New Jersey CMFO Statutes Practice Exam 2025 – The Complete Guide to Master Your Certification!

A municipality's debt limit, as established by statute, is determined as a percentage of the average of the preceding three years' equalized assessed valuation. This approach aligns the debt capacity with the financial standing and property values of the municipality over a period of time, ensuring that borrowing remains within manageable levels relative to the municipality's taxable property base.

Using a percentage of assessed valuation means that as property values rise or fall, the debt limit adjusts accordingly, maintaining a balance between economic conditions and fiscal responsibility. This also provides a safeguard for taxpayers, ensuring that the municipality does not over-leverage itself based on fluctuating circumstances.

The other options, while they may seem plausible, do not reflect the structured and regulated approach to setting debt limits as prescribed by New Jersey statutes. A fixed dollar amount would not account for changes in property values, and focusing on total assets or population fails to capture the essential relationship between a municipality's ability to repay debt and the value of its taxable properties.