# Outline of Ratio for Determining Soundness

real deficit of general account, etc.

Real deficit ratio = standard financial scale

• Real deficit of general account, etc.: Amount of real deficit in account corresponding to ordinary account among general account and special accounts

• Amount of real deficit = amount of advanced appropriation + (amount of deferred payment + amount of business balance carried forward)

consolidated real deficit

Consolidated real deficit ratio = standard financial scale

• Consolidated real deficit: If the total amount of A and B exceeds the total amount of C and D, such exceeding amount

A. Among general account and special accounts excluding public enterprises (enterprises regulated and enterprises not regulated by the Local Public Enterprise Law), the total amount of real deficit of accounts subject to real deficit

B. Among special accounts of public enterprises, the total amount of deficit of funds of accounts subject to deficit of funds

C. Among general account and special accounts excluding public enterprises, the total amount of real balance surplus of accounts subject to real balance surplus

D. Among special accounts of public enterprises, the total amount of surplus of funds of accounts subject to surplus of funds

Real debt service ratio (3-year average)

(redemption of principal and interest of local bonds + quasi-redemption of principal and interest) - (special revenue sources + amount included in standard financial requirements pertaining to redemption of principal and interest and quasi-redemption of principal and interest)

standard financial scale - (amount included in standard financial requirements pertaining to redemption of principal and interest and quasi-redemption of principal and interest)

• Quasi-redemption of principal and interest: Total amount of A to E

A. Amount corresponding to annual redemption of principal in a case of principal equal amortization where the redemption period is 30 years regarding bullet local bonds

B. Among the transfers from the general account, etc. to special accounts other than the general account, etc., the amount acknowledged to be appropriated for revenue resources for the redemption of public enterprise bonds

C. Among the burdens and subsidies to associations/local development corporations (“associations, etc.”), the amount acknowledged to be appropriated for revenue resources for the redemption of local bonds issued by the associations, etc.

D. Expenditure based on liabilities that can be treated similarly to debt service among the expenditures based on debt burden

E. Interest of temporary loan

#### future burden amount - (amount of appropriable funds + estimated amount of special revenue sources + amount expected to be included in standard financial requirements pertaining to outstanding local government bonds, etc.) future burden amount - (amount of appropriable funds + estimated amount of special revenue sources + amount expected to be included in standard financial requirements pertaining to outstanding local government bonds, etc.) standard financial scale - (amount included in standard financial requirements pertaining to redemption of principal and interest and quasi-redemption of principal and interest)

• Future burden amount: Total amount of A to H

A. Outstanding local government bonds as of end of fiscal year previous to relevant fiscal year of general account, etc.

B. Expected amount of expenditure based on debt burden (those pertaining to the expenses of each item under Article 5 of the Local Finance Law)

C. Estimated amount of transfer from the general account, etc. to be appropriated to the redemption of principal of local bonds of accounts other than the general account, etc.

D. Estimated amount of burden, etc. of the local government concerned to be appropriated for the redemption of principal of local bonds of the associations, etc. of which the local government concerned is a member

E. Among the expected amount of retirement allowance to be paid (amount of allowance that will be paid to all employees at the term end), the estimated amount of burden of the general account, etc.

F. Among the amount of debts of certain corporations established by the local government and among the amount of debt burden in the case of bearing the debts for such certain corporations, the estimated amount of burden of the general account, etc.

giving consideration to the financial and business condition of the such corporations, etc.

G. Consolidated real deficit

H. Among the amount corresponding to the consolidated real deficit of the associations, etc., the estimated amount of burden of general account, etc.

• Amount of appropriable funds: Funds under Article 241 of the Local Autonomy Law that can be appropriated for the amount of redemption, etc. of A to F

$$ Financial shortfall ratio=\frac{deficit of funds}{size of business} $$

• Deficit of funds:

Deficit of funds (enterprises regulated by the law) = (current liabilities + outstanding local government bonds issued to be appropriated for revenue resources of expenses other than construction and improvement expenses, etc. - current assets) - resolvable amount of financial shortfall

Deficit of funds (enterprises not regulated by the law) = (amount of advanced appropriation + amount of deferred payment and amount of business balance carried forward + outstanding local government bonds issued to be appropriated for revenue resources of expenses other than construction and improvement expenses, etc.) - resolvable amount of financial shortfall

*Resolvable amount of financial shortfall: A fixed amount to be deducted from the deficit of funds when there are circumstances where deficit of funds will arise due to the nature of the project or structurally for a given period of time after the commencement of the project.

*Public enterprises that are engaged in residential land development projects are subject to a special exception concerning the calculation of the current assets pertaining to the assessment of the land, etc.

• Size of business : Size of business (enterprises regulated by the law) = amount of operating revenue – amount of consigned construction profit

Size of business (enterprises not regulated by the law) = amount of profit corresponding to operating revenue – amount of profit corresponding to consigned construction profit

$ ^{*} $ Public enterprises adopting the designated administrator system (usage fee system) are subject to a special exception concerning the amount of operating revenue.

$ ^{*} $ The size of business of public enterprises that are only engaged in residential land development projects shall be the total amount of capital and debts that show the “financial resource scale for business management” (scale of procured funds).