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Credit Rating Agencies Revise Criteria Continuedfrorn the cover funds and capital funds,including bond or grant proceeds that result in intentional deficit spending,should be noted in your credit reviews.) We've assisted multiple issuers with new issue ratings using the new methodology. As of this writing, all those issuers have had their ratings affirmed or upgraded. S&P offers a free U.S. Local Governments Credit Scenario Builder application for the Apple iPad. S&P maintains the results provided by the free app will be within one notch of their assessment. Moody's methodology is still"proposed"and will not be used until formally adopted. (NOTE: the deadline for Moody's Request for Comments("RFC")was November 4.) They predict a limited number of ratings will change using their new methodology.The scoring system is not as explicit as S&P's. Moody's categories and the weighting assigned are in the chart below: Weighting of Moody's Credit Factors 1 � Moody's expressed reason for reducing the economy/tax base weighting is their conclusion Economy/tax base that some communities are"unwilling or unable to convert... their local economies into revenues." The debt/pensions weighting Finances increases because"pension liabilities and debt each represent enforceable claims on the 1 -Current resources of local government." Management ■Proposed There are also key differences within the finances and debt/pensions categories: • Fund balances are measured as a percentage Debt/Pensions of revenues both currently and using a 5-year trend. 0% 10% 20% 30% 40% 50% • Cash balances are also measured as a%of revenues currently and using a 5-year trend. • A grid is used to compare revenue raising ability,expenditure reduction ability and predictability of each to arrive at an institutional framework score. • Shared pension"debt"scores a 3-year average of Moody's derived adjusted net pension liability divided by full value and by operating revenues. • Direct debt is also compared to full value and operating revenues. Fitch hasn't proposed new criteria and believes they have always been transparent in their reports and analysis. We will keep you informed should they join the trend. For more information regarding credit rating methodologies,go to www.springsted.com—there you will find links to S&P's new criteria and free credit scenario builder application,Moody's proposed new criteria and Fitch's credit rating methodologies. Need something more specific to your credit rating? Contact your Springsted representative. If you are new to Springsted,call 651-223-3000 and ask for credit rating assistance. OPERATIONAL FINANCE GROUP Ways to Get to Know the Financial Health of Your Community Whether you are new to your community • State Department of Management for evidence that diversification was or have been there for many years,it . U.S. Census Bureau pursued. Another indicator Springsted may be a good idea for you to scrutinize uses is expenditure growth trends over your organization's financial health U.S.Bureau of Labor Statistics time compared with revenues on a per This allows you to get a new perspective When we review clients'finances,we capita basis. Are the basic needs of a of your operations and balances in the use different resources to focus on key growing population being covered through way your citizens,financial markets and indicators of the community's financial an annually balanced budget,or does the potential developers see them. Here are health If the community does a CAFR, entity have years of deficits? The annual the first resources Springsted consults we are able to locate many of the indicators fund balance level and trend over time is when getting up to speed with a new through the statistical section. Without a key financial health indicator and most jurisdiction. a CAFR,however,we can still use the often measured as the fund balance as • Comprehensive Annual Report information provided in the financial a percent of annual expenditures and/or (CAFR)and City Budget section of their annual audit,along with revenues. In addition to the General Fund, • Electronic Municipal Market Access the U.S. Census Bureau,to locate the Article cowinues on Page 5 (EMMA)site established by the demographic characteristics needed. Municipal Securities Rulemaking Since the General Fund is the primary By Bryan R.Kidney Board(MSRB) means of providing basic governmental services, Springsted examines the diversity Vice President • Rating agency reports (or diversification)of the revenues. If the and Client Representative • State League reports entity is in a state that limits the ability to bkidney @springsted.com significantly diversify revenues,we look it PAGE 2 ® Springsted