How much debt is too much is a very good question and one frequently asked of a rating agency. Unfortunately, it is also one with no precise answer. Municipal credit analysis is directed toward a determination of debt affordability and, all other things being equal, a lower level of debt should produce a higher security assessment. However, it rarely works that easily because things are never equal and the amount of debt acceptable is related to a number of other considerations. Analysis must take into account other factors in addition to an assessment of debt obligations themselves. These include the extent and quality of economic resources, financial capability and performance, the functions and attitudes toward those functions of the government, and legal restrictions on the ability to act. Among governments, these factors vary widely, some are difficult to quantify, and, in addition, a positive bottom line or net profit is not the principal motivation of government. For these and other reasons, municipal credit analysis is not primarily ratio driven.

However, there are several useful and accepted measurements that can provide a guideline for a safe or comfortable debt level. Some caveats should be observed. Ratios should be seen as pertaining to ranges and not to absolute levels. Further, safe ranges will differ from states to local governments, partly because of function, but also because of tax base. Most local governments rely on property taxes, which in the aggregate provide about three-quarters of own source revenues. On the other hand, states rely primarily on personal income and sales taxes, which again in the aggregate account for about two-thirds of state raised taxes.

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