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Advisors: Annapolis' debt service stays near policy target, may exceed 10% in 2028–29
Summary
Financial adviser Davenport & Company presented an annual debt-capacity update April 24 showing the city remains below its debt-service policy ceiling but may exceed the 10% policy target in fiscal 2028 and 2029 under current CIP assumptions. Council asked for scenario analyses showing the effect of different revenue or tax-rate trajectories.
City financial advisers told the Annapolis City Council that the city’s debt service remains generally affordable under current assumptions but will inch above the city’s 10% policy target in fiscal 2028 and 2029 if the proposed CIP and conservative assumptions hold.
Jennifer Derrickson, senior vice president at Davenport & Company and financial adviser to the city, presented the annual debt-capacity update at the April 24 work session. Derrickson summarized the methodology used for the analysis: existing debt service plus estimated new debt based on the proposed FY26–FY31 CIP, proposed general-fund expenditures for FY26 and a conservative 1% growth assumption thereafter, and interest-rate assumptions of 4.5% for bonds issued in FY26 and 5% in subsequent years.
Derrickson said “the city has a policy target of 10% for debt service to expenditures, and then a ceiling of 12%.” Under Davenport’s baseline model, the council’s debt-service ratio remains below the 12% ceiling and rises above the 10% target only in fiscal 2028 and 2029.
The presentation showed the proposed six-year borrowing in the current CIP at roughly $67,400,000. When prior approved but unissued bonds for FY26–27 (about $13,850,000) are included, the total potential borrowing in the near term rises to about $95,100,000. Under Davenport’s assumptions, additional capacity (the amount the city could still prudently issue) is roughly $10.2 million using the 10% target, about $25.7 million at an 11% midpoint and about $41.1 million at the 12% ceiling.
Council members asked several follow-up questions and requested scenario analyses. Alderman Arnett and others asked about the underlying assumptions: Derrickson said the team used conservative assumptions on interest rates and growth and noted that current market rates for this year would likely be below the 4.5% assumption. On revenue sensitivity, council members asked Davenport to model scenarios that show how lower recurring property-tax revenues or modest tax-rate reductions would change debt-service capacity.
Davenport also discussed recent municipal market volatility. Derrickson said the municipal market experienced larger daily swings during a recent tariff-driven period but that issuers continued to access the market. She told the council that volatility can be managed by timing sales and that existing outstanding debt does not change if markets move; only planned new issuance needs market timing consideration.
Several council members urged caution about making near-term changes to taxes or borrowing plans. Alderman Savage recommended staying the course, noting broader economic and market uncertainty, while other members asked staff and advisers for scenario modeling to show effects of both revenue declines and revenue increases on the debt-service profile.
Ending: Davenport and City staff said they would provide follow-up materials, including the total outstanding debt figure requested by council and scenario runs showing tax-rate or revenue shifts and their projected effect on debt-service percentages.
