                                 CODE OF VIRGINIA

LOCAL FISCAL DISTRESS; DETERMINATION BY AUDITOR OF PUBLIC ACCOUNTS; STATE
INTERVENTION (§ 15.2-2512.1)

A. For purposes of this section:
			&#8220;Auditor&#8221; means the Auditor of Public Accounts.
			&#8220;Emergency fiscal manager&#8221; means an official appointed by the
Commission on Local Government to implement a remediation plan approved by the
Commission under subsection H to restore fiscal health for a locality in the
Commonwealth. The &#8220;emergency fiscal manager&#8221; shall have broad powers
to rectify the financial emergency and to assure the fiscal accountability of
the locality and the locality&#8217;s capacity to provide or cause to be
provided necessary governmental services essential to the public health, safety,
and welfare.
			&#8220;Fiscal distress&#8221; means a situation whereby the provision and
sustainability of public services, or the ability to appropriately fund
financial liabilities, is threatened by various administrative and financial
shortcomings, including cash flow issues, inability to pay expenses, revenue
shortfalls, deficit spending, structurally imbalanced budgets, billing and
revenue collection inadequacies and discrepancies, debt overload, failure to
meet obligations to authorities, school divisions, or political subdivisions of
the Commonwealth, lack of trained and qualified staff to process administrative
and financial transactions, or the inability to timely produce an audited
financial report. &#8220;Fiscal distress&#8221; may be caused by factors
internal to the locality or external to the locality, and in various degrees
such conditions may or may not be controllable by management or the local
governing body or its constitutional officers.

B. The Auditor shall use leading indicators based on financial data and relevant
nonfinancial factors to develop criteria for a preliminary determination that a
locality may be in fiscal distress. Such criteria shall be based upon
information regularly collected by the Commonwealth or otherwise regularly made
public by the locality and the locality&#8217;s annual audited financial
reporting required to be submitted to the Auditor. Information provided by the
Virginia Retirement System, the Virginia Resources Authority, the Virginia
Public Building Authority, and other state and regional authorities concerning
late or missed payments shall be shared with the Auditor.

C. Based upon the criteria established by the Auditor, the Auditor shall
establish a prioritized early warning system. Under the prioritized early
warning system, the Auditor shall establish a regular process whereby it reviews
audited financial data and other relevant factors and qualitative information on
at least an annual basis to make a preliminary determination that a locality may
meet the criteria for fiscal distress. As part of the early warning system, the
Auditor shall use leading financial indicators based on key data from the
locality&#8217;s audited financial reports to evaluate information related to a
locality&#8217;s financial position, financial reserves, debt, and operating
revenues and expenditures, along with other relevant factors as applicable. The
Auditor shall further evaluate localities that are identified as needing
additional evaluation based on their initial financial indicators on the basis
of additional leading indicators that may include retirement liabilities,
revenue growth, economic and property market value data, reports prepared by the
Commission on Local Government on revenue fiscal stress, and other relevant
qualitative information.
			If a locality has not submitted its audited annual financial report, pursuant
to &#xA7;&#xA7; 15.2-2510 and 15.2-2511, within 18 months of the required
December 15 deadline or provided a plan to do so, the Auditor shall notify the
Governor, the Secretary of Finance, and the Chairmen of the House Committees on
Appropriations and Counties, Cities and Towns and the Senate Committees on
Finance and Appropriations and Local Government that the Auditor is unable to
review the locality&#8217;s financial data as part of the early warning system
or evaluate its financial condition due to the locality&#8217;s delay with
submitting its audited annual financial report. A locality&#8217;s inability to
timely produce its required audited financial report within 18 months of the
required deadline as specified in this subsection or to provide a plan to do so
shall automatically effectuate the provisions pursuant to subsection D whereby
the Auditor shall make a preliminary determination that the locality may meet
the criteria for fiscal distress.

D. For a locality where the Auditor has made a preliminary determination of
fiscal distress based upon the early warning system criteria, the Auditor shall
notify the local governing body of its preliminary determination that it may
meet the criteria for fiscal distress. In coordination with the local governing
body or chief executive officer, the Auditor may conduct a review and request
documents and data from the locality and the locality&#8217;s published budget
information. Such review shall consider factors including budget processes,
debt, borrowing, expenses and payables, revenues and receivables, and other
areas, including staffing and the identification of external variables
contributing to a locality&#8217;s financial position. Any local governing body
that receives requests for information from the Auditor pursuant to such
preliminary determination based on the above-described threshold levels shall
acknowledge receipt of such a request and shall ensure that a response is
provided within the timeframes specified by the Auditor. If the locality does
not acknowledge the Auditor&#8217;s notification of a preliminary determination
or does not provide a response to the Auditor&#8217;s requests within reasonable
timeframes so specified, the Auditor shall notify the Governor, the Secretary of
Finance, and the Chairmen of the House Committees on Appropriations and
Counties, Cities and Towns and the Senate Committees on Finance and
Appropriations and Local Government that the locality is not responsive. After
such review, if the local governing body or chief executive officer requests
assistance or the Auditor is of the opinion that state assistance, oversight, or
targeted intervention is needed, either to further assess, help stabilize, or
remediate the situation, the Auditor shall notify the Governor and the Chairmen
of the House Committees on Appropriations and Counties, Cities and Towns and the
Senate Committees on Finance and Appropriations and Local Government and the
governing body of the locality in writing, outlining specific issues or actions
that need to be addressed by state assistance, oversight, or intervention.

E. 1. Once the Governor has received a notification from the Auditor indicating
fiscal distress in a specific locality, the Governor shall consult with the
Chairmen of the House Committee on Appropriations and the Senate Committee on
Finance and Appropriations about a plan for state assistance, oversight, or
intervention prior to any expenditure of funds from the cash reserve. Any plan
approved by the Governor for state assistance, oversight, or intervention shall,
at a minimum, specify the purpose of such state assistance, oversight, or
intervention efforts, the estimated duration of such efforts, and the
anticipated resources, dollar amounts, and personnel directed toward such
efforts. The staffing necessary to carry out the assistance, oversight, or
intervention plan may be assembled from either public agencies or private
entities or both and, notwithstanding any other provisions of law, the Governor
may use an expedited method of procurement to secure such staffing when, in his
judgment, the need for state assistance, oversight, or intervention is of an
emergency nature such that action must be taken in a timely manner to avoid or
address unacceptable financial risks to the Commonwealth.

   2. The Director of the Department of Planning and Budget shall identify any
   amounts remaining unexpended from general fund appropriations in the state
   budget as of June 30 of each year, which constitute state aid to local
   governments. The Director shall provide a listing of such amounts designated
   by item number and by program on or before August 15 of each year to the
   Governor and the Chairmen of the House Committee on Appropriations and the
   Senate Committee on Finance and Appropriations.

   3. From such unexpended balances identified by the Director of the Department
   of Planning and Budget, the Governor may reappropriate up to $750,000 from
   amounts that would otherwise revert to the balance of the general fund and
   transfer such amounts as necessary to establish a component of fund balance,
   which may be used for the purpose of providing state assistance, oversight,
   and intervention actions for localities deemed to be fiscally distressed and
   in need of state assistance, oversight, or intervention to address such
   distress. Any such reappropriation approved by the Governor shall be
   separately identified in the commitments specified on the balance sheet and
   financial statements of the State Comptroller for the close of each fiscal
   year, to the extent that such reserve is not used or added to by future
   appropriation actions.

   4. Prior to any expenditure of the reappropriated reserve, the Governor and
   the Chairmen of the House Committees on Appropriations and Counties, Cities
   and Towns and the Senate Committees on Finance and Appropriations and Local
   Government shall receive a notification from the Auditor that a specific
   locality is in need of state assistance, oversight, or intervention because of
   a worsening financial situation. The Auditor may issue such a notification
   upon receipt of an audited financial statement or other information that
   indicates the existence of fiscal distress. However, no such notification
   shall be made until appropriate follow up and correspondence ascertains that,
   in the opinion of the Auditor, such fiscal distress exists. Such notification
   may also be issued by the Auditor if written concerns raised about fiscal
   distress are not adequately addressed by the locality in question. The
   notification issued by the Auditor indicating fiscal distress in a specific
   locality pursuant to subsection D shall satisfy the notification requirement
   of this subdivision.

F. The governing body and the elected constitutional officers of a locality
subject to a plan of state assistance, oversight, or intervention approved by
the Governor shall assist all state-appointed staff conducting such efforts
regardless of whether such staff are from public agencies or private entities.
The state-appointed staff shall provide periodic reports in writing to the
Governor and the Chairmen of the House Committees on Appropriations and
Counties, Cities and Towns and the Senate Committees on Finance and
Appropriations and Local Government outlining the scope of issues discovered and
any recommendations made to address such issues, and the progress that is made
on such recommendations or other state assistance, oversight, or intervention
efforts. These periodic reports shall specifically address the degree of
cooperation the state-appointed team is receiving from locally elected
officials, including constitutional officers, city, county, or town managers,
and other local personnel in regard to their intervention work.

G. The Commission on Local Government shall act in an oversight capacity for the
purpose of determining whether a locality has taken appropriate action to
address the issues specified in subsection D as requested by the intervention
staff and whether the locality appears to be on track to resolve its fiscal
distress. Technical assistance, based on the Auditor&#8217;s existing oversight
and support provided for local governments, shall be provided to the Commission
on Local Government by the Auditor, and all agencies of the Commonwealth shall
provide assistance to the Commission, upon request. The Commission on Local
Government shall report its findings and conclusions to the Governor and the
Chairmen of the House Committees on Appropriations and Counties, Cities and
Towns and the Senate Committees on Finance and Appropriations and Local
Government.

H. For purposes of this subsection, &#8220;locality&#8221; means any locality
located in Planning District 19. If the Commission on Local Government&#8217;s
report to the Governor concludes that a locality is either unwilling or unable
to comply with the conditions necessary to address its fiscal distress, the
Commission on Local Government shall appoint an emergency fiscal manager and
implement a remediation plan to restore sustainable fiscal health to the
locality. Following such appointment and during the duration of state
remediation, the governing body and the chief executive officer of the locality
shall not exercise any of the powers of those offices directly or indirectly
relating to the locality&#8217;s finances except as provided in this subsection
and such governing body and chief executive officer shall be subject to any
conditions required by the emergency fiscal manager. Notwithstanding any other
provision of law, general or special, the emergency fiscal manager may shift
certain responsibilities and duties from the treasurer of the locality to the
emergency fiscal manager if the emergency fiscal manager determines that it is
necessary in order to implement the remediation plan. The emergency fiscal
manager shall (i) implement an approved fiscal recovery plan; (ii) approve all
professional services, suppliers, service provider contracts, and contractual
labor agreements; (iii) approve all city employee payrolls; (iv) approve all
long-term debt service and loan payments; (v) complete internal control and
forensic audit assessments, as needed; and (vi) approve the annual operating and
capital budget. The emergency fiscal manager may make recommendations to the
governing body regarding the locality&#8217;s personnel and staffing. The
authority granted under this subsection may apply to any locality facing fiscal
distress whether such fiscal conditions originated before or after the enactment
of this authority. The emergency fiscal manager shall submit a remediation plan
to resolve the locality&#8217;s fiscal distress to the Commission on Local
Government, which shall approve, reject, or revise the plan after timely notice
of any proposed actions to be taken has been provided to the public and an
opportunity for public input has been provided and such input has been
considered by the Commission on Local Government. Such plan shall specify the
purpose of remediation efforts, including the roles and responsibilities of the
local governing body and the chief executive officer, directly or indirectly,
relating to the locality&#8217;s finances and the benchmarks that will allow a
locality to exit the state remediation plan upon meeting such benchmarks.
Following approval of the remediation plan by the Commission on Local
Government, the emergency fiscal manager shall report regularly to the
Commission on Local Government, the Governor, and the Chairmen of the House
Committees on Appropriations and Counties, Cities and Towns and the Senate
Committees on Finance and Appropriations and Local Government regarding progress
in implementation of the remediation plan. The Commission on Local Government
shall determine when the locality has met the benchmarks approved in the
remediation plan and shall so notify the Governor and the Chairmen of the House
Committees on Appropriations and Counties, Cities and Towns and the Senate
Committees on Finance and Appropriations and Local Government.

I. The Department of General Services shall develop a master contract of
qualified private sector turnaround specialists with expertise in local
government intervention that the Governor can use to procure intervention
services in an expeditious manner when he determines that state intervention is
warranted in situations of local fiscal distress.

HISTORY: 2024, c. 426.