2003 -- H 5745 SUBSTITUTE A
A N A C T
RELATING TO INDEBTEDNESS OF TOWNS AND CITIES -- MUNICIPAL DEFICITS
Introduced By: Representatives Fox, Sherlock, Crowley, Costantino, and Lewiss
Date Introduced: February 11, 2003
It is enacted by the General Assembly as follows:
SECTION 1. Section 45-12-22 of the General Laws in Chapter 45-12 entitled
"Indebtedness of Towns and Cities" is hereby repealed.
Accumulated deficits. -- (a) Any town or city which has an
accumulated general fund deficit at the end
of its fiscal year ending in 1979 or which has subsequently accumulated a deficit, within
two (2) successive fiscal years subsequent to its 1979 fiscal year, which exceeds an amount equal to
two percent (2%) of its most recent tax levy, shall make appropriations, as provided in
this section, to reduce the deficit to two percent (2%) of its tax levy. In the calculation of an
accumulated general fund deficit, any accumulated deficit of the school special revenue fund
shall be included.
(b) Accumulated general fund deficit at the end of the fiscal year ending in
1979, which is in excess of two percent (2%)
of its tax levy for that year: Any city or town with this deficit shall adopt, before the close of
its fiscal year ending in 1980, a plan of annual appropriations, to be approved by the auditor
general, to eliminate the amount of the deficit that exceeds two percent (2%) of its tax levy in
its most recent fiscal year.
(c) General fund deficits accumulated subsequent to the fiscal year ending in
(1) Any city or town, which has a general fund balance at the end of its fiscal
year ending in 1979, and subsequently
in a period of two (2) successive fiscal years, has accumulated a general fund deficit in excess
of two percent (2%) of its tax levy for the most recent fiscal year, shall provide sufficient funds,
by annual appropriation during a five (5) year period beginning with the second subsequent
fiscal year, following the two (2) successive years of deficits mentioned in this subsection, to
eliminate that portion of the deficit which is in excess of two percent (2%) of its most recent
tax levy. The annual appropriations may be equal or diminishing amounts during the five (5) year
(2) Any city or town, which has a general fund deficit of less than two percent
(2%) of its tax levy at the end of its
fiscal year ending in 1979 and subsequently has accumulated a deficit that exceeds two percent (2%) of
its most recent tax levy at the end of a period of two (2) successive years subsequent to
its fiscal year ending in 1979, shall provide sufficient funds by annual appropriations to
eliminate the excess in a manner similar to that provided in subsection (c) (1). (d)
In the event that the planned reductions, as provided for in subsections (b)
and (c), are not realized in any one
year, appropriation for the reductions shall be provided cumulatively in the next annual budget of the
town or city. In determining the accumulated deficit, the accounting principles to be used
shall be in accordance with section 45-10-5.1.
SECTION 2. Chapter 45-12 of the General Laws entitled "Indebtedness of Towns and
Cities" is hereby amended by adding thereto the following sections:
45-12-22.1. Municipal deficits -- Purpose. -- The purpose of sections 45-12-22.1
through 45-12-22.5 are to ensure that municipalities and school districts monitor financial
operations on an ongoing basis, execute a rapid response to budget problems, and maintain a
balanced budget in compliance with section 44-35-10. It is the intent of the legislature to require
that municipalities and school districts:
(1) prevent year-end deficits;
(2) immediately address potential deficits;
(3) immediately address actual year-end deficits; and
(4) stabilize municipal and school district finances.
45-12-22.2. Monitoring of financial operations -- Corrective action. -- (a) The chief
financial officer of each municipality and each school district within the state shall continuously
monitor their financial operations by tracking actual versus budgeted revenue and expense.
(b) The chief financial officer of the municipality shall submit a report on a monthly basis
to the municipality's chief executive officer, each member of the city or town council, and school
district committee certifying the status of the municipal budget including the school department
budget or regional school district. The chief financial officer of the municipality shall also submit
a report on a quarterly basis to the state office of municipal affairs certifying the status of the
municipal budget. The chief financial officer of the school department or school district shall
certify the status of the school district's budget and shall assist in the preparation of these reports.
The monthly and quarterly reports shall be in a format prescribed by the state office of municipal
affairs and the state auditor general. The reports shall contain a statement as to whether any actual
or projected shortfalls in budget line items are expected to result in a year-end deficit, the
projected impact on year-end financial results including all accruals and encumbrances, and how
the municipality and school district plans to address any such shortfalls.
(c) If any reports required under this section project a year-end deficit, the chief financial
officer of the municipality shall submit to the state office of municipal affairs a corrective action
plan no later than thirty (30) days after completion of the monthly budget analysis referred to in
subsection (b) above, which provides for the avoidance of a year-end deficit. The plan may
include recommendations as to whether an increase in property taxes and/or spending cuts should
be adopted to eliminate the deficit. The plan shall include a legal opinion by municipal counsel
that the proposed actions under the plan are permissible under federal, state, and local law. The
state office of municipal affairs may rely on the written representations made by the municipality
in the plan and will not be required to perform an audit.
(d) If the state office of municipal affairs concludes the plan required hereunder is
insufficient and/or fails to adequately address the financial condition of the municipality, the state
office of municipal affairs can elect to pursue the remedies identified in section 45-12-22.7.
(e) The reports required shall include the financial operations of any departments or funds
of municipal government including the school department or the regional school district,
notwithstanding the status of the entity as a separate legal body. This provision does not eliminate
the additional requirements placed on local and regional school districts by section 16-2-9
subsection (f) and section 16-3-11 subsection (e)(3).
45-12-22.3. Year-end deficits. -- (a) If, at the end of any fiscal year, the chief financial
official determines, based on available data, that it is likely the city or town's general fund or
combined general fund and unrestricted school special revenue fund will incur a deficit, the
municipality must immediately develop a plan to eliminate the deficit. The plan shall provide for
the elimination of the accumulated year-end deficit by annual appropriation, over no more than
five (5) years, in equal or diminishing amounts. The plan shall indicate the necessary
governmental approvals and procedures required, and shall include a legal opinion by municipal
counsel that the proposed action is permissible under federal, state, and local law.
(b) The plan to eliminate the year-end deficit shall be submitted to the state auditor
general for approval. The state auditor general shall determine whether the plan reasonably
insures elimination of the accumulated deficit in accordance with the law in a fiscally responsible
manner. The state auditor general may rely on the written representations made by the
municipality in the plan and will not be required to perform an audit. The judgment of the state
auditor general in applying this standard shall be conclusive.
(c) If the state auditor general determines the plan is insufficient and/or fails to
adequately address the financial condition of the municipality, or if a plan is not submitted, then
in such event, the state auditor general can petition the superior court for mandatory injunctive
relief seeking to compel the municipality to submit a plan as required hereunder. The state auditor
general shall also have standing to pursue the appropriate remedies identified in section 45-12-
45-12-22.4. Deficit financing -- Approval required. -- No municipality shall sell a long-
term bond in order to fund a deficit without prior approval by the state auditor general and
director of the state department of administration.
45-12-22.5. Unbudgeted expenditures. – A municipality shall not incur expenditures
nor obligate the municipality to expend unbudgeted amounts in excess of one hundred thousand
dollars ($100,000) without first notifying the city or town council of such proposed expenditure
and identifying the source of funding. Further, a school committee or school department shall not
incur accumulated unbudgeted expenditures or obligations in excess of one hundred thousand
dollars ($100,000) without first notifying the chief financial officer of the municipality as to the
proposed expenditure and identifying the source of funding. The financial officer shall include
any such proposed expenditure in the monthly report required in section 45-12-22.2.
45-12-22.6. Cooperation of school committees. – School committees, boards, or
regional school districts that are independent governmental entities within a municipality shall
cooperate in providing to the chief financial officer all information needed to formulate the
reports and the deficit elimination plan required under this chapter. The auditor general or the
state director of administration may petition the superior court to order the school committee or
board to cooperate with the municipality and provide all information requested by the chief
financial officer needed to formulate a plan hereunder. The director of administration may also
direct the state controller and general treasurer to withhold state aid to the school committee until
the school committee or board cooperates in the formulation of a plan.
45-12-22.7. Enforcement and remedies. -- In the event that a municipality does not
comply with the requirements of this law the state auditor general or state office of municipal
affairs through the director of administration may elect any or all of the following remedies:
(1) Petition the superior court for mandatory injunctive relief seeking compliance with
the provisions of this section. The superior court shall make a finding of fact as to whether there
has been compliance with the provisions of this section. As hereinbefore stated, the approval or
disapproval of a plan shall be conclusive upon the court in making its finding as to compliance.
(2) In the event a municipality fails to provide a year-end deficit elimination plan under
section 45-12-22.3, such noncompliance shall allow for the implementation of a financial review
commission pursuant to section 45-9-3.
(3) Withholding of state aid. In the event that the state director of administration with the
concurrence of the auditor general elect to withhold state aid, said amounts shall be placed in a
special account within the general fund. At such time as the municipality comes into compliance
with the reporting requirements of this section, said funds shall be released to the municipality by
order of the state director of administration and state auditor general.
SECTION 3. This act shall take effect upon passage.