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Glossary

Accrual Accounting System – A method of accounting that recognizes the financial effect of transactions when they occur, regardless of the timing of related cash flows. The revenues are recorded when earned, and expenditures are recognized when incurred.

Cash Basis Accounting System – Accounting method in which revenues are recorded when cash is received, and expenditures are recorded when cash is paid out.

Modified Accrual Basis Accounting – A method under which revenues are recognized in the period they become available and measurable, and the expenditures are recognized in the period the associated liability is incurred.

Credit Enhancement – Use of property as a collateral, or a third-party guaranties to enhance local government's qualification as a borrower.

Municipal Credit Market – The market for all types of loans and bonds offered/issued to/ by local governments.

Due Diligence – Evaluation conducted by Lenders / Underwriters to determine actual or potential associated risks involved in an investment. It is a duty of lenders to gather necessary information in connection with the Debt Issuer.

Debt Limitation – The maximum amount of debt that a local government may authorize for qualified purposes under the law.

Debt Policy – Part of an overall capital debt financing policy that provides evidence of a commitment to meet infrastructure needs through a planned program of future debt financing.

Debt Restructuring - is a process that allows a sub-sovereign entity (local government) facing cash flow problems and financial distress, to reduce and renegotiate its debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.

Debt Service Capacity – Assessment of the amount of debt a local government can repay in a timely manner usually stated in annual terms of the principal and interest (from available means or resources) without jeopardizing its financial viability.

Escrow - Legal arrangement in which an asset (property or money) is delivered to a third party (called an escrow agent) to be held in trust pending a contingency or the fulfillment of a condition or conditions in a contract such as payment of a purchase price. Upon that event occurring, the escrow agent will deliver the asset to the proper recipient, otherwise the escrow agent is bound by his or her fiduciary duty to maintain the escrow account.

Financial distress – It is a tight cash situation in which a local government cannot pay the owed amounts on the due date. If prolonged, this situation can force the owing entity into bankruptcy or forced liquidation.

Insolvency - means the inability of a local government to pay off its debts.

Cash flow insolvency - unable to pay debts as they fall due.

Balance sheet insolvency - Having negative net assets or in other words, liabilities exceed assets.

Lending institutions – Financial Institutions or Commercial Banks that provide loans to local governments.

Local Taxes – Taxes that are due in addition to state taxes. These can be in the form of property, sales, water… and occasionally income taxes. Funds generated from this cover some local government services.

Long-term debt – An obligation having a maturity of more than one year from the date it was issued.

Shared tax – A tax the State creates and collects and then share with local governments under defined regulations. The rules of revenue sharing are set by law and local governments are autonomous in spending the shared revenues.

Short-term debt – An obligation having a maturity of one year or less.

Supplier Credit – Goods or services received on deferred payment terms. It is also called supplier financing.

Outstanding Debt – Unpaid portion of a debt that may include interest accumulated on the balance.