As It Presently Exists The state government and local governments sometimes borrow money to finance the acquisition of property, construction of buildings, roads, or other improvements, or some other capital purpose.
Governments pay interest on their borrowings, and the interest rate is set by the financial market.
Governments with strong taxing power and a large tax base generally pay lower interest than governments with more limited authority to raise funds because they can demonstrate a greater ability to pay off their debts, making their debts a safer investment. Because the state has strong taxing powers, and also because of a history of prudent management of state funds, the state pays a relatively low rate of interest when it issues bonds or otherwise borrows money. Although the state provides some funding for school construction, local districts often must incur additional debt to meet state matching requirements, or to cover capital costs for which state funding is not available. This debt is usually repaid with local property taxes. Compared with the state government, school districts have a much more limited ability to levy taxes or raise funds.