Michigan s Fiscal Scores and P.A. 72 of 1990 MCL 141.1211 What they mean to you.

1. 1 Michigan�s Fiscal Scores andP.A. 72 of 1990 (MCL 141.1211) What they mean to you. By Val Washington Deputy State Treasurer for Local Government Services Michigan Department of Treasury November 12, 2009

2. 2 Why do we have Fiscal Scores? Current law limits Treasury�s ability to have a formal intervention to those triggers set forth in P.A. 72 of 1990. Informally: Treasury has set up a Local Unit Fiscal Forecasting Estimator. Treasury has set up a Rapid Response Team. Treasury has interviewed, and vetted Local Unit Financial Advisors (LUFAs)

3. 3 What do Local Unit Fiscal Scores actually do? They measure fiscal indicators at a point in time. They are not predictors of future financial conditions. Other indicators may be needed to give a complete fiscal view of a local unit. Examples of other indicators � loss of a major taxpayer, litigation, employee benefits, millage capacity, etc.

4. 4 How were the scoring parameters selected by Treasury? The Institute for Public Policy and Social Research at Michigan State University was asked to: Analyze current fiscal indicators in laws. As a part of their study, they were then asked to propose more effective fiscal indicators, which they did. To view their actual study click this link.

5. 5 What is the purpose of the Fiscal Scores? To provide an objective process and methods that can be: Applied to all local units of government. Measured in terms of objective data points. Used to calculate a unique fiscal score for each local unit of government. Viewed as, measurable, straightforward information on the fiscal health of local units.

6. 6 How is scoring conducted? Nine key factors are analyzed: 1. Population growth 2. Real taxable value growth 3. Large real taxable value decrease 4. General fund expenditures as a percent of taxable value 5. General fund operating deficits 6. Prior general fund operating deficits

7. 7 The Nine factors - Continued 7. Size of general fund balance 8. Fund deficits in current or previous year 9. General long-term debt as a percent of taxable value

8. 8 Origin of the numbers Population Growth � U.S. Census Real Taxable Value � Assessing Officers Reports Local Unit Annual or Biennial Audit produces: General Fund Balance Fund Deficit General Long Term Debt

9. 9 Fiscal Scoring Examples

10. 10 Calculating The General Fund Operating Deficit for a Local Unit Subtract the general fund yearly revenues from general fund yearly expenditures. That number is then divided by the general fund yearly revenue. If the resulting number is less than .01 this indicates a nontrivial operating deficit and a score of 1 is given. If there is no deficit or the deficit is trivial a score of 0 is given.

11. 11 Determining Prior Year General Fund Operating Deficits There is a review of the previous two years to determine if the unit had an operating deficit during that time. A score of 1 is given to the unit for each year that it had an operating deficit. If there was no deficit the score of 0 is given

12. 12 Calculating The Size of The General Fund Balance The general fund balance is measured as a proportion of general fund revenue. If a unit maintains a general fund balance less than 13 percent of its general fund revenue a score of 1 is given. If a unit has a general fund balance above 13 percent of its general fund revenue a score of 0 is given.

13. 13 What does fiscal scoring mean to my local unit? A score of 0 to 4 � Fiscally Neutral � Appropriate financial management A score of 5 � 7 �Watch List � the unit should exercise care and develop a financial strategy to return to a neutral score. A score of 8 - 10 - Poor Financial Condition � immediate corrective action is needed and may need assistance or guidance from Treasury. For more detail use this link to access our web page.

14. 14 Once the scoring is completed, what next? Treasury seeks your input A letter is sent to financial officials and the administrative arm of the unit along with their score seeking their input on the score. There is a 60 day period for the unit to give Treasury their input on their score.

15. 15 At the end of 60 days � then what? The final fiscal indicator score is sent to several local officials for the local unit for distribution to other local officials. As local distribution is being made the final fiscal indicator score is posted on the Michigan Department of Treasury Web Site.

16. 16 Why are the fiscal indicator scores published on Treasury�s web site? Michigan�s history - open government. Michigan citizens have a right to know the fiscal health of their local units. Web site publication is the most cost-effective way to inform the public. Similar to the district report cards given to all Michigan school districts.

17. 17 P.A. 72 of 1990Local Government Financial Responsibility ActMCL 141.1211 What it is? - What it isn�t.

18. 18 P.A. 72 isn�t a receivership A Receivership is usually when a business entity is ordered liquidated or there is a special reason that an authority (Judicial, OIFIS) has chosen to place them under the control of a Receiver.

19. 19 Isn�t a Receivership what P.A. 72 does with the Emergency Financial Manager? � Answer - NO, P.A. 72 is administered by the Executive Branch of Michigan State Government. P.A. 72 applies to both Local Units of Government and School Districts P.A. 72 when it is invoked does not always end up with an Emergency Financial Manager being appointed � A Consent Agreement may be entered into, as we initially did in Pontiac.

20. 20 There are 14 specific triggers to invoke P.A. 72 The 14 triggers are found at MCL 141.1212 (section 12) and can be accessed by clicking on the following link.

21. 21 14 Triggers under P.A. 72 of 1990 Summary 1 Local Unit Requests it 2 Creditors� Request 3 Elector Petition 4 Pension Request 5 Employees Unpaid for 7 days 6 Debt Default 7 Legislative Resolution 8 Violation of Bond Law 9 Municipal Loan Act Violation 10Violation of Budget Law Sections 17 � 20 11Failure to File a DEP 12Failure to File CAFR 13Delinquent Tax Distributions 14Court Levy

22. 22 After Triggers what�s Next? �the state treasurer shall give the local government specific written notification of the review, and the state treasurer shall meet with the local government. At this meeting, the state treasurer shall receive, discuss, and consider information provided by the local government concerning the existence of and seriousness of financial conditions within the local government.

23. 23 After the meeting what�s next? When the state treasurer conducts a preliminary review under this section, he or she shall inform the governor within 30 days after beginning the preliminary review whether or not his or her investigation has determined that a serious financial problem may exist because 1 or more conditions indicative of a serious financial problem exist within the local government.

24. 24 The Review Team The statutory language regarding the appointment, of the Review Team under MCL 141.1213 (Section 13) can be found by clicking the following link.

25. 25 Powers and Duties of the Review Team The statutory language regarding the powers and duties of the Review Team under MCL 141.1214 (Section 14) can be found by clicking the following link.

26. 26 Governor�s Next Steps The steps that the Governor must take after receiving the Review Team�s Report under MCL 141.1215 (Section 15) can be accessed by clicking on the following link.

27. 27 Consent Agreement Breach The consequences to a local unit under MCL 141.1216 (Section 16) for breaching the terms of a Consent Agreement signed with the Emergency Loan Assistance Board are set forth in the following link.

28. 28 Local Unit Appeal of Governor�s Decision An appeal by a local unit of the Governor�s decision under the two preceding sections as set forth in MCL 141.1217 (Section 17) may be accessed by clicking the following link.

29. 29 Appointment of the Emergency Financial Manager (EFM) The process of appointing an Emergency Financial Manager under MCL 141.1218 (Section 18) and the EFM selection criteria may be accessed by clicking the following link.

30. 30 Orders of the EFM The Orders that the EFM may issue to carry out the terms of his or her appointment under MCL 141.1219 (Section 19) may be accessed by clicking on the following link.

31. 31 Written Financial Plan The details of the written financial plan that the EFM must draft under MCL 141.1220 (Section 20) may be accessed by clicking the following link.

32. 32 Authorized Actions of the EFM The authority of the EFM under MCL 141.1221 (Section 21) may be accessed by clicking the following link.

33. 33 Chapter 9 The process by which an EFM would take a local unit of government into Chapter 9 of the U.S. Bankruptcy Code under MCL 141.1222 (Section 22) may be accessed by clicking the following link.

34. 34 Local Elected Officials Failure to Help The manner in which local elected officials may be treated for their failure to help during the time of a financial emergency under MCL 141.1224 (Section 24) may be accessed by clicking on the following link.

35. 35 Revoking the Emergency The process by which the Governor revokes/ends the financial emergency under MCL 141.1225 (Section 25) may be accessed by clicking on the following link.

36. 36 Taxation Powers of EFM The details of the EFM�s ability to impose taxes on the local unit under MCL 141.1226 (Section 26) may be accessed by clicking on the following link.

37. 37 P.A. 72 Frequently Asked Questions Q Who Appoints EFM? A. The Emergency Loan Board. (ELB) Q Must EFM be a resident of the unit? A. No. Q Who pays the EFM? A. The Local Unit pays the EFM, but the ELB sets the rate of pay and approves expenses. Q Can the EFM hire staff? A. Yes, subject to the approval of the ELB.

38. 38 P.A. 72 Frequently Asked Questions Can the EFM direct existing staff? Yes, under MCL 141.1219 Must the public approve the EFM written financial plan? No, the plan is written after seeking input, not approval � MCL 141.1220(1 � 4) Can the EFM change CBA without further negotiations? A. No, the EFM may renegotiate CBAs not void them. MCL 141.1221(h)

39. 39 P.A. 72 Frequently Asked Questions Can the EFM amend the budget without approval of the Mayor or City Council? Yes, under MCL 141.1221(b) Can the EFM issue, approve, or disapprove a loan for the local unit? Yes, under MCL 141.1221(f) Can the EFM apply for a loan? A. Yes, under MCL 141.1221(m)

40. 40 P.A. 72 Frequently Asked Questions Can the EFM eliminate a department or transfer functions of one department to another, or eliminate positions? Yes, under MCL 141. 1221 (i) Can the EFM enter into contracts with other local units for services? Yes, under MCL 141. 1221 (o) Can the EFM reduce the pay of the Mayor and City Council? A. Yes, under MCL 141.1221 (i)

41. 41 P.A. 72 Frequently Asked Questions Can the EFM sell unit assets? Yes, under MCL 141.1221 (l) Can the EFM review the pay of employees? Yes, under MCL 141.1221 (g) Can the EFM not pay employees for time that they have worked? A. Not permanently, but may prioritize payments for the local unit.

42. 42 P.A. 72 Frequently Asked Questions Can the EFM implement employee layoffs? Yes, under existing CBAs under MCL 141.1221 (h) Can the EFM issue new taxes? A. No, the EFM can not issue new taxes without a vote of the electors of the local unit under MCL 141.1226

43. 43 P.A. 72 Frequently Asked Questions How does the EFM take a local unit under chapter 9 of the U.S. Bankruptcy Code? 1.Notice to the ELB that is approved by the ELB. 2. The Written Financial Plan of the EFM must have been in place for 180 continuous days before the notice is sent and the ELB must be convinced that there are no other options under MCL 141.1222.

44. 44 Are there any further questions?Contact Information:Val WashingtonMichigan Department of TreasuryPhone: 517.373.8562 Fax: 517.373.0633E-Mail: washingtonv1@michigan.gov