The University of Tennessee, Knoxville

Tennessee County Municipal Advisory Service

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Other Funding Sources

Reference Number: MTAS-1381
Tennessee Code Annotated
Reviewed Date: September 09, 2016
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City water and sewer operations need to make capital purchases and improvements. Some of these, such as a small line installation or a vehicle, may be of relatively low cost and paid for out of normal operating funds. Some capital projects, a new water plant for example, may cost several million dollars. For these types of projects the city will need to obtain grants and loans and repay these costs over a number of years. Cities should apply for grants to help lower the amount that has to be borrowed. Interest costs are a major consideration, so cities should “shop around” for the best available rate. In recent years many cities have refinanced their debt to take advantage of declining interest rates. Remember also that interest expense is a part of the statement of revenues, expenses and changes in net position of the utility operation. Certainly any time a city is going to incur a major new debt, it should complete a revenue/rate study to be sure it can pay the principal and interest.

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