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Criteria I Governments I U.S. Public Finance: U.S. Local Governments General Obligation Ratings:Methodology And Assumptions 71. Because governments hold monies in various funds that may be accessed for short-term liquidity,the measure uses Total Government Available Cash held by the government and recognizes most governments' ability to engage in interfund borrowing. Undrawn amounts under committed bank lines and other facilities are included as cash, and drawn amounts are included with both debt service and total expenditures if due within the next 12 months. 72. Through adjustment factors,the criteria also recognize the role that capital markets and bank financing can play in local government liquidity, as well as the strengths and weaknesses associated with other conditions. 73. The access to external liquidity score detailed in table 13 measures a local government's access to capital market and bank financing. 74. Availability of liquidity varies and in part is a function of the current and near term financial condition. Our forward-looking analysis evaluates the cash,expenditures and debt service for the current and next fiscal year. If our projections result in a score change, either up or down,the score is adjusted one point in the relevant direction. Table 13 Assessment Of Access To External Liquidity paragraph Access To External Liquidity Typical Characteristics Exceptional There is well-tested access to capital markets through different capital financing programs as well as a history of tapping these markets for over 15 years through different economic cycles. Strong There is a record of sufficient access to capital markets,and no reason to believe access has diminished. Satisfactory There is no record of access to the capital markets in the last 20 years,but there is also no reason to believe that external financing could not be obtained at a price acceptable to the government. Limited Legal or market obstacles to the use of debt instruments for liquidity management exist;the availability of bank loans is limited. Uncertain Access to external liquidity is highly questionable,considering both capital market and bank sources. 75. Although local governments in general have enjoyed good market access even through the last economic downturn and credit tightening,the score assesses access relative to the specific local government rather than to the sector as a whole.Absent a market-based or issuer-specific reason to question future market access,the score will use the government's own record of market access in addition to any state-specific sources. 76. The criteria also recognize that future cash balances may be understated for credits with strong cash flow generation capabilities. Often,this results from conservative budgeting procedures that consistently produce positive budget variances. 77. By contrast,projected cash balances may be more at risk under certain conditions,including aggressive use of investments,high refinancing risk over the next 24 months, or exposure to other contingent liability risk that could come due within the next 12 months.Aggressive use of investments includes the use of derivatives for investment rather than hedging purposes, a focus on return over preservation of principal and liquidity, and the use of nontraditional instruments without an ability to articulate their risks and how they will be mitigated. High refinancing risk includes instances where the issuer could be forced to access outside financing due to a lack of internal liquidity, but the issuer will have limited warning when the need arises and has no credible plan to do so on a timely basis. Other contingent liquidity risks include payments resulting from rating triggers,legal judgments,deficits of other enterprises, WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 12,2013 27 1190266 1300881696