Which statement about Gross Debt is true?

Which statement about Gross Debt is true?

• A. Gross debt includes all bonds and notes issued, authorized but not issued, and guaranteed by the local unit, except tax anticipation notes, emergency notes, special emergency notes and utility revenue notes.
• B. Gross debt excludes authorized but not issued debt.
• C. Gross debt includes tax anticipation notes.
• D. Gross debt excludes utility revenue notes.

Answer: (A)

Gross debt captures the total amount of indebtedness that a local unit is responsible for, including obligations that are already issued and outstanding, plus those that are authorized but not yet issued, as long as they are guaranteed by the local unit. It also includes debt that the unit has guaranteed, since the guarantee makes the obligation effectively the unit’s own liability. Short-term or enterprise-specific instruments are treated separately and are excluded from gross debt: tax anticipation notes, emergency notes and special emergency notes are temporary cash-flow borrowings, and utility revenue notes are tied to the utility’s revenues rather than general tax-supported obligations, so they’re not counted in gross debt. So the true statement is that gross debt includes bonds and notes issued, authorized but not issued, and guaranteed by the local unit, while excluding tax anticipation notes, emergency notes, special emergency notes, and utility revenue notes. For example, a city with issued bonds totaling 50 million, authorized but unissued debt of 20 million, and TANs of 5 million would report 70 million in gross debt and exclude the 5 million TANs.

Gross debt captures the total amount of indebtedness that a local unit is responsible for, including obligations that are already issued and outstanding, plus those that are authorized but not yet issued, as long as they are guaranteed by the local unit. It also includes debt that the unit has guaranteed, since the guarantee makes the obligation effectively the unit’s own liability. Short-term or enterprise-specific instruments are treated separately and are excluded from gross debt: tax anticipation notes, emergency notes and special emergency notes are temporary cash-flow borrowings, and utility revenue notes are tied to the utility’s revenues rather than general tax-supported obligations, so they’re not counted in gross debt.

So the true statement is that gross debt includes bonds and notes issued, authorized but not issued, and guaranteed by the local unit, while excluding tax anticipation notes, emergency notes, special emergency notes, and utility revenue notes. For example, a city with issued bonds totaling 50 million, authorized but unissued debt of 20 million, and TANs of 5 million would report 70 million in gross debt and exclude the 5 million TANs.