Debt to TVOP: A Fiscal Warning Flag for Virginia Localities


by James A. Bacon

The financial travails of the City of Petersburg has prompted some readers to wonder if other Virginia localities are fiscal time bombs waiting to go off. There are many causes of fiscal dysfunction but one sure sign of trouble is a heavy burden of long-term debt.

One way to measure that burden is to express debt as a percentage of the tax base, in particular as a percentage of the true value of property. Local governments have many revenue sources, but the property tax is the one major source which city councils and boards of supervisors can control. Therefore, the value of taxable property is a good proxy for a locality’s tax base, and the ratio of debt to the tax base is a good indicator of fiscal health.

To get a sense of which localities might be over-extended, Jim Weigand, a regular reader and concerned citizen of Lynchburg, calculated net debt as a percentage of true value of property (TVOP) for fiscal 2015. The ten most leveraged localities appear in the table above, with Accomack County heading the list at a fear-inducing 22.8%. The state average is 3.4%, and the least leveraged locality in Virginia, Mecklenburg County, is three-tenths of one percent.

Petersburg ranks fairly high on this list, 19th in the state, with a ratio of 6.8%. Buena Vista, another fiscal basket case we have written about on Bacon’s Rebellion, cracks the Top 10 with a ratio of 10.1%. The City of Richmond, whose inept fiscal management we have highlighted, does not appear on the list… because it could not comply with the data reporting requirements!

If I were a citizen of Norfolk, Portsmouth or any of the other localities atop the list, I would regard this ratio as a warning flag. This one metric along is not sufficient to declare a locality to be in poor fiscal shape. Many factors go into calculating a locality’s health. But a high debt-to-tax base ratio is undeniably a worrisome sign. Conversely, an exceedingly low ratio raises questions as well. Is Mecklenburg County spending enough money on utilities, school buildings, public safety buildings and the like?

To view a list of all Virginia cities and counties, click here.

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5 responses to “Debt to TVOP: A Fiscal Warning Flag for Virginia Localities

  1. If I could add one thing to this post…
    This year is the first time the State Auditor published the Net debt of the local government and while borrowing for some worthwhile projects may be justified, this Net debt now includes the unfunded pension liabilities that the taxpayers are on the hook for. (That’s probably bad English) Promising the workforce a pension while not funding it is sure to bite you in the butt sooner or later.

  2. There are lots of way to look at local debt burden; just depends on how much lipstick you want to put on the pig.
    Unfunded pension debt is now reported because it is required of ALL governments by the gods that rule the governmental accounting profession.
    I seem to recall – always a dangerous thing – that true [vs. assessed] property values penalizes those counties that have a lot of property under agricultural use value, which may be the reason why Accomack is a leader of the profligate borrowers.
    Lots of tax exempt property may also hurt the rankings reported above. For example, half of Portsmouth’s land mass belongs to federal, state or local government, churches, colleges and the like. That’s real estate that could be producing about $70 million in annual taxes. Norfolk is in almost the same situation. It has more than $10 billion worth of tax-exempt property – nearly 40 percent of its inventory. [According to the Pilot newspaper]
    As one who read the annual audits of localities for too many years, they report net debt per capita and as a percent of total personal income, among other things. There are also other ratios that the rating agencies look at before they slap a rate on a locality’s bonds.
    One thing to remember is that if a locality defaults on its general obligation bonds, the state has the authority to interdict local tax payments to pay off those bonds. That was put in the Code of Virginia several years ago when one of the Southside counties was having problems. Bosun

  3. I assume that “net debt” in the above table was taken out of the State Auditor’s report. It would be helpful to know that that figure excludes revenue bonds which are paid directly from a discrete revenue stream and not backed by full faith and credit. Then there are things like capital leases, state literary loans, etc. that are all forms of debt. Bosun

  4. Bo,
    Read the Auditor’s note regarding debt. As best as I can read, it is NET debt.


    This Exhibit reflects the balance of all debt for the reporting locality, including debt, if any, to be partially retired by funds received from other local governments.

    Bonds and Bond Issue Anticipation Loans – The gross outstanding balance of term bonds, sinking fund bonds, serial bonds and bond anticipation loans. Bond anticipation loans are issued with the intention of issuing long-term bonds at a later date.

    Literary Fund Loans – The gross outstanding balance of loans from the Commonwealth for the construction of schools.
    Long Term Notes and Contracts – The gross outstanding balance of other long-term debt for the reporting local government. This includes notes payable, capital leases, the school board’s liability for its early retirement incentive program costs, the locality and school board’s net pension liability, the liability associated with closure and postclosure monitoring of solid waste landfills, the balance of annexation settlements and the liability for accrued compensated absences.

    Temporary Loans – The gross outstanding balance of debt that has a principal maturity of less than one year.

    Gross Debt by Function – The outstanding balance of indebtedness segregated by the function (purpose) for which the debt proceeds were expended.

  5. yep – Bosun got it calibrated.. not easy to do this in a sound bite way.

    most debt in most counties are for their schools and fire/rescue/police … counties that have big water/sewer districts have debt for those things and it’s not property tax that pays it or secures it.

    other counties in faster-growing areas will be buying more infrastructure more frequently that counties with slow or no growth.

    so the first cut is interesting – like the ticket violations in the other thread -but to get clarity – you gotta get more granular.

    the bond rating agencies do get into this a little more – at least from what I’ve seen with Davenport in Spotsy..

    and on the pensions – VRS made 2% last year! OUCH! what that means is that counties are going to have to come up with MORE cash or get clobbered on their audits!

    but I LIKE these data dives that you guys are doing !!! just do a little more slice and dicing and we’ll be cooking with gas – as they say!


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