2017 Session

Budget Amendments - HB1500 (Committee Approved)

Fiscal Distress in Local Government (language only)

Item 4-8.03 #1h

Item 4-8.03 #1h

Reporting Requirements
Local Governments


Page 579, after line 19, insert:


a. The Auditor of Public Accounts shall establish a workgroup to develop a proposed system of financial and other indicators, from readily available data, to serve as an early warning mechanism to signal the presence of possible local fiscal distress within local governments in Virginia. Fiscal distress as used in this context is meant to describe a situation whereby the provision and sustainability of public services is threatened by various administrative and financial shortcomings including but not limited to cash flow issues, inability to pay expenses, revenue shortfalls, deficit spending, structurally imbalanced budgets, billing and revenue collection inadequacies and discrepancies, debt overload, and/or lack of trained and qualified staff to process administrative and financial transactions. Fiscal distress may be caused by factors internal to the unit of government or external to the unit of government and in various degrees such conditions may be controllable by management or uncontrollable by management.

1. For localities that fall within preliminary threshold levels of fiscal distress, as recommended by the workgroup created pursuant to paragraph a. above, the Auditor of Public Accounts shall notify the head of the local governing body and the chief administrator of the locality and request additional information to further ascertain if there is cause for state concern, based on such factors as budget processes, debt, borrowing, expenses and payables, revenues and receivables, and other areas, and, if so, the scope of the issues involved. After such follow up, if the Auditor of Public Accounts is of the opinion that state assistance, oversight, or targeted intervention is needed, either to further assess, help stabilize, or remediate the situation, the Auditor shall notify the Governor and the Chairmen of the House Appropriations Committee and the Senate Finance Committee in writing outlining specific issues or actions that need to be addressed by state intervention.

2. The notification issued by the Auditor of Public Accounts pursuant to paragraph 1. above shall satisfy the notification requirement necessary to effectuate the provisions of this act in paragraph b.3 below.

b. The Director of the Department of Planning and Budget shall identify any amounts remaining unexpended from general fund appropriations in this act as of June 30, 2017, which constitute state aid to local governments. The Director shall provide a listing of such amounts designated by item number and by program on or before August 15, 2017, to the Governor and the Chairmen of the House Appropriations Committee and the Senate Finance Committee.

1. From such unexpended balances identified by the Director of the Department of Planning and Budget, the Governor may reappropriate up to $500,000 from amounts which would otherwise revert to the balance of the general fund to establish a component of fund balance which may be used for the purpose of providing technical assistance and intervention actions for local governments deemed to be fiscally distressed and in need of intervention to address such distress. Any such reappropriation approved by the Governor, shall be separately identified in the commitments specified on the balance sheet and financial statements of the State Comptroller for the close of fiscal year 2017 and thereafter, to the extent that such reserve is not used or added to by future appropriation actions.

2. Prior to any expenditure of the reappropriated reserve, the Governor and the Chairmen of the House Appropriations Committee and the Senate Finance Committee must receive a notification from the Auditor of Public Accounts that a specific locality is in need of intervention because of a worsening financial situation. The Auditor of Public Accounts may issue such a notification upon receipt of audited financial or other information that indicates the existence of fiscal distress. But, no such notification shall be made until appropriate follow up and correspondence ascertains that, in the opinion of the Auditor of Public Accounts, such fiscal distress indeed exists. Such notification may also be issued by the Auditor of Public Accounts if written concerns raised about fiscal distress are not adequately addressed by the locality in question.

3. Once the Governor has received a notification from the Auditor of Public Accounts indicating fiscal distress in a specific local government, the Governor shall consult with the Chairmen of the House Appropriations Committee and the Senate Finance Committee about a plan for state intervention prior to any expenditure of funds from the cash reserve. Any plan approved by the Governor for intervention should, at a minimum, specify the purpose of such intervention, the estimated duration of the intervention, and the anticipated resources (dollars and personnel) directed toward such effort. The staffing necessary to carry out the intervention plan may be assembled from either public agencies or private entities or both and the Governor may use an expedited method of procurement (sole source) to secure such staffing when, in his judgment, the need for intervention is of an emergency nature such that action must be taken in a timely manner to avoid or address unacceptable financial risks to the Commonwealth.

4. The governing body and the elected Constitutional Officers of a locality subject to an intervention plan approved by the Governor shall assist all state appointed staff conducting the intervention regardless of whether such staff are from public agencies or private entities. Intervention staff shall provide periodic reports in writing to the Governor and the Chairmen of the House Appropriations Committee and the Senate Finance Committee outlining the scope of issues discovered and any progress to remediate such issues. These periodic reports shall specifically address the degree of cooperation the intervention team is receiving from locally elected officials, including constitutional officers, city, county, or town managers and other local personnel in regards to their intervention work.

5. The Department of General Services is hereby encouraged to develop a master contract of qualified private sector turnaround specialists that the Governor can use to procure intervention services in an expeditious manner when he determines that state intervention is warranted in situations of local fiscal distress."


(This amendment establishes a system to monitor potential fiscal distress among local governments and provides a mechanism for potential state and private sector assistance, including funding resources, to be coordinated by the legislative and executive branches and managed by the Office of the Governor.)