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Criteria I Governments I U.S. Public Finance: U.S. Local Governments General Obligation Ratings:Methodology And Assumptions Table 4 Predictability Assessing Score Description 1(very strong) None of the following elements are true:voter initiative or referenda rights exist to automatically alter revenues or expenditure responsibilities;the state has significantly changed its statutes governing local government revenues or expenditure responsibilities in the past eight years(to the detriment of this type of municipality);the state has changed the disbursement pattern of state-shared revenues in the past eight years(to the detriment of this type of municipality)and these revenues are a major portion of local government revenues. 2(strong) One of the elements in 1 is true,but such events are not frequent from a long-term perspective.The nature of deliberation and implementation of change allow sufficient time for local government planning and adjustment. 3(adequate) More than one of the elements in 1 is true,or at least one of the elements is recurring.The nature of deliberation and implementation of change allow sufficient time for local government planning and adjustment. 4(weak) At least one of the elements in 1 is true,but the pace of change does not allow for planning and adjustment. 5(very weak) The system is volatile,with ongoing and ill-prepared large-scale transformations that do not allow for planning and adjustment.Legal rights and obligations between the state and local level are unclear,adding to the lack of clarity. 2. Revenue and expenditure balance 38. Revenue and expenditure balance assesses the extent to which local governments have the ability to finance the services they provide.The focus is on revenue raising capability in scores one,two and three under the presumption that most municipalities have significant control over their expenditures. Only when revenue raising capacity is limited, and there are significant unfunded or partially unfunded expenditure mandates, are scores of four or five likely. Additionally,the criteria treat state provisions that require minimum balances as enhancing flexibility,while those that limit balances diminish it.Table 5 details the scoring for this measure. Table 5 Assessing Revenue • Expenditure Score Description 1(very strong) Local governments within the state have statutory flexibility to raise local source revenues for operating purposes without voter approval.Where limits on the ability to raise revenues exist,they are such that most governments within the state still retain significant capacity to raise revenues. 2(strong) Local governments within the state have some flexibility to raise local source revenues for operating purposes without voter approval.Limitations(such as property tax caps)restrict flexibility,but still allow for most local governments to raise such revenues. 3(adequate) Virtually no ability exists to raise local source revenues for operating purposes without voter approval.Additional flexibility may come from state revenue sharing. 4(weak) No ability exists to raise local source revenues even with voter approval,or there are significant unfunded or partially unfunded expenditure mandates that overwhelm the average entity's budget. 5(very weak) No ability exists to raise local source revenues even with voter approval,and there are significant unfunded or partially unfunded expenditure mandates that overwhelm the average entity's budget. A statutory minimum fund balance improves the score by one point and a statutory maximum fund balance worsens the score by one point. 3. Transparency and accountability 39. Transparency and accountability assess the overall institutional framework's role in encouraging the transparency and comparability of relevant financial information.When states require annual audits,this increases the likelihood that audits will be done and that late audits will be noted. States'regulations requiring audits and strong accounting standards such as generally accepted accounting principles(GAAP)usually enhance reporting detail and consistency across municipal credits,making it easier to have a sufficient uniform method of interpretation. States that allow cash WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 12,2013 15 1190266 1300881696