Assessing Environmental Impact 27Periods of high rates of inflation are expected to lead to higher interest rates for all
municipal borrowers. The impact is significant for borrowers with marginal credit
ratings, who will be squeezed out as the difference in interest rates between high-
and low-rated bond issues widens. Second, the combination of expanding bond supply
owing to increased municipal borrowing and shrinking demand in periods of slow eco-
nomic growth is likely to drive interest rates higher, increasing costs for all municipal
borrowers.
Clearly, the availability of funding to finance capital expenditures is far from
certain. Credit restrictions are not limited to large cities that often suffer from severe
budget problems. The financial health of a local government may be analyzed. A
two-step procedure is useful as engineers consider the impacts of proposed projects:
- Define capital requirements of each alternative.
- Apply financial classification criteria.
Although rating agency analysts use a variety of factors in assessing a city’s fiscal
strength, current outstanding debt is the principal determinant of the bond rating. Debt
is generally expressed as a proportion of assets or on a per capita basis to make compar-
isons among cities. Three of these municipal debt ratios are of particular significance
in determining market acceptance of bond offerings. Sample ratios and estimates of
market-acceptable thresholds are:
0 Debdcapita 5 300
0 Debtkapita as percentage of per capita income 5 7%
0 Debt/full property value 5 4.5%.Empirical studies have shown that bond offerings by cities that exceed all three debt
ratios are not likely to be successful.
Increases in User ChargesA second component of an economic impact assessment is the analyses of projected
increases in user charges. For example, if a city constructs a large wastewater treatment
facility, what is the likely change in household sewer bills in that city? Based on the
number of residential users supporting a given facility, the proportion of wastewater
generated by them, and the data on alternatives, a projected cost per household may
be computed. This cost may then be compared with the existing charge per household
to determine the percent increase attributable to the alternative.
The results of these types of user charge analyses often indicate that engineers may
find it difficult to make a distinction among alternatives based solely on increases in user
charges. For example, an average difference of only 36 cents per year per household is
projected between alternatives 1 and 2 in Fig. 2-3. Respectively, these two alternatives
represent a less stringent and a more stringent regulation of effluent water quality.
Figure 2-3 summarizes projected impacts on the user charges in 350 cities. By almost
any standard, 36 cents per year is insignificant. The findings suggest that the selection