Rubin suggests “state governments have limited the amounts some local governments may borrow. These constraints have often been expressed as a percentage of the total assessed value of property in the governmental entity.” Analyze two approaches of how state governments maneuver around these limits.

Answer:

One way governments get around their limitations is based on assessments and property taxes. Since states and local governments determine the amount of property tax charged, and the assessed value, they can tweak their criteria in order to give more value to the properties determining their borrowing power. States use several methods to limit their indebtedness, usually by setting a cap on total debt as a share of the state’s economy or a cap on annual interest payments as a share of state revenues.

However, because policymakers need flexibility if the state faces unusual capital needs resulting from natural disasters, aging infrastructure, or other challenges, these limits are only guidelines rather than rigid caps. By making them guidelines, instead of rigid caps, local governments can get away with borrowing more money.