SB599: SB599 Local Government Budgets and Audits; regulation of local governments in fiscal distress; provide

26 LC 44 3427 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 Co de of Georgia Annotated,1 relating to local government budgets and audits, so as to provi de for regulation of local2 governments in fiscal distress; to provide for criteria for ide ntifying fiscal distress and3 audited financial reports; to provide for a financial health warning program; to provide for4 plans for state assistance, oversight, and intervention; to req uire cooperation by local5 governments; to provide for reporting; to provide for oversight by the Department of6 Community Affairs; to provide for appointment of emergency fiscal managers; to provide7 for remediation plans; to provide for a master roster of turnaround specialists and contracts8 with consultants; to provide for definitions; to provide for re lated matters; to repeal9 conflicting laws; and for other purposes.10 BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:11 SECTION 1.12 Article 1 of Chapter 81 of Title 36 of the Official Code of Geo rgia Annotated, relating to13 local government budgets and audits, is amended by adding a new Code section to read as14 follows:15 S. B. 599 - 1 - 26 LC 44 3427 "36-81-12.16 (a) As used in this Code section, the term:17 (1) 'Department' means the Department of Audits and Accounts.18 (2) 'Emergency fiscal manager' means a qualified professional appointed by the19 Department of Community Affairs under this Code section to implement a remediation20 plan to restore fiscal health to a local government that is unwilling or unable to address21 its fiscal distress through the standard oversight process.22 (3) 'Financial health warning program' means the systematic, annual process established23 by the state auditor pursuant to this Code section to identify, monitor, and respond to24 fiscal distress in local governments.25 (4) 'Fiscal distress' means a condition in which a local government's ability to sustain the26 provision of public services or to meet its financial obligatio ns, is threatened, due to27 internal or external factors and whether or not within the cont rol of its governing28 authority or appointed officials, by any of the following:29 (A) Cash flow shortfalls;30 (B) Inability to pay current obligations;31 (C) Revenue shortfalls;32 (D) Deficit spending;33 (E) Structurally imbalanced budgets;34 (F) Inadequate revenue collection practices;35 (G) Excessive debt;36 (H) Failure to meet obligations to state authorities, local sc hool systems, or other37 political subdivisions;38 (I) Insufficient qualified financial staff; or39 (J) The inability to produce an audited annual financial report in a timely manner.40 S. B. 599 - 2 - 26 LC 44 3427 (5) 'Remediation plan' means the written plan developed by an emergency fiscal manager41 and approved by the Department of Community Affairs pursuant to subsection (h) of this42 Code section, which shall set forth:43 (A) The specific corrective fiscal actions required to restore the local government's44 fiscal health;45 (B) The respective roles and responsibilities of the emergency fiscal manager and the46 local governing body during the remediation period;47 (C) Measurable benchmarks that, when satisfied, will permit the local government to48 exit state remediation; and49 (D) An estimated timeline for achieving such benchmarks.50 (6) 'State assistance' means the voluntary provision of financ ial resources, expert51 advisory services, technical guidance, or other support by the state to a local government52 to help address identified fiscal concerns, with the cooperation of such local government.53 (7) 'State intervention plan' means the plan for state assista nce, oversight, or targeted54 intervention approved by the Governor pursuant to subsection (e ) of this Code section55 following notification by the state auditor of a local government's fiscal distress.56 (8) 'Targeted intervention' means a directive action authorize d by the Governor, upon57 recommendation of the state auditor, requiring a local government to take one or more58 specific corrective measures to address identified fiscal deficiencies and limited in scope59 to the identified areas of concern and not assuming general fiscal control over the local60 government, including, but not limited to, requiring adoption o f a specific budget61 adjustment, mandating implementation of identified revenue collection improvements,62 and requiring a forensic audit of a specific fund or function.63 (9) 'Turnaround specialist' means a firm or individual with documented expertise in the64 fiscal management, financial restructuring, or operational reco very of governmental65 entities, including counties, municipalities, authorities and other political subdivisions.66 S. B. 599 - 3 - 26 LC 44 3427 (b)(1) The state auditor shall develop criteria for identifying local governments that may67 be in fiscal distress, using leading financial indicators and relevant nonfinancial factors. 68 Such criteria shall be designed to identify local governments e xhibiting, or at material69 risk of developing, fiscal distress. The criteria need not correspond on a one-to-one basis70 with each factor listed for fiscal distress in subsection (a) of this Code section, but shall,71 taken as a whole, provide a reasonable basis for identifying local governments at risk of72 fiscal distress before such conditions become a crisis. Such criteria shall be based upon:73 (A) Annual audited financial reports required to be submitted to the department74 pursuant to applicable law;75 (B) Financial and demographic data regularly collected by state agencies or otherwise76 publicly available;77 (C) Information provided by the Georgia Environmental Finance Authority, the78 Georgia Municipal Association, the Association County Commissio ners of Georgia,79 and other state authorities regarding missed or late financial obligations; and80 (D) Such other economic, demographic, and operational factors as the state auditor81 deems relevant to a comprehensive assessment of local fiscal health.82 (2)(A) The state auditor shall publish the criteria used in the financial health warning83 program, which shall include:84 (i) Specific data points and financial ratios that will be meas ured for each local85 government;86 (ii) Numerical thresholds or ranges that will be applied to each indicator to determine87 whether a signal of potential fiscal distress is present; and88 (iii) The method by which results across all indicators will be combined to support89 a preliminary determination.90 (B) The state auditor shall from time to time revise the crite ria to reflect changes in91 best practices and data availability.92 S. B. 599 - 4 - 26 LC 44 3427 (c)(1) Based upon the criteria established pursuant to paragraph (1) of subsection (b) of93 this Code section, the state auditor shall establish and maintain a financial health warning94 program. The program shall include a regular process, conducted no less than annually,95 by which the department reviews the financial data, audited rep orts, and relevant96 qualitative information of all local governments to identify th ose that may meet the97 criteria for fiscal distress.98 (2) As part of such program, the state auditor shall evaluate:99 (A) Financial position, including fund balance levels and trends;100 (B) Financial reserves and liquidity;101 (C) Debt levels and debt service obligations;102 (D) Operating revenue trends and structural budget balance; and103 (E) Such additional indicators as the state auditor deems necessary, which may include104 unfunded pension and other post-employment benefit liabilities, r e v e n u e g r o w t h105 patterns, property value trends, and demographic and economic conditions.106 (3) A local government that has not submitted its required annual audited financial report107 within 18 months after the close of its fiscal year shall be de emed to have triggered a108 preliminary determination of potential fiscal distress under subsection (d) of this Code109 section. Upon such determinati on, the state a uditor shall noti fy the Governor, the110 Lieutenant Governor, the Speaker of the House of Representatives, and the chairpersons111 of the Senate Finance Committee and the House Committee on Ways and Means.112 (d)(1) When the state auditor makes a preliminary determinatio n, based upon the113 financial health warning program criteria, that a local governm ent may be in fiscal114 distress, the state auditor shall:115 (A) Notify the governing authority of the local government in writing of such116 determination;117 S. B. 599 - 5 - 26 LC 44 3427 (B) In coordination with the governing authority of such local government or its chief118 elected official or chief executive officer, conduct a review that may include requests119 for documents, financial records, budget information, and other relevant data; and120 (C) Consider relevant factors in the review, including budget processes, debt levels and121 borrowing practices, expenditures and accounts payable, revenue and collection122 practices, staffing capacity, and external economic conditions.123 (2) Any local government that receives a preliminary determina tion notification shall124 acknowledge receipt of such notification and provide a written response to the state125 auditor's information requests within the time frames specified by the state auditor, which126 shall be reasonable. Failure to acknowledge or respond within such time frames shall127 constitute grounds for the state auditor to notify the Governor, the Lieutenant Governor,128 and the Speaker of the House of Representatives that the local government is129 nonresponsive to the department's oversight process.130 (3) Following the review by the state auditor, if the governing authority or chief elected131 official or chief executive officer of a local government requests state assistance, or if the132 state auditor determines that state assistance, oversight, or t argeted intervention is133 necessary to further assess, stabilize, or remediate the local government's financial134 condition, the state auditor shall provide written notification to the Governor, the135 Lieutenant Governor, the Speaker of the House of Representatives, the chairpersons of136 the Senate Finance Committee and the House Committee on Ways and Means, and the137 governing authority of the local government. Such notification shall specify the issues138 identified and the nature of state assistance, oversight, or intervention recommended.139 (e)(1) Upon receipt of notification from the state auditor pur suant to subsection (d) of140 this Code section, the Governor shall consult with the Lieutenant Governor, the Speaker141 of the House of Representatives, and the chairpersons of the Senate Finance Committee142 and the House Committee on Ways and Means regarding a plan for state assistance,143 oversight, or intervention prior to the expenditure of any state funds for that purpose.144 S. B. 599 - 6 - 26 LC 44 3427 (2) Any plan approved by the Governor for state assistance, ov ersight, or intervention145 shall, at a minimum:146 (A) Specify the purpose and objectives of the assistance, oversight, or intervention;147 (B) Estimate the anticipated duration of such efforts;148 (C) Identify the resources, dollar amounts, and personnel to be directed toward such149 efforts; and150 (D) Establish benchmarks and timelines for measuring the effectiveness of such efforts.151 (3) Staffing necessary to carry out an approved state assistance, oversight, or intervention152 plan may be assembled from public agencies, private entities, or both as determined by153 the Governor.154 (4) Notwithstanding any other provision of law to the contrary , when the Governor155 determines that the need for state assistance, oversight, or intervention regarding a local156 government is of an emergency nature such that delay in action would cause material157 harm to the provision of public services or to the financial in terests of this state, the158 Governor may direct the Department of Administrative Services t o authorize an159 emergency procurement pursuant to Code Section 50-5-71, or to u tilize existing160 state-wide contracts or pre-qualified vendor rosters establishe d under subsection (i) of161 this Code section, to secure necessary staffing or professional services in an expeditious162 manner. Any such emergency procurement shall be reported to the chairpersons of the163 Senate Finance Committee and the House Committee on Ways and Me ans within ten164 business days.165 (f)(1) The governing body, the elected constitutional officers, the chief executive officer,166 and all appointed officials and employees of any local government subject to an approved167 state assistance, oversight, or intervention plan shall coopera te fully with all state168 appointed staff conducting such activities, whether such staff members are from public169 agencies or private entities. Such governing body, officers, officials, and employees shall170 S. B. 599 - 7 - 26 LC 44 3427 provide timely access to financial records, systems, and personnel as requested by state171 appointed staff.172 (2) State appointed staff shall provide periodic written repor ts to the Governor, the173 Lieutenant Governor, and the Speaker of the House of Representa tives describing the174 scope of fiscal issues identified, recommendations made, and progress achieved. Such175 reports shall specifically address the degree of cooperation re ceived from local elected176 and appointed officials.177 (g)(1) The Department of Community Affairs shall act in an ove rsight capacity to178 determine whether a local government subject to a state interve ntion plan has taken179 appropriate corrective actions and whether the local government appears on track to180 resolve its fiscal distress. The state auditor shall provide t echnical assistance to the181 Department of Community Affairs, and all agencies of the state shall provide assistance182 to the Department of Community Affairs upon request.183 (2) The Department of Community Affairs shall report its findings and conclusions to184 the Governor, the Lieutenant Governor, and the Speaker of the House of Representatives185 at intervals specified in the approved intervention plan, but n o less frequently than186 annually.187 (h)(1) If, after its oversight review under subsection (g) of this Code section, the188 Department of Community Affairs concludes that a local government is either unwilling189 or unable to comply with the conditions necessary to address it s fiscal distress, such190 department may recommend to the Governor the appointment of an emergency fiscal191 manager for such local government. The Governor shall consult with the Lieutenant192 Governor and the Speaker of the House of Representatives before authorizing such an193 appointment.194 (2) Upon authorization by the Governor, the Department of Comm unity Affairs shall195 appoint an emergency fiscal manager who shall have the followin g authority and196 responsibilities regarding the local government:197 S. B. 599 - 8 - 26 LC 44 3427 (A) Develop, submit to the Department of Community Affairs for approval, and198 implement a remediation plan as described in this subsection;199 (B) Approve all professional services, supplier contracts, and contractual labor200 agreements;201 (C) Approve employee payrolls;202 (D) Approve long-term debt service and loan payments;203 (E) Commission internal control and forensic audit assessments as needed; and204 (F) Approve the annual operating and capital budget during the period of state205 remediation.206 (3) During the period in which an emergency fiscal manager is in place, the governing207 authority and chief elected official or chief executive officer of the local government shall208 not exercise any powers relating to the local government's finances except as specifically209 authorized by the emergency fiscal manager. The emergency fiscal manager may make210 recommendations to the governing authority regarding personnel and staffing matters.211 (4) The emergency fiscal manager shall submit a remediation plan to the Department of212 Community Affairs which shall approve, reject, or revise the plan following public notice213 and an opportunity for public comment. The approved remediation plan shall specify the214 roles and responsibilities of the local governing authority, th e benchmarks for exiting215 state remediation, and the estimated timeline for restoring fiscal health. The emergency216 fiscal manager shall report regularly to the Department of Comm unity Affairs, the217 Governor, the Lieutenant Governor, the Speaker of the House of Representatives, and the218 chairpersons of the Senate Finance Committee and the House Committee on Ways and219 Means regarding progress in implementing such remediation plan.220 (5) The Department of Community Affairs shall determine when a local government has221 satisfied the benchmarks established in the approved remediation plan and shall notify222 the Governor, the Lieutenant Governor, the Speaker of the House of Representatives, and223 the chairpersons of the Senate Finance Committee and the House Committee on Ways224 S. B. 599 - 9 - 26 LC 44 3427 and Means of such determination. Upon such determination, the authority of the225 emergency fiscal manager shall terminate, and the governing authority shall resume full226 fiscal authority.227 (i)(1) The Department of Administrative Services, in consultation with the state auditor228 and the Department of Community Affairs, shall establish and ma intain a master229 state-wide contract roster for local government turnaround specialists pursuant to Code230 Section 50-5-57.231 (2) To qualify for inclusion on the roster, a firm or individu al shall demonstrate, at232 minimum:233 (A) Experience providing fiscal recovery or financial advisory services to234 governmental entities of comparable complexity;235 (B) Professional credentials in governmental accounting, publi c administration, or236 municipal finance, including, but not limited to, certified pub lic accountants or237 equivalent licensure or certification; and238 (C) No disqualifying conflicts of interest with this state or any of its political239 subdivisions.240 (3) The Department of Administrative Services shall conduct a competitive solicitation241 to establish the initial roster and shall update such roster no less frequently than every242 three years. The Governor may utilize the roster to procure turnaround specialist services243 for any local government subject to a state intervention plan or emergency fiscal manager244 appointment under this Code section, using the expedited procurement process authorized245 under subsection (e) of this Code section."246 SECTION 2.247 All laws and parts of laws in conflict with this Act are repealed.248 S. B. 599 - 10 -