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State And Local Government Ratings Are Not Directly Constrained By That O f The U.S. Sovereign 6 <br />many cases local--governments haves authority to establish and maintain laws pertaining to tax rates and collections, <br />as well as the ability to add new taxes and other forms of revenue generation. In practice, receipt of federal-funding <br />typically requires a state or local government to satisfy various mandates, such as providing certain levels of service. <br />And yet, participation in some of the programs for which federal funding is provided is voluntary. This includes <br />Medicaid, the largest federal-state jointly financed social service. <br />In addition, U.S. state and local governments' treasury management is independent from the U.S. federal <br />government. Although we consider stress scenarios in which federal disbursements could be delayed or reduced, <br />thereby inflicting cash flow disruptions, state and local government obligors with 'AAA' ratings have, in our view, <br />strong access to liquidity, likely allowing them to bridge such episodes. <br />Criteria Support Passibility Of 'AAA' State And Local Government Ratings <br />Participation in the U.S. economy and legal system provides a platform in which state and local governmental <br />obligors can generally manage their finances and debt portfolios with considerable independence and without <br />material risk of negative sovereign intervention. In light of this independence, our ratings largely reflect our view of <br />local economic characteristics or state-level laws that may impede or strengthen state and local credit quality to <br />varying degrees. Credit implications from these factors are detailed in our relevant criteria documents. <br />Related Criteria And Research <br />• USPF Criteria: GO Debt, Oct. 12, 2006 <br />• USPF Criteria: State Ratings Methodology, Jan. 3, 2011 <br />• Methodology: Rating A Regional Or Local Government Higher Than Its Sovereign, Sept. 9, 2009 <br />• Where U.S. Public Finance Ratings Could Head In The Wake Of The Federal Fiscal Crisis, July 21, 2011 <br />• U.S. State Ratings And Outlooks: Current List <br />Standard & Poor's ~ RatingsDirect on the Global Credit Portal ~ August 8, 2011 4 <br />