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Fiscal Distress in Local Governments:
Opportunities for State/Local
Partnership
December 2, 2016
Opportunities for state/local
partnership
• Local governments are critical to state growth
• Local officials have limited flexibility to address both
long-term structural challenges and short-term
shocks
• Early detection creates opportunities to resolve
challenges in advance of a fiscal crisis
Fiscal monitoring defined
• States that actively and regularly review financial
information from local governments
• Assess the fiscal condition of local governments
and/or identify signs of distress
Fiscal monitoring states
Fiscal monitoring
No monitoring
WA
OR
NV
CO
NM
SD
MN
IA
LA
FL
TN
KY
NC
OH
MI
PA
NY
NH
RI
CT
NJ
MD
Early warning states
Fiscal monitoring
Fiscal monitoring with early warning
No monitoring
WA
OR
NV
CO
NM
SD
MN
IA
LA
FL
TN
KY
NC
OH
MI
PA
NY
NH
RI
CT
NJ
MD
NV
LA
NC
OH
PA
Challenge 1
Challenge: Learning about fiscal distress too late.
Solution: States check in with local governments on a
frequent and regular basis to try to detect distress
earlier.
Tennessee
• Quarterly monitoring
• Budgets and financial
statements
• Sufficient resources to meet
obligations
“A lot of what we’re doing is really proactive and
upfront, rather than after things have gone wrong.”
-Ron Queen, senior financial analyst, Office of State and Local Finance
Challenge 2
Challenge: Inconsistent monitoring when procedures
are informal and not codified in statute.
Solution: Formal systems and processes promote
transparency, predictability, and consistency.
Rhode Island
• Proposed tax rates and
proposed budgets
• Local governments are
required to submit quarterly
reports
• Five year forecasts including
pensions and OPEB
“[Central Falls] was certainly a wake-up call… before
no one really envisioned a municipality going
bankrupt.”
-Susanne Greschner, chief, Division of Municipal Finance
Challenge 3
Challenge: Tensions between state and local
government officials.
Solution: States can establish good working
relationships with local governments.
New York
“We want transparency. We’re not trying to ‘catch’
places.”
-Craig Kinns, assistant director, operations, State Comptroller’s Division of Local
Government and School Accountability
• “No surprise
approach”
• Reach out to local
governments in
advance
Challenge 4
Challenge: Treating intervention as the only response.
Solution: Identify smaller steps to help local
governments that stop short of intervention.
Nevada
“Taking over entities is pretty serious… fiscal watch
offers all kinds of opportunities to correct [problems]
before the state actually takes over.”
-Terry Rubald, deputy executive director, Department of Taxation
• “Fiscal watch”
• 27 indicators
• Committee on Local
Government
Finance
Key considerations
• Establish a clear definition of “distress”
• Identify the department(s) or agency(ies)
responsible
• Identify data sources that will meet the stated
purpose
• Determine which indicators to monitor and with
what frequency
• Ensure monitoring is consistent
Mary Murphy
Manager, State and Local Fiscal Health
mmurphy@pewtrusts.org
202.540.6622

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Fiscal Distress in Local Governments: Opportunities for State/Local Partnership

  • 1. Fiscal Distress in Local Governments: Opportunities for State/Local Partnership December 2, 2016
  • 2. Opportunities for state/local partnership • Local governments are critical to state growth • Local officials have limited flexibility to address both long-term structural challenges and short-term shocks • Early detection creates opportunities to resolve challenges in advance of a fiscal crisis
  • 3. Fiscal monitoring defined • States that actively and regularly review financial information from local governments • Assess the fiscal condition of local governments and/or identify signs of distress
  • 4. Fiscal monitoring states Fiscal monitoring No monitoring WA OR NV CO NM SD MN IA LA FL TN KY NC OH MI PA NY NH RI CT NJ MD
  • 5. Early warning states Fiscal monitoring Fiscal monitoring with early warning No monitoring WA OR NV CO NM SD MN IA LA FL TN KY NC OH MI PA NY NH RI CT NJ MD NV LA NC OH PA
  • 6. Challenge 1 Challenge: Learning about fiscal distress too late. Solution: States check in with local governments on a frequent and regular basis to try to detect distress earlier.
  • 7. Tennessee • Quarterly monitoring • Budgets and financial statements • Sufficient resources to meet obligations “A lot of what we’re doing is really proactive and upfront, rather than after things have gone wrong.” -Ron Queen, senior financial analyst, Office of State and Local Finance
  • 8. Challenge 2 Challenge: Inconsistent monitoring when procedures are informal and not codified in statute. Solution: Formal systems and processes promote transparency, predictability, and consistency.
  • 9. Rhode Island • Proposed tax rates and proposed budgets • Local governments are required to submit quarterly reports • Five year forecasts including pensions and OPEB “[Central Falls] was certainly a wake-up call… before no one really envisioned a municipality going bankrupt.” -Susanne Greschner, chief, Division of Municipal Finance
  • 10. Challenge 3 Challenge: Tensions between state and local government officials. Solution: States can establish good working relationships with local governments.
  • 11. New York “We want transparency. We’re not trying to ‘catch’ places.” -Craig Kinns, assistant director, operations, State Comptroller’s Division of Local Government and School Accountability • “No surprise approach” • Reach out to local governments in advance
  • 12. Challenge 4 Challenge: Treating intervention as the only response. Solution: Identify smaller steps to help local governments that stop short of intervention.
  • 13. Nevada “Taking over entities is pretty serious… fiscal watch offers all kinds of opportunities to correct [problems] before the state actually takes over.” -Terry Rubald, deputy executive director, Department of Taxation • “Fiscal watch” • 27 indicators • Committee on Local Government Finance
  • 14. Key considerations • Establish a clear definition of “distress” • Identify the department(s) or agency(ies) responsible • Identify data sources that will meet the stated purpose • Determine which indicators to monitor and with what frequency • Ensure monitoring is consistent
  • 15. Mary Murphy Manager, State and Local Fiscal Health mmurphy@pewtrusts.org 202.540.6622