2003 -- S 0143

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LC00614

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2003

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A N A C T

RELATING TO INDEBTEDNESS OF TOWNS AND CITIES -- MUNICIPAL DEFICITS

     Introduced By: Senators J Montalbano, Alves, Irons, Lenihan, and Paiva-Weed

     Date Introduced: January 23, 2003

     Referred To: Senate Commerce, Housing & Municipal Government

It is enacted by the General Assembly as follows:

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     SECTION 1. Section 45-12-22 of the General Laws in Chapter 45-12 entitled

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"Indebtedness of Towns and Cities" is hereby repealed.

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     45-12-22. Accumulated deficits. -- (a) Any town or city which has an accumulated

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general fund deficit at the end of its fiscal year ending in 1979 or which has subsequently

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accumulated a deficit, within two (2) successive fiscal years subsequent to its 1979 fiscal year,

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which exceeds an amount equal to two percent (2%) of its most recent tax levy, shall make

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appropriations, as provided in this section, to reduce the deficit to two percent (2%) of its tax

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levy. In the calculation of an accumulated general fund deficit, any accumulated deficit of the

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school special revenue fund shall be included.

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      (b) Accumulated general fund deficit at the end of the fiscal year ending in 1979, which

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is in excess of two percent (2%) of its tax levy for that year: Any city or town with this deficit

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shall adopt, before the close of its fiscal year ending in 1980, a plan of annual appropriations, to

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be approved by the auditor general, to eliminate the amount of the deficit that exceeds two

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percent (2%) of its tax levy in its most recent fiscal year.

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      (c) General fund deficits accumulated subsequent to the fiscal year ending in 1979:

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      (1) Any city or town, which has a general fund balance at the end of its fiscal year

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ending in 1979, and subsequently in a period of two (2) successive fiscal years, has accumulated a

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general fund deficit in excess of two percent (2%) of its tax levy for the most recent fiscal year,

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shall provide sufficient funds, by annual appropriation during a five (5) year period beginning

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with the second subsequent fiscal year, following the two (2) successive years of deficits

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mentioned in this subsection, to eliminate that portion of the deficit which is in excess of two

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percent (2%) of its most recent tax levy. The annual appropriations may be equal or diminishing

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amounts during the five (5) year period.

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      (2) Any city or town, which has a general fund deficit of less than two percent (2%) of

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its tax levy at the end of its fiscal year ending in 1979 and subsequently has accumulated a deficit

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that exceeds two percent (2%) of its most recent tax levy at the end of a period of two (2)

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successive years subsequent to its fiscal year ending in 1979, shall provide sufficient funds by

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annual appropriations to eliminate the excess in a manner similar to that provided in subsection

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(c) (1).

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      (d) In the event that the planned reductions, as provided for in subsections (b) and (c),

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are not realized in any one year, appropriation for the reductions shall be provided cumulatively

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in the next annual budget of the town or city. In determining the accumulated deficit, the

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accounting principles to be used shall be in accordance with section 45-10-5.1.

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     SECTION 2. Chapter 45-12 of the General Laws entitled "Indebtedness of Towns and

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Cities" is hereby amended by adding thereto the following sections:

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     45-12-22.1. Municipal deficits -- Purpose. -- The purpose of sections 45-12-22.1

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through 45-12-22.5 are to ensure that municipalities monitor financial operations on an ongoing

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basis, execute a rapid response to budget problems, and maintain a balanced budget in

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compliance with section 44-35-10. It is the intent of the legislature to require that municipalities:

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     (1) prevent year-end deficits;

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     (2) immediately address potential deficits;

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     (3) immediately address actual year-end deficits; and

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     (4) stabilize municipal finances.

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     45-12-22.2. Monitoring of financial operations -- Corrective action. -- (a) The chief

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financial officer of each municipality within the state shall continuously monitor the financial

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operations of the municipality by tracking actual versus budgeted revenue and expense.

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     (b) The chief financial officer of the municipality shall submit a report on a monthly basis

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to the municipality's chief executive officer and each member of the city or town council

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certifying the status of the municipal budget. The chief financial officer of the municipality shall

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also submit a report on a quarterly basis to the state office of municipal affairs certifying the

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status of the municipal budget. The monthly and quarterly reports shall be in a format prescribed

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by the state office of municipal affairs and the state auditor general. The reports shall contain a

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statement as to whether any actual or projected shortfalls in budget line items are expected to

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result in a year-end deficit, the projected impact on year-end financial results, and how the

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municipality plans to address any such shortfalls.

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     (c) If any reports required under this section project a year-end deficit, the chief financial

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officer shall submit to the state office of municipal affairs a corrective action plan no later than

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thirty (30) days after completion of the monthly budget analysis referred to in subsection (b)

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above, which provides for the avoidance of a year-end deficit. The plan may include

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recommendations as to whether an increase in property taxes and/or spending cuts should be

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adopted to eliminate the deficit. The plan shall include a legal opinion by municipal counsel that

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the proposed actions under the plan are permissible under federal, state, and local law. The state

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office of municipal affairs may rely on the written representations made by the municipality in

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the plan and will not be required to perform an audit.

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     (d) If the state office of municipal affairs concludes the plan required hereunder is

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insufficient and/or fails to adequately address the financial condition of the municipality, the state

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office of municipal affairs can elect to pursue the remedies identified in section 45-12-22.5.

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     (e) The reports required shall include the financial operations of any departments or funds

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of municipal government including the school department, notwithstanding the status of the entity

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as a separate legal body. This provision does not eliminate the additional requirements placed on

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local and regional school districts by section 16-2-9 subsection (f) and section 16-3-11 subsection

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(e)(3).

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     45-12-22.3. Year-end deficits. -- (a) If, at the end of any fiscal year, the chief financial

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official determines, based on available data, that it is likely the city or town's general fund or

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combined general fund and unrestricted school special revenue fund will incur a deficit, the

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municipality must immediately develop a plan to eliminate the deficit. The plan shall provide for

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the elimination of the accumulated year-end deficit by annual appropriation, over no more than

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five (5) years, in equal or diminishing amounts. The plan shall indicate the necessary

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governmental approvals and procedures required, and shall include a legal opinion by municipal

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counsel that the proposed action is permissible under federal, state, and local law.

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     (b) The plan to eliminate the year-end deficit shall be submitted to the state auditor

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general for approval. The state auditor general shall determine whether the plan reasonably

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insures elimination of the accumulated deficit in accordance with the law in a fiscally responsible

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manner. The state auditor general may rely on the written representations made by the

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municipality in the plan and will not be required to perform an audit. The judgment of the state

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auditor general in applying this standard shall be conclusive.

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     (c) If the state auditor general determines the plan is insufficient and/or fails to

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adequately address the financial condition of the municipality, or if a plan is not submitted, then

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in such event, the state auditor general can petition the superior court for mandatory injunctive

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relief seeking to compel the municipality to submit a plan as required hereunder. The state auditor

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general shall also have standing to pursue the appropriate remedies identified in section 44-12-

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22.5.

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     45-12-22.4. Deficit financing -- Approval required. -- No municipality shall sell a long-

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term bond in order to fund a deficit without prior approval by the state auditor general and

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director of the state department of administration.

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     45-12-22.5. Enforcement and remedies. -- In the event that a municipality does not

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comply with the requirements of this law the state auditor general or state office of municipal

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affairs through the director of administration may elect any or all of the following remedies:

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     (1) Petition the superior court for mandatory injunctive relief seeking compliance with

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the provisions of this section. The superior court shall make a finding of fact as to whether there

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has been compliance with the provisions of this section. As hereinbefore stated, the approval or

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disapproval of a plan shall be conclusive upon the court in making its finding as to compliance.

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     (2) In the event a municipality fails to provide a year-end deficit elimination plan under

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section 45-12-22.3, such noncompliance shall allow for the implementation of a financial review

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commission pursuant to section 45-9-3.

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     (3) Withholding of state aid. In the event that the state director of administration with the

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concurrence of the auditor general elect to withhold state aid, said amounts shall be placed in a

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special account. At such time as the municipality comes into compliance with the reporting

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requirements of this section, said funds shall be released to the municipality by order of the state

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director of administration and state auditor general.

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     SECTION 3. This act shall take effect upon passage.

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LC00614

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INDEBTEDNESS OF TOWNS AND CITIES -- MUNICIPAL DEFICITS

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     This act would provide a mechanism to more closely monitor the financial operations of

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the various cities and towns in order to prevent year-end deficits and would execute a rapid

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response to budget problems.

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     This act would take effect upon passage.

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LC00614

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