9.1. SR 01-21-2014 - Laserfiche WebLink

Home Browse Search

Criteria I Governments I U.S. Public Finance: U.S. Local Governments General Obligation Ratings:Methodology And Assumptions 50. Regardless of the initial management score resulting from the FMA and any adjustment factors, certain conditions automatically cap the score at'4' or'T.A capped score of'4' can occur if the financial reporting of the municipality is subject to material restatements to an extent that the uncertainty created is consistent with ratings no higher than W. This does not include required accounting adjustments such as required changes by the Governmental Accounting Standards Board(GASB).Another instance when a capped score of'4'may occur is within three years after a condition that would cause or caused a management score of'T. In such cases,the uncertainty surrounding management's ability to rebound from the condition(s)is also consistent with ratings no higher than'A'. The same result can exist while the local government's finances are structurally imbalanced(see paragraph 35) or during the three-year period thereafter when management is rebounding from the structural imbalance condition. Finally, a capped score of'4'may result from having a debt,pension, and other postemployment benefits (OPEB)burden that is considered very high and management's lack of a credible plan to address the situation. Characteristics of a very high burden include: • Total governmental funds debt service plus required annual pension payment plus annual OPEB payment as a percentage of total governmental funds expenditures above or expected to exceed 50%; • A growing recent and near-term expected trend of these fixed-cost charges; and • Fiscal flexibility unable to compensate for these elevated fixed-cost charges; 51. The first instance in which a municipality can receive a capped score of'T occurs when a management team lacks the relevant skills to adequately plan,monitor, and manage the government's finances.Although rare,these conditions usually occur when the management organization concentrates nearly all management functions with one individual who then leaves.To receive a score of'T, a lack of qualified subordinates and delays in replacing the departed individual usually exist.As this period lengthens,the government's true financial position becomes less clear, and an auditor may have difficulty rendering an opinion on the government's financial statements. 52. The second instance occurs when an auditor has delivered a going concern opinion with the most recent review of the government's financial position. Other forms of qualified audit opinions do not result in a score of'T. 53. The third instance occurs when a government shows an unwillingness to support a debt,capital lease obligation, or moral obligation pledge.A current lack of willingness to pay vendors,vendor leases, or other commercial obligations would not automatically result in a score of'5',although it could indicate increased financial pressure that could bring lower ratings through the other elements considered by the criteria.A current lack of willingness may or may not be clearly established before the actual payment date of the obligation concerned. Even before a government has formally chosen not to pay an obligation,downward rating adjustments could result from the expectation of such events. 54. The fourth instance occurs when representatives of the government take actions that indicate active consideration of bankruptcy filing in the near-term. 55. Various qualitative factors may raise or lower the final management score relative to the initial score,as shown in table 9. 56. Even when limited policies exist,the risk management poses to credit quality may still be limited. First,management may excel in consistently balancing operations despite the absence of formal policies. Second,when the government provides limited services, operational risk declines.The management score improves by one point when either of WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 12,2013 20 1190266 1300881696