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Criteria I Governments I U.S. Public Finance: U.S. Local Governments General Obligation Ratings:Methodology And Assumptions period in which these defaults occurred allows for an analysis of whether credits presumably defaulting in this period were also in states that defaulted. Table 17 provides this detail. Table 17 Reported Local Government Defaults In Defaulting And Nondefaulting States Over Various Periods(see paragraphs 19-23) Local defaults 1837-1843 Local defaults 1873-1880 Local defaults 1936 In states that defaulted 0 56 290 In states that did not default 2 85 2,869 Source:"Defaulted Municipal Bonds and Municipal Bonds,A Century of Experience" 90. Finally, Hillhouse's primary work, "Municipal Bonds,A Century of Experience", also lists municipal defaults by state during the Great Depression. Of the 3,159 credits in default as of January 1936, 290 were in Arkansas,the one state experiencing payment difficulties. Of this total however, 279 were school districts or other special districts.With regard to cities with populations of 10,000 or more in default,Arkansas had one out of nine such cities in default. In comparison, Ohio had 24 of 61 such cities in default, Michigan had 21 of 41,and New Jersey had 18 of 54. 91. Of course many other municipal defaults occurred between the periods referenced in table 17,and others have followed since, despite the lack of periods generating additional state payment defaults. Common reasons for these defaults include periods of overleveraging followed by a decline in local revenues,real estate or other development speculation, and fraud or mismanagement. Sometimes these defaults occurred in a regional pattern,while other times they were idiosyncratic. 92. Although no additional state defaults have occurred recently, several were significantly tested during the last recession. Despite budget gaps too large for one-item solutions, state cutbacks have posed no serious credit threat to municipal governments. The reduction of aid in some states has resulted in the need for local government adjustment,but,in our view,the size of these cutbacks in no way threatened the outright solvency of municipalities or their ability to service debt. IX. APPENDIX III: Changes Since The Request For Comment 93. On March 6, 2012 Standard&Poor's published"Request For Comment: U.S. Local Governments: Methodology And Assumptions". Market participants who responded were generally positive about the increased transparency and clarity of the criteria. Some of them provided specific comments about certain metrics, data sources. and weighting of analytical factors(see"What's Happening With The Proposed U.S. Local Government Criteria?An Update On Feedback And Implementation",published Sept. 19, 2012). These comments and further analysis led to the following main changes between the criteria and the proposal presented in the RFC: • Several overriding factors have been added(see table 2).Among them are:Available Fund Balance of less than $500,000, a budgetary flexibility score of'5', and exhibiting characteristics of structural imbalance. • The positive qualitative adjustment for participation in a broad and diversified economy in the economic score has been modified to reflect a more-robust analysis of MSAs to help determine if the adjustment will be made. • To further augment the forward-looking nature of our analysis,positive and negative qualitative adjustments have WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 12,2013 33 1190266 1300881696