How is the cost of borrowing expressed in municipal finance?

The cost of borrowing in municipal finance is expressed as a percentage of the principal. This percentage, commonly referred to as the interest rate, indicates how much it will cost to borrow money relative to the amount borrowed. Understanding this rate is crucial for municipalities as it affects budgeting, financial planning, and the total cost of projects funded through borrowing.

Municipalities often analyze this rate when issuing bonds or securing loans to ensure that the cost of financing is manageable and aligns with their financial capabilities. This percentage also allows for comparisons between different borrowing options, making it easier for municipalities to determine the most cost-effective financing strategy.

While other measures like monetary value and gross revenue can be important in understanding a municipality's overall financial picture, they do not directly represent the cost of borrowing as accurately as the percentage of the principal. Likewise, a fixed rate for all borrowers is not typically how borrowing costs are structured since interest rates can vary significantly based on risk profiles, creditworthiness, and market conditions.