What does "interest paid" describe in municipal finance?

In municipal finance, "interest paid" specifically refers to the cost of borrowing that a municipality incurs and is typically expressed as a percentage of the principal amount borrowed. This interest represents the compensation that lenders receive for providing the funds to the municipality, which might be used for capital projects, infrastructure improvements, or other public initiatives.

When municipalities issue bonds or take on loans, they agree to pay back the borrowed amount along with interest to the lenders over a specified term. The percentage expression allows for a clear understanding of the financial obligation associated with the debt, helping officials gauge the affordability of borrowing and plan for future budgets and repayment strategies. This definition aligns with the nature of municipal finance, where understanding the cost associated with raising capital is critical for fiscal health.

The other options refer to different financial aspects that do not align with the concept of "interest paid." For example, charges for late payments pertain to penalties, revenue from investments relates to income earned, and total debt outstanding refers to the cumulative amount of debt owed, none of which define the specific characteristic of interest payments related to borrowing costs.