WEST virginia legislature

2020 regular session

Introduced

House Bill 4856

By Delegate Householder

[Introduced February 11, 2020; Referred to the Committee on Political Subdivisions then Finance]

A BILL to amend the Code of West Virginia, 1931, as amended, by adding thereto a new article, designated §6-9C-1, §6-9C-2, §6-9C-3, §6-9C-4, §6-9C-5, §6-9C-6, §6-9C-7, §6-9C-8, §6-9C-9, and §6-9C-10, all relating generally to fiscal emergencies of local governments; establishing a system to remediate those emergencies; and requiring certain action be taken by the State Auditor.

Be it enacted by the Legislature of West Virginia:

ARTICLE 9C. LOCAL FISCAL EMERGENCIES.

§6-9C-1. Legislative findings.

(a) The Legislature finds:

(1) That local governments are instrumentalities of this state, and the Legislature must act for the public health, safety and welfare of its citizens to promote fiscal integrity of municipal corporations, counties or other political subdivisions to prevent future emergencies;

(2) That negative economic changes, waste, fraud or abuse by public officials, or a combination thereof, necessarily result in a significant impact on the revenues and effectiveness of local governments, and cause significant indebtedness without any current possibility for recovery; and

(3) That the failure of a local government to take actions on its own to address such a condition will adversely affect the health, safety and welfare not only of the residents of the local government, but also of other people of the state.

(b) It is the intent of the Legislature to direct the State Auditor to:

(1) Take necessary and appropriate actions to limit and restrict the powers of municipal corporation, counties or political subdivisions, to prevent the abuse of statutory powers;

(2) Require reports and examinations of the financial condition of their financial condition, transactions, operations and undertakings;

(3) Ensure the fiscal integrity of municipal corporations, counties and other political subdivisions so that they may provide for the health, safety and welfare of their citizens; and

(4) Determine if municipal corporations and subdivisions have paid due principal and interest on their debt obligations, meet financial obligations to their employees, vendors and suppliers, and provide for proper financial accounting procedures, budgeting and taxing practices.

(c) The Legislature further finds that the fiscal emergency conditions described in this article result from and constitute abuses of the powers of a municipal corporation, county or other political subdivision to borrow money, contract debts and levy taxes, and that those conditions impair and threaten the health, safety and welfare of the people of the state within and beyond the municipal corporation, county or political subdivision.

§6-9C-2. Definitions.

As used in this article:

“Bond anticipation notes” means notes issued in anticipation of the issuance of bonds.

“Certificate of estimated resources” means the official certificate of estimated resources of the county budget commission and amendments of the certificate certified to the municipal corporation, county or political subdivision.

“Commission” means a financial planning and supervision commission created under this article with respect to a municipal corporation, county or other political subdivision.

“Debt obligations” means bonds, notes, certificates of indebtedness, bond anticipation notes, current revenue notes, local government fund notes or other obligations issued or incurred in borrowing money, or to renew, refund, fund or refinance, or issued in exchange for, such obligations, and any interest coupons pertaining thereto other than bonds or other obligations issued under authority of the West Virginia Constitution.

“Default” means failure to pay the principal of or the interest on a debt obligation, or failure to make other payment to be made to the holder or owner of a debt obligation, in the full amount and at the time provided for in the contractual commitment with respect thereto, unless the time for such payment has been extended by the owner or holder of the debt obligation without penalty or premium and without the effect of subjecting the municipal corporation, county or political subdivision to the initiation of remedies pertaining to such debt obligation or other debt obligations.

“Deficit fund” means the general fund or any special fund that, as at the time indicated, has a deficit balance or a balance that is less than the amount required to be in such fund pursuant to law or pursuant to contractual requirements, demonstrating that over a period of time expenditures charged or chargeable to the fund have exceeded moneys credited to the fund, or that moneys credited to the fund have not been in the amounts required by law or contractual requirements.

“Effective financial accounting and reporting system” means an accounting and reporting system fully in compliance with the requirements prescribed under this article, with such modifications and supplements as are to be provided pursuant to this article in order to meet and deal with the fiscal emergency, provide to the State Auditor, the commission, the financial supervisor, and the information needed to carry out their functions, and better ensure the implementation of the financial plan.

“Employee benefits” means expenditures for goods and services furnished to municipal, county or political subdivision officers or employees by the municipal corporation, county or political subdivision, including, but not limited to, such benefits as food, temporary housing and clothing, and the provision of pension, retirement, disability, hospitalization, health care, insurance or other benefits to employees requiring the advance payment of money other than directly to employees or other beneficiaries, or the deposit or reservation of money for such purpose.

“Financial plan” means the financial plan approved by the commission under this article, as it may from time to time be amended.

“Financial supervisor” means the State Auditor.

“Fiscal emergency” means the existence of fiscal emergency conditions determined as under this article.

“Fiscal emergency conditions” means any of the events or occurrences described in this article.

“Fiscal emergency period” means the period commencing on the date when the determination of a fiscal emergency is made by the State Auditor under this article and ending when the determination of termination is made and certified under this article.

“Fiscal watch” means the existence of fiscal watch conditions as determined under this article.

“General fund budget” means aggregate revenues available in the general fund during the applicable fiscal year as shown by the certificate of estimated resources.

“Mayor” means the officer of the municipal corporation designated as such by law or the chief executive officer under the charter of the municipal corporation.

“Payroll” means compensation due and payable to employees of the municipal corporation, county or political subdivision, other than employee benefits.

“Revenue estimates” means the estimates of revenue receipts to the credit of the general fund and special funds as estimated and supplemented, modified or amended by the municipal corporation, county or political subdivision, or the State Auditor’s Office.

“Special funds” means any of the funds, other than the general fund, and includes any fund created from the issuance of debt obligations, and any fund created in connection with the issuance of debt obligations to provide moneys for the payment of principal or interest, reserves therefor or reserves or funds for repair, maintenance or improvements.

§6-9C-3. Initiating fiscal watch review.

A municipal corporation, county or political subdivision may undergo a fiscal watch review to determine whether it is approaching a state of fiscal emergency. A fiscal watch review shall be initiated by a written request to the State Auditor from the mayor of the municipal corporation, or the presiding officer of the legislative authority of the municipal corporation when authorized by a majority of the members of the legislative authority; from a county commission when authorized by a majority of the commissioners; or from a governing body of a political subdivision when duly authorized; or may be initiated by the State Auditor. The State Auditor shall acknowledge receipt of a written request for a fiscal watch review by sending a copy of it, stamped with the date received by the State Auditor’s office, to the public official or board requesting a review.

§6-9C-4. Conditions constituting grounds for fiscal watch.

(a) Any one of the following conditions constitutes grounds for a fiscal watch:

(1) The existence of either of the following situations:

(A) All accounts that were due and payable from the general fund of a municipal corporation, county or political subdivision at the end of the preceding fiscal year that had been due and payable for at least 30 days at the end of the fiscal year or to which a penalty was added for failure to pay by the end of the fiscal year, less the year-end balance in the general fund, exceeded one-twelfth of the general fund budget for that year; or

(B) All accounts that were due and payable at the end of the preceding fiscal year from all funds of the municipal corporation, county or political subdivision and that had been due and payable for at least 30 days at the end of the fiscal year or to which a penalty was added for failure to pay by the end of the fiscal year, less the year-end balance in the general fund and in the respective special funds available to pay those accounts, exceeded one-twelfth of the available revenues during the preceding fiscal year, excluding nonrecurring receipts, of the general fund and of all special funds from which those accounts are payable.

(2) The aggregate of deficit amounts of all deficit funds at the end of the preceding fiscal year, less the total of any year-end balance in the general fund and in any special fund that may be transferred to meet that deficit, exceeded one-twelfth of the total of the general fund budget for that year and the receipts to those deficit funds during that year other than from transfers from the general fund.

(3) At the end of the preceding fiscal year, moneys and marketable investments in or held for the unsegregated treasury of the municipal corporation, county or political subdivision, minus outstanding checks and warrants, were less in amount than the aggregate of the positive balances of the general fund and those special funds, the purposes of which the unsegregated treasury is held to meet, and that deficiency exceeded one-twelfth of the total amount received into the unsegregated treasury during the preceding fiscal year.

(4) Based on an examination of the financial forecast approved by the legislative authority of a municipal corporation, county or political subdivision, the State Auditor 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.

(b) As used in this section, “accounts” includes, but is not limited to, final judgments, employee benefits payments due and payable, amounts due and payable to persons and other governmental entities, and any interest and penalties on those judgments, payments or amounts. Accounts that are due and payable do not include any account, or portion of any account, that is being contested in good faith.

§6-9C-5. Declaring existence of fiscal watch; financial recovery plan.

(a) Upon determining that one or more of the conditions constituting grounds for a fiscal watch are present, the State Auditor shall issue a written declaration of the existence of a fiscal watch to the municipal corporation, county or political subdivision. The fiscal watch shall be in effect until the State Auditor determines that none of the conditions are any longer present and cancels the watch, or until the State Auditor determines that a state of fiscal emergency exists. The State Auditor, or a designee, shall provide such technical and support services to the municipal corporation, county or political subdivision after a fiscal watch has been declared to exist as the State Auditor considers necessary.

(b) Within 90 days after the day a written declaration of the existence of a fiscal watch is issued under this section, the mayor of the municipal corporation, the county commission of the county, or the governing body of the political subdivision for which a fiscal watch was declared shall submit to the State Auditor a financial recovery plan that shall identify actions to be taken to eliminate all of the conditions described in §6-9C-4 of this code, and shall include a schedule detailing the approximate dates for beginning and completing the actions and a five-year forecast reflecting the effects of the actions. The financial recovery plan also shall evaluate the feasibility of entering into shared services agreements with other political subdivisions for the joint exercise of any power, performance of any function, or rendering of any service, if so authorized by statute. The financial recovery plan is subject to review and approval by the State Auditor. The State Auditor may extend the amount of time by which a financial recovery plan is required to be filed, for good cause shown.

(c) The State Auditor shall declare that a fiscal emergency condition exists under this article in the municipal corporation, county or political subdivision if either of the following applies:

(1) A feasible financial recovery plan for a municipal corporation, county or political subdivision for which a fiscal watch was declared is not submitted within the time period prescribed by subsection (b) of this section, or within any extension of time thereof; or

(2) The State Auditor finds that a municipal corporation, county or political subdivision for which a fiscal watch has been declared has not made reasonable proposals or otherwise taken action to discontinue or correct the fiscal practices or budgetary conditions that prompted the declaration of fiscal watch, and the State Auditor determines a fiscal emergency declaration is necessary to prevent further decline.

§6-9C-6. Guidelines for identifying potential for declarations of fiscal watch or fiscal emergency; rule-making authority; declaration of fiscal caution.

(a) The State Auditor shall propose rules for legislative approval in accordance with the provisions of §29A-3-1 et seq. of this code, setting forth guidelines for identifying fiscal practices and budgetary conditions of municipal corporations, counties and political subdivisions that, if uncorrected, could result in a future declaration of a fiscal watch or fiscal emergency.

(b) If the State Auditor determines that a municipal corporation, county or political subdivision is engaging in any of those practices or that any of those conditions exist, the State Auditor may declare the municipal corporation, county or political subdivision to be under a fiscal caution.

(c) When the State Auditor declares a fiscal caution, the State Auditor shall promptly notify the municipal corporation, county, or political subdivision of that declaration and shall request the municipal corporation, county or political subdivision to provide written proposals for discontinuing or correcting the fiscal practices or budgetary conditions that prompted the declaration and for preventing the municipal corporation, county or political subdivision from experiencing further fiscal difficulties that could result in a declaration of fiscal watch or fiscal emergency.

(d) The State Auditor, or a designee, may visit and inspect any municipal corporation, county or political subdivision that is declared to be under a fiscal caution. The State Auditor may provide technical assistance to the municipal corporation, county or political subdivision in implementing proposals to eliminate the practices or budgetary conditions that prompted the declaration of fiscal caution and may make recommendations concerning those proposals.

(e) If the State Auditor finds that a municipal corporation, county or political subdivision declared to be under a fiscal caution has not made reasonable proposals or otherwise taken action to discontinue or correct the fiscal practices or budgetary conditions that prompted the declaration of fiscal caution, and if the State Auditor considers it necessary to prevent further fiscal decline, the State Auditor may determine that the municipal corporation, county or political subdivision should be in a state of fiscal watch.

§6-9C-7. Fiscal emergency conditions.

(a) Any one of the following constitutes a fiscal emergency condition of a municipal corporation, county or political subdivision:

(1) The existence, at the time of the determination by the State Auditor under this article, of a default on any debt obligation for more than 30 days.

(2) The existence, at the time of the determination by the State Auditor under this article, of a failure for lack of cash in the funds to make payment of all payroll to employees of the municipal corporation, county or political subdivision in the amounts and at the times required by law, ordinances, resolutions or agreements, which failure of payment has continued:

(A) For more than 30 days after such time for payment; or

(B) Beyond a period of extension, or beyond the expiration of 90 days from the original time for payment, whichever first occurs, if the time for payment has been extended for more than 30 days by the written consent of at least two-thirds of the employees affected by such failure to pay, acting individually or by their duly authorized representatives. The failure of one county office, board or commission to meet payroll does not in itself constitute a fiscal emergency.

(3) The existence of a condition in which all accounts that, at the end of its preceding fiscal year, were due and payable from the general fund and that either had been due and payable for at least 30 days at the end of the fiscal year or to which a penalty has been added for failure to pay by the end of the fiscal year, including, but not limited to, final judgments, employee benefits payments due and payable, and amounts due and payable to persons and other governmental entities and including any interest and penalties thereon, less the year-end balance in the general fund, exceeded one-sixth of the general fund budget for that year, or in which all accounts that, at the end of its preceding fiscal year, were due and payable from all funds of the municipal corporation, county or political subdivision and that either had been due and payable for at least 30 days as at the end of the fiscal year or to which a penalty has been added for failure to pay by the end of the fiscal year, less the year-end balance in the general fund and in the respective special funds lawfully available to pay such accounts, exceeded one-sixth of the available revenues during the preceding fiscal year, excluding nonrecurring receipts, of the general fund and of all special funds from which such accounts lawfully are payable. Accounts due and payable do not include any account, or portion thereof, that is being contested in good faith.

(4) The existence of a condition in which the aggregate of deficit amounts of all deficit funds at the end of its preceding fiscal year, less the total of any year-end balance in the general fund and in any special fund that may be transferred to meet such deficit, exceeded one-sixth of the total of the general fund budget for that year and the receipts to those deficit funds during that year other than from transfers from the general fund.

(5) The existence of a condition in which, at the end of the preceding fiscal year, moneys and marketable investments in or held for the unsegregated treasury of the municipal corporation, county or political subdivision, minus outstanding checks and warrants, were less in amount than the aggregate of the positive balances of the general fund and those special funds the purposes of which the unsegregated treasury is held to meet, and such deficiency exceeded one-sixth of the total amount received into the unsegregated treasury during the preceding fiscal year.

(b) Any year-end condition described in subdivisions division (3), (4) or (5), subsection (a) of this section is not a fiscal emergency condition if the municipal corporation, county or political subdivision clearly demonstrates to the satisfaction of the State Auditor prior to the time of the State Auditor’s determination that such condition no longer exists at the time of the determination. For the purpose of such demonstration, there shall be taken into account all accounts payable past due for 60 days or subject to penalty, deficit amounts of deficit funds, and positive balances as at the time of such demonstration, rather than at the end of the fiscal year, and there shall be taken into account the moneys and marketable securities in the treasury of the municipal corporation, county or political subdivision at the time of such demonstration that are, in the case of subdivision (3), subsection (a) of this section, held for the general fund and those respective special funds that are lawfully available to pay such accounts, in the case of subdivision (4), subsection (a) of this section, held for the general fund or any special fund that may be transferred to meet such deficit, and in the case of subdivision (5), subsection (a) of this section, held to meet such positive balances, but in each case, that are not encumbered or held for other than such respective purposes; provided that changes from the year-end condition resulting from transfers not authorized under this article, borrowings or advances between funds, segregation of treasury moneys or investments, and similar adjustments, shall not be taken into account to demonstrate improvement in any fiscal emergency condition. Unless the determination by the State Auditor occurs more than four months following the end of such fiscal year, upon the request by and substantial showing of the municipal corporation, county or political subdivision that it has taken steps to remove such condition within four months, the Auditor shall postpone a determination as to a condition under subdivisions (3), (4) or (5), subsection (a) of this section as to which such substantial showing is made until the expiration of four months following the end of such fiscal year, but the State Auditor shall not postpone the determination as to subdivision (1) or (2), subsection (a) of this section.

(c) Neither the time periods nor the amounts used in subsection (a) of this section to determine what constitutes a fiscal emergency condition of a municipal corporation, county or political subdivision for purposes of this article authorize actions otherwise contrary to law or any agreement of the municipal corporation, county or political subdivision.

§6-9C-8. Determining existence of fiscal emergency conditions.

(a) The existence of a fiscal emergency condition is a fiscal emergency. The existence of fiscal emergency conditions shall be determined by the State Auditor. The determination, for purposes of this article, may be made only upon the filing with the State Auditor of a written request for such a determination by the Governor, by the county commission, by the mayor of the municipal corporation, or by the presiding officer of the legislative authority of the municipal corporation when authorized by a majority of the members of such legislative authority, or by the governing body of a political subdivision, or upon initiation by the State Auditor. The request may designate in general or specific terms, but without thereby limiting the determination thereto, the condition or conditions to be examined to determine whether they constitute fiscal emergency conditions. Promptly upon receipt of the written request, or upon initiation by the State Auditor, the State Auditor shall transmit copies of such request or a written notice of such initiation to the mayor and the presiding officer of the legislative authority of the municipal corporation or to the county commission or the governing body of a political subdivision by personal service or certified mail. Such determinations shall be set forth in written reports and supplemental reports, which shall be filed with the mayor, fiscal officer and presiding officer of the legislative authority of the municipal corporation, or with the county commission or the governing body of a political subdivision, and with the State Treasurer, Secretary of State, Governor and Legislative Auditor, within 30 days after the request. The State Auditor shall so file an initial report immediately upon determining the existence of any fiscal emergency condition.

(b) In making the determination, the State Auditor may rely on reports or other information filed or otherwise made available by the municipal corporation, county or political subdivision, accountants’ reports or other sources and data the State Auditor considers reliable for such purpose. As to the status of funds or accounts, a determination that the amounts are exceeded may be made without need for determination of the specific amount of the excess. The State Auditor may engage the services of independent certified or registered public accountants, including public accountants engaged or previously engaged by the municipal corporation, county or political subdivision, to conduct audits or make reports or render such opinions as the State Auditor considers desirable with respect to any aspect of the determinations to be made by the State Auditor.

(c) A determination by the State Auditor under this section that a fiscal emergency condition does not exist is final and conclusive and not appealable. A determination by the State Auditor under this section that a fiscal emergency exists is final, except that the mayor of any municipal corporation affected by a determination of the existence of a fiscal emergency condition under this section, when authorized by a majority of the members of the legislative authority, or the county commission when authorized by a vote by a majority of the commissioners, or governing body of a political subdivision, may appeal the determination of the existence of a fiscal emergency condition to the circuit court of the county having territorial jurisdiction over the municipal corporation, county or political subdivision. The appeal shall be heard expeditiously by the circuit court for good cause shown shall take precedence over all other civil matters except earlier matters of the same character. Notice of the appeal must be filed with the State Auditor and such court within 30 days after certification by the State Auditor to the mayor and presiding officer of the legislative authority of the municipal corporation or to the county commission or governing body of the political subdivision as provided for in subsection (a) of this section.

(d) In the appeal, determinations of the State Auditor shall be presumed to be valid and the municipal corporation, county or political subdivision shall have the burden of proving, by clear and convincing evidence, that each of the determinations made by the State Auditor as to the existence of a fiscal emergency condition under this article was in error. If the municipal corporation, county or political subdivision fails, upon presentation of its case, to prove by clear and convincing evidence that each such determination by the State Auditor was in error, the court shall dismiss the appeal. The municipal corporation, county or political subdivision and the State Auditor may introduce any evidence relevant to the existence or nonexistence of such fiscal emergency conditions at the times indicated in the applicable provisions of subsections (a) and (b) of this section.

(e) The pendency of any such appeal does not affect or impede the operations of this article. No restraining order, temporary injunction or other similar restraint upon actions consistent with this article may be imposed by the court or any court pending determination of the appeal. All things may be done under this article that may be done regardless of the pendency of an appeal. Any action taken or contract executed pursuant to this article during the pendency of the appeal is valid and enforceable among all parties, notwithstanding the decision in the appeal. If the circuit court reverses the determination of the existence of a fiscal emergency condition by the State Auditor, the determination no longer has any effect, and any procedures undertaken as a result of the determination shall be terminated.

(f) All expenses incurred by the State Auditor relating to a determination or termination of a fiscal emergency, a fiscal watch or a fiscal caution under this article, including providing technical and support services, or for conducting a financial review, shall be reimbursed from an appropriation for that purpose. If necessary, the controlling board may provide sufficient funds for these purposes.

§6-9C-9. Financial planning and supervision commission; rule-making authority.

(a) Upon the occurrence of a fiscal emergency in any municipal corporation, county or political subdivision, there is established, with respect to that municipal corporation, county or political subdivision, a supervising body to perform essential governmental functions of the state to be known as the “financial planning and supervision commission for (name of municipal corporation, county or political subdivision)”, which, in that name, may exercise all authority vested in such a commission by this article.

(b) The State Auditor shall propose rules for legislative approval in accordance with the provisions of §29A-3-1 et seq. of this code, setting forth the following:

(1) Minimum requirements for the composition of the members of the commission;

(2) The rules of governance for a commission;

(3) Requirements for the detailed financial plan to be submitted by the subject municipal corporation, county or political subdivision;

(4) The powers, duties and functions of the commission or financial supervisor;

(5) The payment of expenses and obligations;

(6) The development of an effective financial accounting and reporting system;

(7) The requirements of the municipal corporation, county or political subdivision operating under the plan;

(8) Recourse for a noncompliant municipal corporation, county or political subdivisions;

(9) Limitations for appropriations;

(10) Communications of the commission;

(11) The approval of debt obligations;

(12) The rights and remedies of holders of debt obligations;

(13) Pledge and agreement of the state with and for benefit of holders of debt obligations;

(14) The issuance of general obligation, special obligation, or revenue bonds and notes in anticipation of bonds; and

(15) The continuance and dissolution of the commission.

§6-9C-10. Severability.

(a) In case any section or provision of this article, including any condition or prerequisite to any action or determination thereunder, or in case any act or action, or part thereof, made, or taken under this article, or any application thereof, is for any reason held to be illegal or invalid, the illegality or invalidity does not affect the remainder thereof or any other section or provision of this article, including any condition or prerequisite to any action or determination thereunder, or any agreement, act or action, or part thereof, made, entered into, or taken under this article, which shall be construed and enforced and applied as if such illegal or invalid portion were not contained therein, nor shall such illegality or invalidity or any application thereof affect any legal and valid application thereof, and each such section, provision, agreement, act or action, or part thereof, shall be deemed to be effective, operative, made and entered into or taken in the manner and to the full extent permitted by law.

(b) Any action or proceeding bringing into question the interpretation, legality, or validity of any provision of this article, the existence or authority, or the legality or validity of any act, of the commission or the financial supervisor, or of any action taken under this article, is a matter of great public interest to the state and shall be advanced on the docket of the court and expedited to final determination.

NOTE: The purpose of this bill is to establish a system to remediate fiscal emergencies of local governments.

Strike-throughs indicate language that would be stricken from a heading or the present law, and underscoring indicates new language that would be added.