Fiscal Emergency or Fiscal Watch - The Fact Sheet

Local Government
Fiscal Emergency/Fiscal Watch Law Fact Sheet

History
The original municipal fiscal emergency law was enacted in 1979 as a response to a financial crisis in the city of Cleveland. Since that time, financial planning and supervision commissions have aided over 50 governments declared in fiscal emergency.
In 1996 fiscal emergency protection was extended to counties and townships through a law (House Bill 462). HB 462 modified the fiscal emergency statute to create the "fiscal watch" status to provide early warning to faltering entities whose finances are approaching emergency status.
Entities now enter fiscal watch when essentially a deficit is in existence in the General Fund or other funds and such deficit exceeds one-twelfth of total General Revenue Funds - the previous marker for fiscal emergency.
Any One Factor Needed for the Auditor
of State to Declare Fiscal Watch

• The existence of either of the following:
  
  • All accounts that were due and payable from the General Fund for more than 30 days, less the year-end balance of the General Fund, exceeded one-twelfth of the General Fund budget for the year.
  • All accounts that were due and payable from all funds for more than 30 days, less the year- end balance in these funds, exceeds one-twelfth of the available revenue for the preceding fiscal year from these funds.
• Total deficit funds, less the total of any balances in the General Fund and in any special fund that may be transferred to meet such deficits, exceeds one-twelfth of the total General Fund budget for that year and the receipts to those deficit funds during that year (other than transfers from the General Fund).
• Money and marketable investments, less outstanding checks, less total positive fund balances of general fund and special funds, exceeds one-twelfth of the total amount received during the preceding fiscal year.
• Based on an examination of a financial forecast approved by the legislative authority, the auditor of state certifies that the general fund deficit at the end of the current fiscal year will exceed one-twelfth of the general fund revenue from the preceding fiscal year.

To determine if an entity qualifies for fiscal watch or emergency, the Auditor of State would conduct an initial review of entity finances. This analysis would commence upon the written request of the entity or at the initiation of the Auditor of State. If an entity is under "fiscal watch" the Auditor of State may provide technical and support services to the entity. Costs for this support would be borne by the state.
Any One Factor Needed for the Auditor
of State to Declare Fiscal Emergency

• The same first three conditions as fiscal watch, with the exception that the fraction is changed to one-sixth, with the added requirement that the condition must continue to exist at least four months after the end of the fiscal year.
• Failure, for lack of funds, to make all payroll to employees that continues beyond 30 days, or a period of agreed-upon extension that can not last more than 90 days from the original time for payment.
• Default of payment on any debt obligation for more than 30 days. County budget commission increases the inside millage which results in a reduction for one or more other subdivisions or taxing districts.
• An increase in the inside millage resulting in a decrease to any of the overlapping governments.

A declaration of fiscal emergency can result at the time of review if any of the six conditions are met. Entities declared in fiscal emergency come under the oversight of a financial planning and supervision commission.
Members of the Financial Planning and Supervision Commission

• Treasurer of State (or office designee).
• Director of state office of Budget and Management (or office designee).
• For municipalities, the mayor and presiding officer of municipal legislative authority.
• For counties, the president of the board of county commissioners and the county auditor.
• For townships, a member of the board of township trustees and the county auditor.
• Three appointed members chosen out of five names provided to the Governor by the mayor and presiding officer of municipal legislative authority; or by the county board of commissioners or board of township trustees. These individuals must be residents of the declared government (by home or office address) with at least five years private-sector business/financial experience.

Responsibilities of the Commission

• Approve a financial recovery plan containing action to essentially eliminate fiscal emergency conditions, balance the budget, avoid future deficits and market long-term obligations. The plan must be submitted to the commission by the mayor, board of commissioners or board of trustees within 120 days of its first meeting. The commission can either accept or reject the plan, listing reasons if rejected. The above officials then have 30 days to resubmit a plan, and the process is repeated until a plan is accepted.
• The commission, has widespread authority to review all revenues and expenditures estimates to determine whether they result in a balanced budget; require the government by ordinance or resolution to establish monthly levels of expenditures and encumbrances consistent with the financial plan; to approve and monitor these levels; to approve the amount and purpose of any debt issues; to make and enter into all contracts and agreements necessary to the performance of its duties and to make recommendations for cost reductions or revenue increases to carry out the financial plan.

Termination of the Commission

• An effective financial accounting and reporting system is being implemented, with expected completion within two years.
• All fiscal emergency conditions have been or are in the process of being eliminated, and no new emergency conditions have occurred.
• The financial recovery plan objectives are being met.
• The entity has a five-year financial forecast which the Auditor of State determines "nonadverse".

* This information is available at the following web-site.
http://www.auditor.state.oh.us/services/lgs/fiscalwatch/government.htm