Debt financing refers to funding capital projects by borrowing money rather than paying from current revenues or reserves. Municipalities use debt financing for major infrastructure investments like water treatment plants, recreation centres, road reconstruction, and transit systems. The rationale is that long-lived assets should be paid for over their useful life, distributing costs fairly among all residents who benefit (intergenerational equity). Debt financing allows municipalities to build needed infrastructure sooner than if they had to save the full amount first. However, borrowing commits future budgets to debt repayment and interest costs, reducing flexibility. Provincial regulations govern when municipalities can use debt financing, typically limiting it to capital purposes and setting maximum debt levels. Sound financial planning balances debt financing with pay-as-you-go approaches and reserve contributions.