Ariz. Admin. Code § R18-12-315 - Local Government Financial Test

A. Local government owners and operators may satisfy the requirements of R18-12-303 by passing the financial test specified in this Section. To be eligible to use the financial test, local government owners and operators shall have the ability and authority to assess and levy taxes or to freely establish fees and charges. To pass the local government financial test, owners and operators shall meet the criteria of subsections (B)(2) and (3) based on year-end financial statements for the latest completed fiscal year.

B. To pass the local government financial test, owners and operators shall meet all of the following:

1. Local government owners and operators shall have the following information available, as shown in the year-end financial statements for the latest completed fiscal year:

a. Total revenues: consists of the sum of general fund operating and non-operating revenues including net local taxes, licenses and permits, fines and forfeitures, revenues from use of money and property, charges for services, investment earnings, sales such as property or publications, intergovernmental revenues whether or not restricted, 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 interfund transfers between funds under the direct control of the local government using the financial test, liquidation of investments, and issuance of debt;

b. Total expenditures: consists of the sum of general fund operating and non-operating 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 interfund transfers between funds under the direct control of the local government using the financial test;

c. Local revenues: consists of total revenues, as defined in subsection (B)(1)(a), minus the sum of all transfers from other governmental entities, including all monies received from federal, state, or local government sources;

d. Debt service: consists of the sum of all interest and principal payments on all long-term credit obligations and all interest-bearing short-term credit obligations. It includes interest and principal payments on general obligation bonds, revenue bonds, notes, mortgages, judgments, and interest bearing warrants. It excludes payments on non-interest-bearing short-term obligations, interfund obligations, amounts owed in a trust or agency capacity, and advances and contingent loans from other governments;

e. 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. It 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 non-security assets.

2. 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.

3. Local government owners and operators shall have a letter signed by the chief financial officer worded as specified in subsection (C).

C. To demonstrate that it meets the financial test under subsection (B), the chief financial officer of the local government owner or operator shall sign, within 120 days of the close of each financial reporting year, as defined by the 12-month period for which financial statements used to support the financial test are prepared, a letter worded exactly as provided in 40 CFR 280.105(c), amended as of October 13, 2015, except that the instructions in brackets are to be replaced by the relevant information and the brackets deleted.

D. If local government owners and operators using the test to provide financial assurance find 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 150 days of the end of the year for which financial statements have been prepared.

E. The Director may require reports of financial condition at any time from local government owners and operators. If the Director finds, on the basis of such reports or other information, that the local government owner or operator no longer meets the financial test requirements of subsections (B) and (C), the owner or operator shall obtain alternate coverage within 30 days after notification of such a finding.

F. If the local government owner or operator fails to obtain alternate assurance within 150 days of finding that it no longer meets the requirements of the financial test based on the year-end financial statements or within 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 such failure within 10 days.

Notes

Ariz. Admin. Code § R18-12-315

Adopted effective September 21, 1992 (Supp. 92-3). Amended effective July 30, 1996 (Supp. 96-3). Amended by final rulemaking at 25 A.A.R. 3123, effective 10/1/2020.