeable to bond limit 688,392 Legal Debt Margin-December 31 $ 4,455,093 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Debt limit $2,494,539 $2,314,276 $ 2.300.923 $2,387.441 $2.426,732 $3,006,108 $3,173,188 $4,042,333 $4,182.245 $5,143,4 976,103 902.541 862.872 877,426 802,891 731.437 632.050 516,069 586,087 689,3 Total net debt application to limit Legal debt $1,518,436 $1,411,735 $1,438,051 margin $1,510,015 S1,623,841 $2,274,671 $2,541,138 $3,526,264 $3,596,158 $4,455,0. Total net debt applicable to the limit