What does the term 'debt service' refer to?

The term 'debt service' specifically refers to the cost associated with servicing existing debt. This includes both the principal repayment of borrowed funds and the interest payments due on that debt. In municipal finance, managing debt service is crucial as it affects a municipality's budget and financial health. Properly handling debt service ensures that the municipality can meet its financial obligations while still providing necessary services to its residents.

Understanding this concept is important for financial officers because the effectiveness of managing debt service can impact credit ratings, borrowing ability, and overall fiscal responsibility of public entities. In contrast, other options like total revenue generated from a project or projected profits from future sales pertain to the revenue side of budgeting, while the overall budget for capital improvements deals with future expenditures, rather than the obligations created by existing debt.