Magazine article Government Finance Review

"Avoiding Local Government Financial Crisis: The Role of State Oversight"

Magazine article Government Finance Review

"Avoiding Local Government Financial Crisis: The Role of State Oversight"

Article excerpt

The Citizens Research Council of Michigan

CRC Memorandum, July 2000.

State government has five basic options when designing fiscal relief policy for its local-level counterparts. Four of these are not only reactive in nature, but are potentially harmful to taxpayers: 1) to not intervene at all should a local unit require help, 2) to dissolve a failing local unit altogether, 3) to appropriate a short term financial bailout, or 4) to provide auxiliary technical or policy guidance. The remaining option, 5), is for state governments to shoulder the preventative costs of monitoring local fiscal policy on a continuous basis. The authors champion this final approach, asserting that units recovering from fiscal distress do clearly merit state-level involvement. While "home rule" has been written into Michigan law for years, the Citizens Research Council (CRC) does feel that state governments have historically enjoyed "an implied supervisory relationship" with local boards. In this spirit, the organization has drafted eight oversight recommendations for Michigan's budget office that co uld be applied in many other states, as well: 1) transfer functions such as highway maintenance and court operations to state control because they are state-funded, 2) assign monitoring responsibility to the Bureau of Local Government in the Michigan Department of Treasury, 3) include municipal leaders in the establishment of an oversight body responsible for monitoring the Bureau of Local Government's monitoring efforts, 4) establish an institutional program to develop a local government cadre with financial expertise, 5) monitor adherence to existing economic, fiscal, and debt management policies more closely, 6) create a flexible system of fiscal benchmarking, 7) adopt a "triage strategy" to single out poor fiscal performers for accelerated levels of monitoring, and 8) look for opportunities to consolidate local governmental efforts, creating economies of scale in the process. …

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