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Criteria I Governments I U.S. Public Finance: U.S. Local Governments General Obligation Ratings:Methodology And Assumptions Factors That Cap The Final Rating d) Liquidity 31. Although liquidity receives limited weight in determining the indicative rating because of a local government's ability to make fiscal adjustments,its importance grows as the liquidity score weakens.A liquidity score of'4' caps the final rating on a local government at'BBB+'regardless of other strengths.An overall liquidity score of'5'limits the final rating to no higher than'BB+'. e) Management 32. The decentralized and autonomous nature of U.S. local governments creates a stronger link between management and credit quality,particularly when limited or weak management exists.Accordingly, an overall management score of'4' results in a final rating at least one notch below the indicative rating outcome and limits the rating to no higher than W.A score of'T results in a final rating at least two notches below the indicative rating outcome and limits the rating to no higher than'BBB-'. 33. When a management score of'5'results from a current lack of willingness to pay a debt,capital lease obligation, or a moral obligation pledge(see paragraph 53),the rating cap depends on the nature of the obligation.A current lack of willingness to pay an unconditional debt obligation of the government would cap the final rating on other GO debt of the government at no higher than'B' and would likely be lower.While the ICR of a local government would fall to 'D' or'SD'following a default on an actual debt obligation,the payment prospects for other GO debt may remain stronger (such as when the default results from insufficient funds for limited-tax GO debt and other GO debt enjoys an unlimited-tax pledge). Consistent with our criteria for appropriation-backed obligations,a failure to pay a capital lease obligation also caps the GO rating(see"Appropriation-Backed Obligations",published June 13, 2007).A current lack of willingness to pay a capital lease or other obligation subject to annual appropriation by the government,including a moral obligation pledge,would limit the GO rating to no higher than'BBB-'even though the government was not legally obligated to make payment on the appropriation obligation without the appropriation. 0 Large or chronic negative fund balances 34. A government's Available Fund Balance forms the initial score for budgetary flexibility. Even when other forms of flexibility exist,however,a nontrivial fund balance deficit signifies heightened pressure,especially when the deficit endures. The presence of such pressure is consistent with the capped ratings suggested by table 2,even though the government may retain a significant capacity to repay debt.Accordingly,an Available Fund Balance of less than negative 10%of general fund expenditures in the most recently reported year caps the final rating at'A+'. Ratings above'A-' are typically for cases where we believe the Available Fund Balance will not be less than negative 5% beyond the most recently reported year.A budget flexibility score of'5' signifies limited flexibility and also caps the final rating at'A+'.An Available Fund Balance of less than negative 5%for the two most recently reported years caps the final rating at'A-'. Ratings above'BBB' are typically for cases where we believe the Available Fund Balance will not be less than negative 5%beyond the most recently reported year. The existence of such Available Fund Balance for the three or more of the most recently reported years signifies to us a chronic problem and caps the final rating at 'BBB'. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 12,2013 13 1190266 1300881696