Delegates are in line to pass legislation that would lay out how to handle what would happen if a West Virginia county were in catastrophic financial condition.
Some talk around the Capitol has focused on the possibility of major financial stresses on McDowell County, which was hit hard by flooding earlier this year. Through January, McDowell County’s unemployment rate was 8.1% compared to West Virginia’s statewide 4 percent.
HB3517 came up relatively late this legislative session, introduced last week in the House Judiciary Committee. The bill is in line for passage on Wednesday, which is a deadline for bills to advance from one legislative chamber to the other.
“We want to make sure that we have a body of statutory law that’s designed to properly protect the overall fiscal health and legal standing of the State of West Virginia in the event that one of our county’s experiences a circumstance of severe financial distress,” House Speaker Roger Hanshaw told members of Judiciary Committee.
The bill introduces a system for identifying and addressing local fiscal emergencies and gives the state Auditor authority to declare fiscal watches and emergencies.
One of the Auditor’s duties would be to determine if local governments have paid due principal and interest on their debt obligations, met financial obligations to their employees, vendors and suppliers and provided for proper financial accounting procedures, budgeting and taxing practices.
The Auditor’s office may determine that a local government’s records have not been maintained in accordance with state law and would then notify the local government, in writing, of the deficiencies and the action required to measure up. That can include a deadline and a fiscal monitoring plan.
Also, a local government may undergo a fiscal watch review to determine whether it is approaching a state of fiscal emergency.
If a fiscal emergency is declared, then a supervisory committee would be established for the local government to perform essential governmental functions.
The bill would prohibit local governments like counties, municipalities or school districts from filing for relief under federal bankruptcy laws.
“The real meat of the bill, perhaps the most important provision, is a provision that specifies that we as state-level actors in the persons of the governor and the state auditor are required to affirmatively consent to any decision by a county to attempt to enter into Chapter 9 bankruptcy,” Hanshaw, R-Clay, told delegates.
“We think that’s important because there are potential implications for other counties or even municipalities and certainly for the credit-worthiness of the State of West Virginia.”
Hanshaw explained the bill last week in the House Judiciary Committee and then discussed its reasoning Tuesday during an interview in the Capitol Rotunda.
“During the course of the law here, we’ve identified that we are in a minority of states that have no provision for how the state government responds in the event that one of its political subdivisions, specifically our counties, become insolvent,” Hanshaw, R-Clay, said in the interview.
Many other states have a well-choreographed process for assessing financial turmoil at the local level and taking steps to deal with that, Hanshaw said.
“We have no such process here and without such a process, we in the Legislature have some concern about what the implications of a county filing bankruptcy, for example, might be on the overall creditworthiness of the state of West Virginia or the other counties that are good actors, that have been keeping their fiscal house in order,” he said.
Before a local government would seek bankruptcy protection or fall under receivership, Hanshaw said, “that we have an established mechanism by which we, the state, would step in to deal with that issue.”
He did not discount the possibility that a local government could be in such financial distress that bankruptcy could be the appropriate route, but “we just want to be sure that here in West Virginia, in the event that ever happens, we the state have at minimum knowledge of it and more appropriately actually consented to it.
“I’m not saying there might never be a time when that’s the appropriate course of action, but we want to be sure that if that’s the appropriate course of action that we the state have said ‘Yes, we agree that’s the right thing to do. Otherwise, I fear that we would likely be on the hook for the consequences of that from a financial perspective.”