W poszukiwaniu optymalnej konstrukcji limitu zadłużenia dla jednostek samorządu terytorialnego
In a Search of Optimal Design of Statutory Debt Limits for the Local Governments

Summary/Abstract: Purpose – The aim of this research is a design of more appropriate statutory debt limits for the local governments in Poland. The existing statutory debt limits, implemented in Poland in 2014, are based on a financial surplus ratios calculated for an individual entity. This solution does not adequately secure that the new debt is raised only by the local governments with a sufficiently strong financial standing. This is a result of several shortcomings in the formula of the statutory limits such as: a risk assessment is based on historicaldata only, operating surplus is inflated by investment inflows etc. In addition, the current statutory debt limits are easily manipulated by such instruments as the sale and leaseback of property and the reversed tenancy. Design/methodology/approach – The article presents an evaluation of existing statutory debt limits and discusses their main flaws. Then, it presents an alternative approach based on H. Minsky’s theory as well as financial simulations of an impact of the new proposal on the local governments. Findings – This article calls for reconstruction of the existing legislative solution towards a model based on assessment of operating cash flows. Depending on the risk appetite, three basic models should be considered, ranging from an intra-year budget deficit financing through a long-term hedge financing (both capital and interest have to be repaid from operating cash flows) to a speculative financing model in which the operating cash flows have to cover just interest payments and a capital may be constantly refinanced. The hedge financing model is recommended in this article. In addition, the risk assessment should be extended by an analysis of future cash flows from the Long-term Financial Forecasts prepared by local governments and a sensitivity analysis of changes in economic parameters such as an increase in market interest rates. Originality/value – The research presents new alternatives how to design the sound statutory debt limits for local governments in Poland.

• Details
• Contents