State Strategies to Detect Local Fiscal Distress: How states assess and monitor the financial health of local governments

Source: Pew Charitable Trusts, September 2016

From the overview:
…States can do more than just wait to react to the next fiscal emergency; they can work proactively to detect local distress and then use that data to determine the best steps to take. In 2013, The Pew Charitable Trusts explored how and when states intervene in local governments in The State Role in Local Government Financial Distress. The report described the stages of municipal difficulty, from distress to crisis to bankruptcy; the reasons for state intervention; and approaches states can take, including refusing to become involved even when local governments ask for help, intervening on a case-by-case basis, and repeatedly exercising state authority to make decisions for local governments. The report recommended that states monitor the fiscal conditions of local governments with an eye toward helping them avoid full-blown crises, if possible.

This follow-up report examines the range of policies and practices that states have in place to assess and track fiscal conditions at the local level, with a focus on whether and how states try to detect local fiscal distress. To operate a “fiscal monitoring system” for purposes of this research, a state must actively and regularly review the finances of at least some of its general purpose local governments, such as counties, cities, and towns, to monitor fiscal conditions or detect problems. The research includes analysis of relevant state statutes and interviews with officials in all 50 states. To learn about the issue from the perspective of local governments, researchers also talked with officials from municipal leagues across the country. These efforts add up to the most comprehensive study to date of fiscal monitoring across the country….