PURPOSE: This rule describes the requirements for use of a local government financial test for demonstrating financial responsibility. (1) A local government owner or operator may satisfy the requirements of 10 CSR 20- 11.093 by passing the financial test specified in this rule. To be eligible to use the financial test, the local government owner or operator shall have the ability and authority to assess and levy taxes or to freely establish fees and charges.

1. (2) To pass the local government financial test, the owner or operator must meet the criteria of subsections (2)(B) and (C) of this rule based on year-end financial statements for the latest completed fiscal year:

   1. (A) The local government owner or operator must have the following information available, as shown in the year-end financial statements for the latest completed fiscal year—

      1. 1. Total revenues. Consists of the sum of

general fund operating and nonoperating revenues including net local taxes, licenses and permits, fines and forfeitures, revenues from use of money and property, charges for services, investment earnings, sales (property, publications, and the like), intergovernmental revenues (restricted and unrestricted) and total revenues from all other governmental funds including enterprise, debt service, capital projects and special revenues, but excluding revenues to funds held in a trust or agency capacity. For purposes of this test, the calculation of total revenues shall exclude all transfers between funds under the direct control of the local government using the financial test (interfund transfers), liquidation of investments and issuance of debt.

1. 2. Total expenditures. Consists of the

sum of general fund operating and nonoperating expenditures including public safety, public utilities, transportation, public works, environmental protection, cultural and recreational, community development, revenue sharing, employee benefits and compensation, office management, planning and zoning, capital projects, interest payments on debt, payments for retirement of debt principal and total expenditures from all other governmental funds including enterprise, debt service, capital projects and special revenues. For purposes of this test, the calculation of total expenditures shall exclude all transfers between funds under the direct control of the local government using the financial test (interfund transfers).

1. 3. Local revenues. Consists of total rev-

enues (as defined in paragraph (2)(A)1. of this rule) minus the sum of all transfers from other governmental entities, including all monies received from federal, state or local government sources.

1. 4. Debt service. Consists of the sum of

all interest and principal payments on all 10 CSR 20-11

long-term credit obligations and all interestbearing short-term credit obligations. Includes interest and principal payments on general obligation bonds, revenue bonds, notes, mortgages, judgments and interestbearing warrants. Excludes payments on noninterest-bearing short-term obligations, interfund obligations, amounts owed in a trust or agency capacity, and advances and contingent loans from other governments.

1. 5. Total funds. Consists of the sum of

cash and investment securities from all funds, including general, enterprise, debt service, capital projects and special revenue funds, but excluding employee retirement funds, at the end of the local government’s financial reporting year. Includes federal securities, federal agency securities, state and local government securities, and other securities such as bonds, notes and mortgages. For purposes of this test, the calculation of total funds shall exclude agency funds, private trust funds, accounts receivable, value of real property, and other nonsecurity assets.

1. 6. Population consists of the number of

people in the area served by the local government.

1. (B) The local government’s year-end financial statements, if independently audited, cannot include an adverse auditor’s opinion or a disclaimer of opinion. The local government cannot have outstanding issues of general obligation or revenue bonds that are rated as less than investment grade.
2. (C) The local government owner or operator shall have a letter signed by the chief financial officer worded as specified in section (3) of this rule.

1. (3) To demonstrate that it meets the financial test under section (2) of this rule, the chief financial officer of the local government owner or operator, shall sign, within one hundred twenty (120) days of the close of each financial reporting year, as defined by the twelve (12)-month period for which financial statements used to support the financial test are prepared, a letter worded as specified in 10 CSR 20-11 Appendix, Form 13 (see 10 CSR 20-11.115).
2. (4) If a local government owner or operator using the test to provide financial assurance finds that it no longer meets the requirements of the financial test based on the year-end financial statements, the owner or operator shall obtain alternative coverage within one hundred fifty (150) days of the end of the year for which financial statements have been prepared.
3. (5) The director may require reports of financial condition at any time from the local government owner or operator. If the director finds, on the basis of the reports or other information, that the local government owner or operator no longer meets the financial test requirements of 10 CSR 20-11.113(2) and (3), the owner or operator shall obtain alternate coverage within thirty (30) days after notification of the finding.
4. (6) If the local government owner or operator fails to obtain alternate assurance within one hundred fifty (150) days of finding that it no longer meets the requirements of the financial test based on the year-end financial statements or within thirty (30) days of notification by the director that it no longer meets the requirements of the financial test, the owner or operator shall notify the director of the failure within ten (10) days.

AUTHORITY: sections 319.114, RSMo (Cum. Supp. 1989) and 644.026, RSMo (Cum. Supp. 1993).* Original rule filed Aug. 3, 1993, effective April 9, 1994. *Original authority: 319.114, RSMo (1989) and 644.026, RSMo (1972), amended 1973, 1987, 1993.