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Summary: Centerville, Minnesota; General Obligation Strong management conditions We view the city's management conditions as strong,with good financial practices. It currently has a fund balance policy stipulating a minimum unreserved fund balance at 40%-50%of budgeted expenditures,although it has historically maintained reserves above this level.The city annually maintains a long-term capital plan.Centerville has its own investment policy,but currently does not have a debt policy more stringent than state guidelines. Very strong budget flexibility In our opinion,the city's budgetary flexibility remains very strong,with reserves above 30%of expenditures for the past several years and no plans to significantly spend them down.The city expects to add to reserves in fiscal 2014 and at least maintain balances in fiscal 2015. For audited fiscal 2013,reserves were$1.25 million or 66%of expenditures. Adequate budgetary performance The city's budgetary performance has been adequate overall,in our view,with a surplus of 2.3%for the general fund but an adjusted 5.3%deficit across total governmental in fiscal 2013. For fiscal 2014,management expects to report a small surplus and balanced results across total governmental funds.The fiscal 2015 general fund budget is currently balanced,but total governmental funds data are not yet available. Very strong liquidity Supporting the city's finances is liquidity we consider strong,with total government available cash at 1.7x total governmental fund expenditures and at 4x debt service.We believe the city has strong access to external liquidity. Centerville has issued GO bonds frequently during the past 15 years. Weak debt and contingent liability profile In our opinion,Centerville's debt and contingent liability profile is weak,with total governmental fund debt service at 42.5%of total governmental fund expenditures,and with net direct debt at 2.8x total governmental fund revenue. Overall net debt is moderate at 4.9%of market value.Amortization is rapid,with 84.1%of direct debt to retire within 10 years. The city participates in the Public Employees'Retirement Association of Minnesota,which administers the general employees'retirement fund and the public employees'police and fire fund,both cost-sharing,multiemployer pension plans. It has contributed 100%of state required contributions of the past three years. Centerville's other postemployment benefit(OPEB)liability is limited to an implicit rate subsidy.The combined annual required contribution pension costs and OPEB pay-as-you-go costs for fiscal 2013 were 1.1%of expenditures,and the city does not anticipate these costs will increase substantially in the near term. Strong institutional framework We consider the Institutional Framework score for Minnesota cities with population over 2,500 as strong. Outlook The stable outlook reflects our expectation that market value will remain stable or increase over the next two years and that the city will continue to manage its debt burden without weakening budgetary performance.The city's WWW.STANDARDANDPOORS.COM/RATINGSDIRECT DECEMBER 2,2014 3 1372557 300238792 98