SB 599: Local Government Budgets and Audits; regulation of local governments in fiscal distress; provide

Senate Bill 599

By: Senators Anavitarte of the 31st, Gooch of the 51st, Dixon of the 45th and Bearden of the 30th

A BILL TO BE ENTITLED

AN ACT

To amend Article 1 of Chapter 81 of Title 36 of the Official Code of Georgia Annotated, relating to local government budgets and audits, so as to provide for regulation of local governments in fiscal distress; to provide for criteria for identifying fiscal distress and audited financial reports; to provide for a financial health warning program; to provide for plans for state assistance, oversight, and intervention; to require cooperation by local governments; to provide for reporting; to provide for oversight by the Department of Community Affairs; to provide for appointment of emergency fiscal managers; to provide for remediation plans; to provide for a master roster of turnaround specialists and contracts with consultants; to provide for definitions; to provide for related matters; to repeal conflicting laws; and for other purposes.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:

SECTION 1.

Article 1 of Chapter 81 of Title 36 of the Official Code of Georgia Annotated, relating to local government budgets and audits, is amended by adding a new Code section to read as follows:

"36-81-12.

(a) As used in this Code section, the term:

(1) 'Department' means the Department of Audits and Accounts.

(2) 'Emergency fiscal manager' means a qualified professional appointed by the Department of Community Affairs under this Code section to implement a remediation plan to restore fiscal health to a local government that is unwilling or unable to address its fiscal distress through the standard oversight process.

(3) 'Financial health warning program' means the systematic, annual process established by the state auditor pursuant to this Code section to identify, monitor, and respond to fiscal distress in local governments.

(4) 'Fiscal distress' means a condition in which a local government's ability to sustain the provision of public services or to meet its financial obligations, is threatened, due to internal or external factors and whether or not within the control of its governing authority or appointed officials, by any of the following:

(A) Cash flow shortfalls;

(B) Inability to pay current obligations;

(C) Revenue shortfalls;

(D) Deficit spending;

(E) Structurally imbalanced budgets;

(F) Inadequate revenue collection practices;

(G) Excessive debt;

(H) Failure to meet obligations to state authorities, local school systems, or other political subdivisions;

(I) Insufficient qualified financial staff; or

(J) The inability to produce an audited annual financial report in a timely manner.

(5) 'Remediation plan' means the written plan developed by an emergency fiscal manager and approved by the Department of Community Affairs pursuant to subsection (h) of this Code section, which shall set forth:

(A) The specific corrective fiscal actions required to restore the local government's fiscal health;

(B) The respective roles and responsibilities of the emergency fiscal manager and the local governing body during the remediation period;

(C) Measurable benchmarks that, when satisfied, will permit the local government to exit state remediation; and

(D) An estimated timeline for achieving such benchmarks.

(6) 'State assistance' means the voluntary provision of financial resources, expert advisory services, technical guidance, or other support by the state to a local government to help address identified fiscal concerns, with the cooperation of such local government.

(7) 'State intervention plan' means the plan for state assistance, oversight, or targeted intervention approved by the Governor pursuant to subsection (e) of this Code section following notification by the state auditor of a local government's fiscal distress.

(8) 'Targeted intervention' means a directive action authorized by the Governor, upon recommendation of the state auditor, requiring a local government to take one or more specific corrective measures to address identified fiscal deficiencies and limited in scope to the identified areas of concern and not assuming general fiscal control over the local government, including, but not limited to, requiring adoption of a specific budget adjustment, mandating implementation of identified revenue collection improvements, and requiring a forensic audit of a specific fund or function.

(9) 'Turnaround specialist' means a firm or individual with documented expertise in the fiscal management, financial restructuring, or operational recovery of governmental entities, including counties, municipalities, authorities and other political subdivisions. (b)(1) The state auditor shall develop criteria for identifying local governments that may be in fiscal distress, using leading financial indicators and relevant nonfinancial factors. Such criteria shall be designed to identify local governments exhibiting, or at material risk of developing, fiscal distress. The criteria need not correspond on a one-to-one basis with each factor listed for fiscal distress in subsection (a) of this Code section, but shall, taken as a whole, provide a reasonable basis for identifying local governments at risk of fiscal distress before such conditions become a crisis. Such criteria shall be based upon:

(A) Annual audited financial reports required to be submitted to the department pursuant to applicable law;

(B) Financial and demographic data regularly collected by state agencies or otherwise publicly available;

(C) Information provided by the Georgia Environmental Finance Authority, the Georgia Municipal Association, the Association County Commissioners of Georgia, and other state authorities regarding missed or late financial obligations; and

(D) Such other economic, demographic, and operational factors as the state auditor deems relevant to a comprehensive assessment of local fiscal health. (2)(A) The state auditor shall publish the criteria used in the financial health warning program, which shall include:

(i) Specific data points and financial ratios that will be measured for each local government;

(ii) Numerical thresholds or ranges that will be applied to each indicator to determine whether a signal of potential fiscal distress is present; and

(iii) The method by which results across all indicators will be combined to support a preliminary determination.

(B) The state auditor shall from time to time revise the criteria to reflect changes in best practices and data availability.

(c)(1) Based upon the criteria established pursuant to paragraph (1) of subsection (b) of this Code section, the state auditor shall establish and maintain a financial health warning program. The program shall include a regular process, conducted no less than annually, by which the department reviews the financial data, audited reports, and relevant qualitative information of all local governments to identify those that may meet the criteria for fiscal distress.

(2) As part of such program, the state auditor shall evaluate:

(A) Financial position, including fund balance levels and trends;

(B) Financial reserves and liquidity;

(C) Debt levels and debt service obligations;

(D) Operating revenue trends and structural budget balance; and

(E) Such additional indicators as the state auditor deems necessary, which may include unfunded pension and other post-employment benefit liabilities, revenue growth patterns, property value trends, and demographic and economic conditions.

(3) A local government that has not submitted its required annual audited financial report within 18 months after the close of its fiscal year shall be deemed to have triggered a preliminary determination of potential fiscal distress under subsection (d) of this Code section. Upon such determination, the state auditor shall notify the Governor, the Lieutenant Governor, the Speaker of the House of Representatives, and the chairpersons of the Senate Finance Committee and the House Committee on Ways and Means. (d)(1) When the state auditor makes a preliminary determination, based upon the financial health warning program criteria, that a local government may be in fiscal distress, the state auditor shall:

(A) Notify the governing authority of the local government in writing of such determination;

(B) In coordination with the governing authority of such local government or its chief elected official or chief executive officer, conduct a review that may include requests for documents, financial records, budget information, and other relevant data; and

(C) Consider relevant factors in the review, including budget processes, debt levels and borrowing practices, expenditures and accounts payable, revenue and collection practices, staffing capacity, and external economic conditions.

(2) Any local government that receives a preliminary determination notification shall acknowledge receipt of such notification and provide a written response to the state auditor's information requests within the time frames specified by the state auditor, which shall be reasonable. Failure to acknowledge or respond within such time frames shall constitute grounds for the state auditor to notify the Governor, the Lieutenant Governor, and the Speaker of the House of Representatives that the local government is nonresponsive to the department's oversight process.

(3) Following the review by the state auditor, if the governing authority or chief elected official or chief executive officer of a local government requests state assistance, or if the state auditor determines that state assistance, oversight, or targeted intervention is necessary to further assess, stabilize, or remediate the local government's financial condition, the state auditor shall provide written notification to the Governor, the Lieutenant Governor, the Speaker of the House of Representatives, the chairpersons of the Senate Finance Committee and the House Committee on Ways and Means, and the governing authority of the local government. Such notification shall specify the issues identified and the nature of state assistance, oversight, or intervention recommended. (e)(1) Upon receipt of notification from the state auditor pursuant to subsection (d) of this Code section, the Governor shall consult with the Lieutenant Governor, the Speaker of the House of Representatives, and the chairpersons of the Senate Finance Committee and the House Committee on Ways and Means regarding a plan for state assistance, oversight, or intervention prior to the expenditure of any state funds for that purpose.

(2) Any plan approved by the Governor for state assistance, oversight, or intervention shall, at a minimum:

(A) Specify the purpose and objectives of the assistance, oversight, or intervention;

(B) Estimate the anticipated duration of such efforts;

(C) Identify the resources, dollar amounts, and personnel to be directed toward such efforts; and

(D) Establish benchmarks and timelines for measuring the effectiveness of such efforts.

(3) Staffing necessary to carry out an approved state assistance, oversight, or intervention plan may be assembled from public agencies, private entities, or both as determined by the Governor.

(4) Notwithstanding any other provision of law to the contrary, when the Governor determines that the need for state assistance, oversight, or intervention regarding a local government is of an emergency nature such that delay in action would cause material harm to the provision of public services or to the financial interests of this state, the Governor may direct the Department of Administrative Services to authorize an emergency procurement pursuant to Code Section 50-5-71, or to utilize existing state-wide contracts or pre-qualified vendor rosters established under subsection (i) of this Code section, to secure necessary staffing or professional services in an expeditious manner. Any such emergency procurement shall be reported to the chairpersons of the Senate Finance Committee and the House Committee on Ways and Means within ten business days.

(f)(1) The governing body, the elected constitutional officers, the chief executive officer, and all appointed officials and employees of any local government subject to an approved state assistance, oversight, or intervention plan shall cooperate fully with all state appointed staff conducting such activities, whether such staff members are from public agencies or private entities. Such governing body, officers, officials, and employees shall provide timely access to financial records, systems, and personnel as requested by state appointed staff.

(2) State appointed staff shall provide periodic written reports to the Governor, the Lieutenant Governor, and the Speaker of the House of Representatives describing the scope of fiscal issues identified, recommendations made, and progress achieved. Such reports shall specifically address the degree of cooperation received from local elected and appointed officials.

(g)(1) The Department of Community Affairs shall act in an oversight capacity to determine whether a local government subject to a state intervention plan has taken appropriate corrective actions and whether the local government appears on track to resolve its fiscal distress. The state auditor shall provide technical assistance to the Department of Community Affairs, and all agencies of the state shall provide assistance to the Department of Community Affairs upon request.

(2) The Department of Community Affairs shall report its findings and conclusions to the Governor, the Lieutenant Governor, and the Speaker of the House of Representatives at intervals specified in the approved intervention plan, but no less frequently than annually.

(h)(1) If, after its oversight review under subsection (g) of this Code section, the Department of Community Affairs concludes that a local government is either unwilling or unable to comply with the conditions necessary to address its fiscal distress, such department may recommend to the Governor the appointment of an emergency fiscal manager for such local government. The Governor shall consult with the Lieutenant Governor and the Speaker of the House of Representatives before authorizing such an appointment.

(2) Upon authorization by the Governor, the Department of Community Affairs shall appoint an emergency fiscal manager who shall have the following authority and responsibilities regarding the local government:

(A) Develop, submit to the Department of Community Affairs for approval, and implement a remediation plan as described in this subsection;

(B) Approve all professional services, supplier contracts, and contractual labor agreements;

(C) Approve employee payrolls;

(D) Approve long-term debt service and loan payments;

(E) Commission internal control and forensic audit assessments as needed; and

(F) Approve the annual operating and capital budget during the period of state remediation.

(3) During the period in which an emergency fiscal manager is in place, the governing authority and chief elected official or chief executive officer of the local government shall not exercise any powers relating to the local government's finances except as specifically authorized by the emergency fiscal manager. The emergency fiscal manager may make recommendations to the governing authority regarding personnel and staffing matters.

(4) The emergency fiscal manager shall submit a remediation plan to the Department of Community Affairs which shall approve, reject, or revise the plan following public notice and an opportunity for public comment. The approved remediation plan shall specify the roles and responsibilities of the local governing authority, the benchmarks for exiting state remediation, and the estimated timeline for restoring fiscal health. The emergency fiscal manager shall report regularly to the Department of Community Affairs, the Governor, the Lieutenant Governor, the Speaker of the House of Representatives, and the chairpersons of the Senate Finance Committee and the House Committee on Ways and Means regarding progress in implementing such remediation plan.

(5) The Department of Community Affairs shall determine when a local government has satisfied the benchmarks established in the approved remediation plan and shall notify the Governor, the Lieutenant Governor, the Speaker of the House of Representatives, and the chairpersons of the Senate Finance Committee and the House Committee on Ways and Means of such determination. Upon such determination, the authority of the emergency fiscal manager shall terminate, and the governing authority shall resume full fiscal authority.

(i)(1) The Department of Administrative Services, in consultation with the state auditor and the Department of Community Affairs, shall establish and maintain a master state-wide contract roster for local government turnaround specialists pursuant to Code Section 50-5-57.

(2) To qualify for inclusion on the roster, a firm or individual shall demonstrate, at minimum:

(A) Experience providing fiscal recovery or financial advisory services to governmental entities of comparable complexity;

(B) Professional credentials in governmental accounting, public administration, or municipal finance, including, but not limited to, certified public accountants or equivalent licensure or certification; and

(C) No disqualifying conflicts of interest with this state or any of its political subdivisions.

(3) The Department of Administrative Services shall conduct a competitive solicitation to establish the initial roster and shall update such roster no less frequently than every three years. The Governor may utilize the roster to procure turnaround specialist services for any local government subject to a state intervention plan or emergency fiscal manager appointment under this Code section, using the expedited procurement process authorized under subsection (e) of this Code section."

SECTION 2.

All laws and parts of laws in conflict with this Act are repealed.