Budget language adopted in 2017 directs the Auditor of Public Accounts (APA), Martha S. Mavredes, to establish a work group to develop an “early warning system” for localities in fiscal distress. This system is intended to allow the state to flag certain localities determined to be in financial trouble for certain follow-up actions, including potential state intervention. Ms. Mavredes held a meeting with the workgroup on July 31 to unveil a proposed model to evaluate local fiscal stress; this tool is based on Louisiana’s Financial Assessment Model (FAM) and uses factors such as a locality’s ratio of reserves relative to its liabilities and its sufficiency of reserves relative to its General Fund revenue. APA staff ran data from localities’ Comprehensive Annual Financial Reports from Fiscal Years 2014, 2015, and 2016 through the model to generate sample scores. These scores, as well as information on the ratios used in the model, were circulated to county administrators for review this week.
As envisioned by the APA, if a locality’s FAM score fell below a certain threshold, the APA would follow up with a questionnaire that would probe certain qualitative factors affecting a locality’s financial situation, such as whether a locality was delinquent in making required contributions to the Virginia Retirement System or experienced any significant problems in collecting receivables in the current or prior fiscal year. The draft questionnaire also asks whether “external factors,” such as unfunded mandates or a change in the local economy, affected the locality’s budget. The draft questionnaire was also circulated to county administrators for review.
A challenge facing the workgroup is addressing the potential unintended consequences of encapsulating a locality’s financial situation, which may be affected by factors outside its control, in a numerical score. Members of the workgroup are in agreement that contextual information will be important in making determinations about local fiscal stress.
Counties are encouraged to review the proposed model and questionnaire to determine whether they will present an accurate picture of a locality’s financial health.
Comments on the proposed FAM model and questionnaire may be directed to VACo staff (Katie Boyle | firstname.lastname@example.org and Dean Lynch | email@example.com). In addition, VACo will be hosting a webinar with Ms. Mavredes and her staff in the near future, which will afford local representatives the opportunity to ask questions as well as offer suggestions for improvements.