Overlapping Debt

DEFINITION of 'Overlapping Debt'

The financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. Overlapping debt is common in most states because states are divided into numerous jurisdictions for different tax purposes, such as building a new public school and building a new road. These different jurisdictions may each issue debt in the form of bonds and notes when they need to raise money to pay for these major expenses that are intended to serve all the residents of a political jurisdiction. Taxpayers are responsible for paying their share of the debt from each jurisdiction.

BREAKING DOWN 'Overlapping Debt'

For example, a bond that funds a project in a county school district could be considered overlapping debt to a town located within that school district. The town is only responsible for its proportional share of the overlapping debt. This proportional share plus the municipality's direct debt together make up the municipality's overall net debt. The municipality's overall net debt is an important factor in its ability to obtain future debt financing.

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