9.1. SR 01-21-2014 - Laserfiche WebLink

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Criteria I Governments I U.S. Public Finance: U.S. Local Governments General Obligation Ratings:Methodology And Assumptions the planned or recently issued debt results in a worse score. 80. The criteria improve the final score by one point when above-average annual debt amortization(based on total direct debt)inflates the debt service as a percentage of expenditures score and masks the future flexibility stemming from an early deleveraging. The criteria do not apply this adjustment when the early amortization results from a near-to-medium term bullet maturity that will not be retired with funds on hand. Exposure to interest-rate risk or instrument provisions that cause amortization or interest-rate changes beyond the issuer's control increase the score by one point,reflecting additional uncertainty as to whether current debt service levels are representative of those going forward. Examples include unhedged variable-rate debt or higher interest rates resulting from failed remarketings in instruments such as auction-rate securities,variable-rate demand bonds, and certain direct purchase obligations. 81. An overall net debt to TMV level of above 10%worsens the score by one point,while a low level,below 3%,improves the score by one point. This statistic captures the burden of the local government's debt in addition to that of overlapping jurisdictions on the overall tax base.An atypical debt burden can present extra challenges or flexibility over and above that suggested by the individual government's debt burden alone. 82. The impact of pension and OPEB obligations depends on the degree to which such costs will likely escalate and whether the government has plans to address them. Relative to debt,governments have a higher level of flexibility to address these costs,both from a temporal payment perspective and from an obligation level perspective. Many governments have the flexibility to alter benefit levels, and some governments already have availed themselves of this ability. Most governments also can pay less than the annual required contribution without leaving the fund unable to meet actual payments in the current and following year. On the other hand, such delays accelerate the growth rate of future payments.When the potential for such accelerations exists and the increased payments increase budget stress, the final debt and contingent liabilities score worsens by one point when a specific and credible plan to address this burden is in place. Otherwise,the score worsens by two points relative to the initial score.Among the areas of analytic focus when assessing the pension and OPEB burden will be: • The required annual pension payment plus annual OPEB payment as a percentage of total governmental funds expenditures.A combined carrying charge of 10%or more will be considered elevated,however,we will consider whether we expect the elevated payments to result in lower future obligations. • The actuarial funded ratio(s) of the pension plan(s) a local government participates in or sponsors. If the ratio(s)are less than 80%,they will receive further review especially when the carrying charge is elevated.We also consider the magnitude of the unfunded obligation in tandem with the funded ratio(s)when assessing the potential for stress. • The contributions actually made to all pension plans a local government participates in or sponsors. The degree to which a local government contributes less than its full required contribution(s)could be an indication of either short-term cash flow issues or a willingness of management to defer difficult decisions. • The OPEB costs exceed 5%of total governmental funds expenditures and the local government has limited flexibility to change or amend these benefits. 83. Finally, another adjustment considers additional future contingent liabilities not yet requiring government support. While our debt burden calculation already considers other nondirect debt requiring government support and our liquidity score considers the near-term impact of any contingent liabilities,the adjustment to the debt score results WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 12,2013 30 1190266 1300881696