SENATE BILL NO. 780

December 08, 2021, Introduced by Senators ANANICH, HOLLIER, POLEHANKI, BULLOCK, CHANG and WOJNO and referred to the Committee on Local Government.

A bill to require a fiscal review system to identify local governments that are exhibiting fiscal or operational stress; to identify local governments in a potential fiscal emergency; to provide for the powers and duties of certain state and local governmental officers and entities; to create community engagement advisory committees and prescribe their powers and duties; and to create a fund to provide technical assistance to certain local governments.

the people of the state of michigan enact:

Sec. 1. This act may be cited as the "fiscal review and assistance to local governments act".

Sec. 3. As used in this act:

(a) "Advanced qualified technical assistance" means any of the technical assistance described in section 19(4) that is provided to a local government under the final determination of the state treasurer in section 13.

(b) "Chief administrative officer" means any of the following:

(i) The elected county executive or appointed county manager of a county; or, if the county has not adopted an optional unified form of county government, the controller of the county appointed under section 13b of 1851 PA 156, MCL 46.13b; or, if the county has not appointed a controller, an individual designated by the county board of commissioners of the county.

(ii) The city manager of a city or, if a city does not employ a city manager, the mayor of the city.

(iii) The manager of a township or, if the township does not employ a manager, the supervisor of the township.

(iv) The manager of a village or, if a village does not employ a manager, the president of the village.

(c) "Committee" means a community engagement advisory committee created in section 17.

(d) "Department" means the department of treasury.

(e) "Financial improvement agreement" means an agreement between the state treasurer and a local government determined to be in need of advanced qualified technical assistance to assist the local government in addressing the fiscal and operational factors identified by the fiscal review system for that local government.

(f) "Financial recovery agreement" means an agreement created by the community engagement advisory committee for a local government determined to be in a potential fiscal emergency.

(g) "Fund" means the local government technical assistance fund created in section 19.

(h) "Local action statement" means a statement prepared by a local government that has been determined to be in need of qualified technical assistance that addresses the fiscal and operational factors identified by the fiscal review system for that local government.

(i) "Local government" means a county, city, village, or township.

(j) "Qualified technical assistance" means any of the technical assistance described in section 19(4) that is provided to a local government under the final determination of the state treasurer in section 11.

Sec. 5. The department shall develop a fiscal status dashboard that is publicly available and includes both of the following:

(a) A summary of each local government's fiscal condition.

(b) All relevant fiscal and operational factors from the fiscal review system created under section 9 for each local government.

Sec. 7. The department shall, not less than every 3 years, generate a report on the overall fiscal health of local governments in this state. The report must include, but not be limited to, the identification of trends, risks, and ongoing challenges local governments have in delivering critical public services. The report must be posted on the department's website and be provided in writing to the governor, the secretary of the senate, and the clerk of the house of representatives.

Sec. 9. The department shall develop a fiscal review system that identifies local governments that are exhibiting fiscal or operational stress. Not later than December 31, 2023, the department shall provide guidance for the fiscal review system and shall update the review criteria for the fiscal review system not later than December 31 of each year in which a report is generated under section 7. The fiscal review system must consist of all of the following factors:

(a) A fiscal model that provides a statistical review of each local government by unit type based upon all of the following indicators:

(i) Cash solvency, which means general fund cash and investments as a ratio of total general fund liabilities.

(ii) Budget solvency, which means assigned, unassigned, and committed fund balances as a ratio of general fund revenues.

(iii) Long-term solvency, which means net position as a ratio of governmental revenues.

(iv) Service solvency, which means taxable value as a ratio of population.

(b) An operational model that reviews each local government for compliance with all of the following:

(i) Having an approved deficit elimination plan if a deficit elimination plan is required under section 21 of the Glenn Steil state revenue sharing act of 1971, 1971 PA 140, MCL 141.921.

(ii) Submitting audits or annual financial reports that are required by law that are not delinquent for 2 or more consecutive reporting periods.

(iii) The provisions of the protecting local government retirement and benefits act, 2017 PA 202, MCL 38.2801 to 38.2812.

(iv) Submitting an audit to the department that does not include a disclaimed or adverse opinion.

(v) Adopting a budget in accordance with the uniform budgeting and accounting act, 1968 PA 2, MCL 141.421 to 141.440a.

(vi) Filing a qualifying statement as required under section 303 of the revised municipal finance act, 2001 PA 34, MCL 141.2303, that has not been denied for any of the following reasons:

(A) Defaulting on an outstanding security.

(B) Being delinquent more than 1 time in a fiscal year in transferring employee taxes to the appropriate agency.

(C) Being delinquent more than 1 time in a fiscal year in transferring taxes collected as agent for another taxing entity to that taxing entity.

(D) Being delinquent more than 1 time in a fiscal year in making all required pension, retirement, or benefit plan contributions.

(vii) Disclosing any fiscal irregularities including, but not limited to, defalcations, misfeasance, nonfeasance, or malfeasance that came to an auditor's attention under section 8 of the uniform budgeting and accounting act, 1968 PA 2, MCL 141.428.

Sec. 11. (1) Based upon the fiscal and operational factors in the fiscal review system, the department may at any time preliminarily determine that a local government needs qualified technical assistance. In addition, a local government may, by resolution, request a preliminary written determination by the state treasurer that the local government is in need of qualified technical assistance and the state treasurer may grant the request. Upon a preliminary determination that a local government needs qualified technical assistance, the department shall notify in writing the chief administrative officer and the governing body of that local government of that preliminary determination and the factors supporting the preliminary determination.

(2) Within 45 days after the notice of the preliminary determination of needing qualified technical assistance is provided to the chief administrative officer and the governing body of the local government, and before a final determination is made that the local government is in need of qualified technical assistance and in need of developing a local action statement, the local government may, by resolution, submit written comments to the department concerning the preliminary determination that the local government needs qualified technical assistance.

(3) If the local government fails to respond to the notice described in subsection (1) or fails to adequately show how the local government is responding to the preliminary determination of needing qualified technical assistance as provided under subsection (2), the state treasurer shall make a final determination that the local government is in need of qualified technical assistance and shall, within 45 days after making that final determination, provide written notice to the chief administrative officer and the governing body of that local government of the final determination and the factors supporting the final determination.

(4) If the state treasurer makes a final determination that a local government is in need of qualified technical assistance, that local government shall prepare, within 45 days after written notice of the final determination is provided to the chief administrative officer and the governing body of that local government, a local action statement to address the fiscal and operational factors identified as creating the need for qualified technical assistance. The local action statement must be approved by the governing body of the local government.

(5) The department may provide a local government with qualified technical assistance in preparing and implementing a local action statement.

(6) The department shall monitor the local government's compliance with the local action statement prepared by the local government until the local government is no longer in need of qualified technical assistance. Not less than annually, the department shall notify the chief administrative officer and the governing body of the local government of the department's evaluation of the local government's compliance with the local action statement and the continuing need, if any, of qualified technical assistance for that local government.

(7) The state treasurer may make a determination that a local government has completed its local action statement or that the fiscal or operational stress in that local government has been resolved. If a determination is made by the state treasurer under this subsection, the local government in no longer in need of qualified technical assistance and is no longer subject to the local action statement.

Sec. 13. (1) The state treasurer may make a preliminary determination that a local government is in need of advanced qualified technical assistance if any of the following occur:

(a) The local government fails to develop a local action statement required under section 11.

(b) If subject to a local action statement under section 11, the local government remains in substantial noncompliance with that local action statement for more than 45 days after the state treasurer provides written notice to the chief administrative officer and the governing body of the local government regarding the substantial noncompliance.

(c) The fiscal condition of the local government, as measured by the fiscal review system, has substantially deteriorated from the date that the state treasurer made the final determination under section 11 that the local government was in need of qualified technical assistance.

(d) The local government receives ongoing qualified technical assistance from the department for up to 5 continuous years and the fiscal condition of the local government, as measured by the fiscal review system, has not substantially changed from the date the state treasurer made the final determination under section 11 that the local government was in need of qualified technical assistance.

(e) The local government requests, by resolution, a written determination by the state treasurer that the local government is in need of advanced qualified technical assistance and the state treasurer grants the request.

(2) The state treasurer may determine that the local government is in need of advanced qualified technical assistance because of fiscal or operational stress even if the local government did not have a prior determination of needing qualified technical assistance under section 11.

(3) If the state treasurer makes a preliminary determination under subsection (1) or (2) that a local government is in need of advanced qualified technical assistance, the state treasurer shall, within 45 days after the preliminary determination is made, provide written notice to the chief administrative officer and the governing body of the local government of that preliminary determination and the factors supporting the preliminary determination.

(4) Within 45 days after the notice of the preliminary determination of needing advanced qualified technical assistance is provided to the chief administrative officer and the governing body of the local government, and before a final determination is made that the local government is in need of advanced qualified technical assistance, the local government may, by resolution, submit written comments to the department concerning the preliminary determination that the local government needs advanced qualified technical assistance. The written comments to the department may include, but are not limited to, showing how the local government is addressing, in a reasonable time frame, the fiscal and operational factors that led to the preliminary determination that the local government needs advanced qualified technical assistance.

(5) If the local government fails to respond to the notice described in subsection (3) or fails to adequately show how the local government is responding to the preliminary determination of needing advanced qualified technical assistance as provided under subsection (4), the state treasurer shall make a final determination that the local government is in need of advanced qualified technical assistance and shall, within 25 days after making that final determination, provide written notice to the chief administrative officer and the governing body of that local government of the final determination and the factors supporting the final determination.

(6) If the state treasurer makes a final determination that a local government is in need of advanced qualified technical assistance, the local government shall, within 75 days after notice of the final determination is provided to the chief administrative officer and the governing body of that local government, enter into a financial improvement agreement with the state treasurer. The financial improvement agreement must be approved by the governing body of the local government and be approved by the state treasurer. The financial improvement agreement approved under this subsection must include, but not be limited to, all of the following:

(a) A summary of the conditions that led to the local government to be in need of advanced qualified technical assistance that includes, but is not limited to, referencing any of the trends, risks, and ongoing challenges local governments have in delivering critical public services as described in the report under section 7.

(b) A short-term strategic plan of action for a period not to exceed 3 years that identifies strategic goals and necessary actions required to address the need for advanced qualified technical assistance in the local government and to provide for the fiscal stability of the local government.

(c) A long-term strategic plan of action for a period that exceeds 3 years that identifies strategic goals and necessary actions required to address the need for advanced qualified technical assistance in the local government and to provide for the fiscal stability of the local government.

(d) A plan for the local government to meet the periodic reporting requirements of the department.

(e) A requirement that the governing body of the local government annually attest to substantial compliance with the financial improvement agreement or, in the alternative, make a request to amend the financial improvement agreement. The state treasurer may, in his or her sole discretion, allow or deny a local government's request to amend a financial improvement agreement.

(7) The department may provide advanced qualified technical assistance to a local government in preparing, implementing, and complying with a financial improvement agreement.

(8) The state treasurer shall monitor a local government's compliance with the financial improvement agreement by requiring the local government to file financial status reports, in a form and manner as prescribed by the department, not less than twice per year with the state treasurer. The department shall notify the local government not less than annually as to whether the local government is in compliance with the financial improvement agreement.

(9) If the requirements of the financial improvement agreement by the local government are met, or upon a written request by the chief administrative officer and the governing body of the local government, the state treasurer may make a determination that the local government has completed its financial improvement agreement or that the need for advanced qualified technical assistance in that local government has been resolved. If a determination is made by the state treasurer under this subsection, the local government is no longer subject to the financial improvement agreement and no longer in need of advanced qualified technical assistance.

Sec. 15. (1) The state treasurer may make a preliminary determination that a local government is in a potential fiscal emergency if any of the following occur:

(a) The local government is in need of advanced qualified technical assistance and is unable to prepare or agree to an approved financial improvement agreement required under section 13.

(b) The fiscal condition of the local government, as measured by the fiscal review system, has materially deteriorated from the date that the state treasurer made the final determination under section 11 that the local government was in need of qualified technical assistance, and the fiscal condition of the local government jeopardizes the local government's ability to provide necessary public services essential to the public health, safety, and welfare of that local government.

(c) The local government materially breaches a financial improvement agreement required under section 13.

(d) The local government requests, by resolution, a written determination from the state treasurer that the local government is in a potential fiscal emergency and the state treasurer grants the request.

(2) If the state treasurer makes a preliminary determination under subsection (1) that a local government is in a potential fiscal emergency, the state treasurer shall, within 45 days after the preliminary determination is made, provide written notice to the chief administrative officer and the governing body of the local government of that preliminary determination and the fiscal and operational factors supporting the preliminary determination.

(3) Within 45 days after the notice of the preliminary determination that the local government is in a potential fiscal emergency is provided to the chief administrative officer and the governing body of the local government under subsection (2), and before a final determination is made that the local government is in a potential fiscal emergency, the local government may, by resolution, submit written comments to the department concerning the preliminary determination that the local government is in a potential fiscal emergency. Before submitting written comments to the department, the governing body of the local government must hold a public hearing regarding the preliminary determination of a potential fiscal emergency in the local government. The written comments to the department may include, but not be limited to, showing how the local government is addressing, in a reasonable time frame, the fiscal and operational factors that led to the preliminary determination that the local government is in a potential fiscal emergency.

(4) In addition to subsection (1), the state treasurer may preliminarily determine that a local government is in a potential fiscal emergency even if the local government did not have a prior determination of needing qualified technical assistance under section 11 or needing advanced qualified technical assistance under section 13. Before the state treasurer makes a final determination that a local government is in a potential fiscal emergency under this subsection, and within 45 days after written notice of the preliminary determination that the local government is in a potential fiscal emergency is provided to the chief administrative officer and the governing body of the local government, the local government may, by resolution, submit written comments to the department concerning the preliminary determination of a potential fiscal emergency. Before submitting written comments to the department, the governing body of the local government must hold a public hearing regarding the preliminary determination of a potential fiscal emergency in the local government.

(5) If the local government fails to respond to the notice under subsection (2) or (4) or fails to adequately show how the local government is not in a potential fiscal emergency under subsection (3), the state treasurer shall make a final determination that the local government is in a potential fiscal emergency and shall, within 21 business days after making that final determination, provide written notice to the chief administrative officer and the governing body of that local government of the final determination and the factors supporting the final determination.

(6) If the state treasurer makes a final determination under subsection (5) that the local government is in a potential fiscal emergency, the state treasurer shall refer the local government to the community engagement advisory committee created under section 17 for that local government for monitoring and oversight.

(7) The community engagement advisory committee shall monitor and provide oversight for a local government referred to it under subsection (6) until the potential fiscal emergency is resolved. The committee may, in its discretion, make a recommendation to the state treasurer that a local government be removed from monitoring and oversight by the committee for either of the following reasons:

(a) The potential fiscal emergency in the local government is resolved.

(b) The committee finds, after reviewing and analyzing the fiscal status of the local government, that the local government should be removed from monitoring and oversight.

(8) A governing body of a local government that is determined to be in a potential fiscal emergency may request, by resolution, that the state treasurer remove the local government from monitoring and oversight by the community engagement advisory committee, and by notifying the state treasurer and the committee of that action.

(9) The state treasurer may remove a local government from monitoring and oversight by the community engagement advisory committee for any of the following reasons:

(a) The state treasurer determines that the committee's actions cannot resolve the potential fiscal emergency.

(b) Despite ongoing monitoring and oversight by the committee, the local government fails to resolve the potential fiscal emergency.

(c) The state treasurer determines in his or her sole judgment that the local government should be removed from monitoring and oversight.

(10) The department may provide to a local government that is determined to be in a potential fiscal emergency any of the technical assistance described in section 19(4) that is necessary or advisable to resolve the potential fiscal emergency or to implement the recommendations of the community engagement advisory committee for that local government.

Sec. 17. (1) The governor may create a community engagement advisory committee for each local government that is determined to be in a potential fiscal emergency to make recommendations to, and to monitor and oversee the decisions of, the local government. A community engagement advisory committee serves at the pleasure of the governor.

(2) Each committee shall consist of 6 members who have the qualifications as described in subsection (5).

(3) The 4 members of the committee appointed under this subsection shall serve on each community engagement advisory committee created by the governor, and shall be appointed as follows:

(a) Two members appointed by the governor.

(b) One member appointed by the governor from a list of 3 or more individuals nominated by the senate majority leader.

(c) One member appointed by the governor from a list of 3 or more individuals nominated by the speaker of the house of representatives.

(4) Except as otherwise provided in this subsection, the 2 members of the committee appointed under this subsection shall be appointed by the governor from a list of 4 or more individuals who are nominated by the governing body of the local government that is in the potential fiscal emergency. At least 3 of the 4 individuals nominated by the governing body of the local government must be residents of the local government that is in the potential fiscal emergency. If the governing body of the local government fails to nominate individuals as required under this subsection, the governor must appoint 2 residents of the local government who meet the qualifications under subsection (5) as members of the committee.

(5) Each member appointed under subsections (3) and (4) must have all of the following qualifications:

(a) Knowledge, skill, or experience in the field of business, finance, or local government.

(b) Knowledge, training, skill, or experience in budgeting, revenue forecasting, debt management or borrowing, actuarial science, law, local government management or financial operations, or labor relations.

(6) For the initial members appointed under subsection (3)(a), 1 member must be appointed for a term of office of 4 years and 1 member must be appointed for a term of office of 2 years. For the initial members appointed under subsections (3)(b) and (c), 1 member must be appointed for a term of office of 4 years and 1 member must be appointed for a term of office of 3 years. For the initial members appointed under subsection (4), each member must be appointed for a term of office of 3 years. After the initial terms of office, the term of office for members appointed under subsections (3) and (4) is 4 years. Each member appointed to the committee shall take and subscribe to the constitutional oath of office under section 1 of article XI of the state constitution of 1963. The oath must be filed with the secretary of state.

(7) A vacancy of an unexpired term of office for a member of a committee must be filled in the same manner as the original appointment. An individual appointed to fill a vacancy on a committee is appointed to serve the remainder of the unexpired term of office. After the expiration of the term of office, a member may continue to serve until a successor is appointed and qualified.

(8) The member appointed under subsection (3)(a) for a term of office of 4 years shall be appointed to serve as chairperson of the committee.

(9) A majority of the members of a committee constitute a quorum for the transaction of business. A committee shall meet to monitor and oversee a local government's potential fiscal emergency at times and places designated by the chairperson of the committee. Special meetings of a committee may be called by the chairperson if needed.

(10) Subject to subsections (13) and (17), each committee shall adopt bylaws for governing the committee that must, at a minimum, address the procedures for conducting meetings, including voting procedures, and the requirements for its members to attend meetings. The bylaws adopted are not subject to the administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328.

(11) Members of the committee serve without compensation, but may receive reasonable reimbursement for necessary travel and expenses incurred in the charge of their official duties.

(12) The initial and final meetings of a committee must be conducted in the local government that is in the potential fiscal emergency.

(13) A writing prepared, owned, used, in the possession of, or retained by a committee in the performance of an official function is subject to the freedom of information act, 1976 PA 442, MCL 15.231 to 15.246.

(14) A committee retains broad powers to recommend corrective actions for the purpose of addressing the potential fiscal emergency in the local government including, but not limited to, all of the following:

(a) Reviewing and providing recommendations on adopting all or parts of a budget or budget adjustments.

(b) Reviewing and providing contract recommendations, if the contract at issue involves a value of $25,000.00 or more or if the contract at issue involves 5% or more of the local government's budget.

(c) Reviewing and providing recommendations on employee labor agreements, pay increases for appointed or elected officials, and benefit changes for appointed and elected officials.

(d) Reviewing and providing recommendations on issuing debt by the local government.

(e) Appointing, at no cost to the local government, a community coordinator for the local government whose duties include, but are not limited to, all of the following:

(i) Assisting the local government in planning for and implementing budget adjustments.

(ii) Engaging budget experts in planning for and implementing budget adjustments.

(iii) Coordinating with state agencies for additional assistance.

(iv) Providing recommendations for policy adoption or structural changes at the state or local level that include, but are not limited to, potential improved coordination and assistance to the local government from state departments and agencies.

(f) Issuing a finding that the potential fiscal emergency cannot be resolved by the local government and the reasons for that finding.

(15) In addition to the powers provided under subsection (14), if a committee determines that entering into a financial improvement agreement with the local government under section 13 is not sufficient to address the fiscal condition in that local government, the committee may recommend and create a financial recovery agreement for the local government that includes specific corrective actions to be taken by the local government by specific dates to address the potential fiscal emergency in that local government. Within 45 days after receiving the financial recovery agreement from the committee, the governing body of the local government shall review and adopt the financial recovery agreement. If the governing body of the local government does not adopt the financial recovery agreement within 75 days after receiving the financial recovery agreement from the committee, the governing body of the local government must revise the financial recovery agreement to resolve the potential fiscal emergency. Within 45 days after receiving the revised financial recovery agreement from the governing body of the local government, the committee shall approve or reject the revised financial recovery agreement.

(16) Each community engagement advisory committee shall, on or before March 15 of each year, prepare and submit a report to the governor, the secretary of the senate, and the clerk of the house of representatives that describes the work done by the committee during the period covered by the report. The report must contain the findings and recommendations of the committee.

(17) The business of a committee must be conducted at a public meeting held in compliance with the open meetings act, 1976 PA 267, MCL 15.261 to 15.275.

Sec. 19. (1) The local government technical assistance fund is created in the department.

(2) The state treasurer may receive money or other assets from any source for deposit into the fund. The state treasurer shall direct the investment of the fund. The state treasurer shall credit to the fund interest and earnings from fund investments.

(3) Money in the fund at the close of the fiscal year shall remain in the fund and shall not lapse to the general fund.

(4) The department shall expend money in the fund to provide technical assistance and resources to local governments to implement the provisions of this act, including, but not limited to, all of the following:

(a) Providing technical support and resources for local governments that have been determined to be in need of qualified technical assistance or advanced qualified technical assistance, and for local governments determined to be in a potential fiscal emergency.

(b) Providing expertise to address critical areas in need of improvement.

(c) Developing budget and community plans to address needs.

(d) Building staff knowledge and capacity.

(e) Facilitating cooperation among state departments and agencies in support of the local government and for sharing program findings with other state departments and agencies.

(f) Assisting in compliance with statutory and regulatory requirements.

(g) Providing assistance to a local government to develop a local action statement, financial improvement agreement, or financial recovery agreement.

(h) Implementing the recommendations of a community engagement advisory committee.

(i) Providing staff support to each community engagement advisory committee.