HB 655 (Coyner) and SB 645 (Aird) build on existing budget language that creates a process for state review of local fiscal distress, but also go beyond this language in enabling the state to appoint an emergency fiscal manager in situations where a locality is “unwilling or unable to comply with the conditions necessary to address its fiscal distress.” The bills were precipitated by challenges experienced by one city and have undergone significant reworking since they were introduced. SB 645 passed the Senate on Monday, but HB 655 failed on the House floor.
In its current form, SB 645 contains the following provisions:
- The Auditor of Public Accounts is directed to develop criteria for a preliminary determination that a locality may be in fiscal distress. The criteria must be based on information regularly collected by the Commonwealth or otherwise regularly made public by the locality and the locality’s annual audited financial reporting. Similar provisions are currently in budget language.
- The Auditor is required to establish a prioritized early warning system based on these criteria and to set up a regular process for review of audited financial data and other relevant factors and qualitative information to make a preliminary determination that a locality may meet the criteria for fiscal distress. Similar provisions are currently in budget language.
- If a locality has not submitted its audited annual financial report within 18 months of its deadline or provided a plan to do so, the Auditor must notify the Governor, the Secretary of Finance, and the Chairs of key legislative committees; this delay automatically triggers the provisions whereby the Auditor makes a preliminary determination that the locality may meet the criteria for fiscal distress. This language is not currently in the budget.
- For a locality where the Auditor has made a preliminary determination of fiscal distress, the Auditor must notify the local governing body; in coordination with the local governing body or chief executive officer, the Auditor may conduct a review and request documents and data from the locality. The locality must acknowledge such a request and ensure that a response is provided within reasonable timeframes. The bill adds new language not currently in the budget to stipulate that if the locality is unresponsive, the Auditor must notify the Governor, the Secretary of Finance, and legislative committee chairs.
- After the review, if the local governing body or chief executive officer requests assistance or if the Auditor is of the opinion that state assistance, oversight, or targeted intervention is needed, the Auditor must notify the Governor, Secretary of Finance, and legislative committee chairs (this language is similar to the existing budget provisions, but adds a provision, at the suggestion of local governments, to create a pathway for localities to request assistance). After receiving this notification, the Governor must consult with the money committee chairs about a plan for state assistance, oversight, or intervention, which may be funded with up to $750,000 from certain unexpended balances. The governing body and the local constitutional officers are required to assist state-appointed staff conducting assistance, oversight, or intervention efforts. These provisions largely mimic existing budget language.
- New language in the bill provides that the Commission on Local Government will act in an oversight capacity to determine whether a locality has taken appropriate action to address its fiscal distress and will report its findings to the Governor and appropriate legislative committee chairs. If the Commission concludes that a locality is unwilling or unable to address its fiscal distress, the Commission must appoint an emergency fiscal manager and implement a remediation plan (as introduced, the bill allowed the Governor to make this appointment and included sweeping language, to which VACo and other local government advocates objected, allowing the Governor to “use all powers available to him to intervene for the purpose of addressing such fiscal distress”). During the duration of state remediation, the local governing body and chief executive officer may not exercise powers related to local finances, except as spelled out in the remediation plan, which would be adopted by the Commission after public notice and comment. At the request of VACo and other local government advocates, language was added to the bill to require that the plan specify the purpose of remediation efforts, the roles and responsibilities of the governing body and chief executive officer, and the benchmarks that will allow a locality to exit the remediation plan; language was also added at the request of VACo and other advocates to require that the Commission (rather than the emergency fiscal manager) determine when the locality has met the benchmarks approved in the remediation plan.
HB 655 was tabled in a subcommittee of House Counties, Cities, and Towns on February 1, but resurrected in full committee and reported to the House floor on February 9 before failing to pass on Tuesday, February 13. SB 645 was heard in both Senate Local Government and Senate Finance and Appropriations and passed the Senate on February 12.
Given the amendments made to the bill and VACo’s expectation that these interventions would be made in rare, dire circumstances, VACo now has no position on the bill.
VACo Contacts: Katie Boyle and Joe Lerch, AICP