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State budget targets localities in fiscal distress

By Amy Lee, Capital News Service

RICHMOND –While a study for local government finances was canned this past legislative session, the new state budget has revived the focus on fiscal stress in Virginia cities and counties.

Motivated by the city of Petersburg’s financial crisis, Sen. Emmett Hanger, R-Augusta County, filed a bill to study the fiscal stress of local governments during the 2017 session. SJ 278 proposed the creation of a joint subcommittee to review local and state tax systems, as well as reforms to promote economic assistance and cooperation between regions.

Ultimately, the bill was rejected in the House Finance Committee as members deferred consideration of tax reform for next year’s longer session.

However, the state budget adopted this February has already begun to enact two fiscal stress preventive measures originally introduced in Hanger’s bill.

“Currently, there is no statutory authority for the Commission on Local Government to intervene in a fiscally stressed locality, and the state does not currently have any authority to assist a locality financially,” said Sen. Rosalyn Dance, D- Petersburg, who co-sponsored the fiscal stress bill.

To escalate state intervention, the budget has set guidelines for state officials to identify and help alleviate signs of financial stress to prevent a more severe crisis. A workgroup established by the auditor of public accounts will determine an early warning system for identifying fiscal stress. The system would consider such criteria as a local government’s expenditure reports and budget information.

Local governments that demonstrate fiscal distress will be notified and may request a comprehensive review of their finances by the state. After review, the state is expected to draft an ‘action plan’ detailing purpose, duration, and the anticipated resources required for the intervention. The governor also has the option to channel up to $500,000 from the general fund toward relief efforts for the local government in need.

The new state budget also called for the creation of a Joint Subcommittee on Local Government Fiscal Stress, with members drawn from the Senate Finance Committee and the House Appropriations and House Finance committees. The subcommittee will study local and state financial practices such as regional cooperation and service consolidation, taxing authority, local responsibilities in state programs, and root causes of fiscal stress.

“It is important to have someone who can speak to first-hand experience dealing with issues of local government fiscal stress,” said Del. Lashrecse Aird, D-Petersburg, a member of the Appropriations Committee. “This insight will be essential in forming effective solutions that will be sustainable long-term.”

While all states hold limited authority to intervene in struggling localities, the level of involvement they actually play in fiscally stressed communities varies greatly. For Virginia, the new budget aims to widen the commonwealth’s powers to intervene, as well as more effectively spot fiscal red flags in an area.

“Prior to now, Virginia had no mechanism to track, measure, or address fiscal stress in localities,” Aird said. “Petersburg’s situation is not unique, and it is encouraging that proactive measures are now being taken to guard against future issues. This is essential to ensuring that Virginia’s economy remains strong and that all communities can share in our commonwealth’s success.”

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