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Rating Agency Methodology Updates ORANGE COUNTY <br /> NORTH CAROLINA <br /> Moody's Moody's Qualitative Factors <br /> • On January 15, 2014, Moody's updated its US Local Governments <br /> Below-the-Line Adjustments Other Considerations) <br /> General Obligation Debt methodology and assumptions. 1 Economy/Tax Base <br /> 2 Institutional presence(+) Per capita income <br /> • Under the new methodology, an initial indicative rating is 3 Regional economic center(+) Composition of workforce/employmentopportunities <br /> 4 Economic concentration(-) Proportion of tax base that is vacant or exempt from taxes <br /> calculated from a weighted average of four key factors: 5 Outsized unemployment or poverty levels(-) Median home value <br /> 6 Trend of real estate values <br /> 7 Population trends <br /> 8 Property tax appeals outstanding <br /> US Local Governments General Obligation Debt Methodology 9 Unusually significant tax base declines or growth <br /> 10 <br /> 1. Economy/ Tax Base 30% 11 Finances <br /> 0 12 Outsized enterprise or contingent liability risk(-) Questionable balance sheet items that may distort fund balance <br /> Tax Base Size (Full Value) 10% <br /> 13 Unusually volatile revenue structure(-) Large portion of fund balance that is restricted or unusable <br /> Full Value Per Capita 10% 14 Labor contracts that materially affect credit strength <br /> Wealth (Median Family Income) 10% 15 Limited revenue raising ability. <br /> 16 Restrictive property tax cap <br /> 2. Finances 30% 17 Constraints on capturing tax base growth <br /> Fund Balance (%of Revenues) 10% 18 Other levy-raising limitation <br /> 19 Limited ability to cut or control expenditures: <br /> Fund Balance Trend (5-Year Change) 5% 20 Limitation constrains budgetary flexibility to a degree not already <br /> captured in the scorecard <br /> Cash Balance (%of Revenues) 10% 21 Heavy fixed costs,including contractually fixed costs such as pension <br /> Cash Balance Trend (5-Year Change) 5% payments <br /> 22 Management <br /> 3. Management 20% 23 State oversight or support(+or-) <br /> Institutional Framework 10% 24 Unusually strong or weak budget management and <br /> planning(+or-) <br /> Operating History 10% 25 <br /> 4. Debt/ Pensions 20% 26 Debt/Pensions <br /> 27 Unusually weak or strong security features(-or+) Very high or low debt service relative to budget <br /> Debt to Full Value 5% 28 Unusual risk posed by debt structure(-) Very high or low overall debt burden(including overlapping debt) <br /> Debt to Revenue 5% 29 History of missed debt service payments(-) Heavy capital needs implyingfuture debt increases <br /> 30 Unusuallyslow or rapid amortization of debt principal(gauged by the <br /> Moody's Adjusted Net Pension Liability(3-Year Average)to Full Value 5% percentage of principal repaid within 10 years) <br /> 31 Other post-employment benefits(OPEB),the most significant of which <br /> Moody's Adjusted Net Pension Liability(3-Year Average)to Revenue 5% is retiree healthcare liabilities,when they have the potential to <br /> significantly constrain operational flexibility <br /> These other considerations include factors specifically outlined in Moodys rating methodology.However,any information regarding an issuer can rise to the <br /> level of a qualitative factor/consideration as deemed appropriate by the rating analyst and credit committee. <br /> ■ Below the line qualitative adjustments can be made based upon <br /> certain factors. <br /> DAVENPORT&COMPANY <br /> May 9,2017 Orange County, NC 5 <br />