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

# Outline of the Ratio for Determining Soundness

Real deficit ratio =

Real deficit of general account, etc.

Standard financial scale

Real deficit of general account, etc.: Amount of real deficit in general account and special accounts that are equivalent to an ordinary account

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

Consolidated real deficit ratio = Consolidated real deficit

Standard financial scale

☑ Consolidated real deficit: The difference, if the total of A and B exceeds the total of C and D

A. The total real deficit in general accounts and special accounts that have a real deficit, excluding public enterprises (enterprises regulated and enterprises not regulated by the Local Public Enterprise Law)

B. The total deficit of funds in special accounts of public enterprises that have a deficit of funds

C. The total real balance surplus in general accounts and special accounts that have a real balance surplus, excluding public enterprises

D. The total surplus of funds in special accounts of public enterprises that have a 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 financial resources + amount included in standard financial requirements pertaining to redemption of principal and interest and 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 of A through E

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

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

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

D. Expenditures based on debt burden that corresponds to debt service

E. Temporary loan interest

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 ratio =

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 through H

A. Outstanding local government bonds in general accounts, etc., as of the end of the fiscal year previous to the applicable fiscal year

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

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

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

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

F. The estimated amount of debts of certain corporations established by the local government and debt burden in the case of bearing the debts for such corporations, that is included in general accounts, etc., giving consideration to the financial and business condition of the those corporations, etc.

G. Consolidated real deficit

H. The estimated amount corresponding to the consolidated real deficit of the associations, etc., included in general accounts, etc.

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

## Financial shortfall ratio =

Deficit of funds

Size of business

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

Fund deficit (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 as financial resources for 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 fund deficit when there are circumstances in which fund deficits 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 land, etc.

* 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).