NCPA - National Center for Policy Analysis

States Seek to Expand Oversight of Local Finances

February 16, 2011

States are taking new steps to expand their oversight of town and city finances to stay ahead of any brewing fiscal troubles, says the Wall Street Journal.

  • California Controller John Chiang and several state lawmakers on Tuesday unveiled bills that would give the controller more authority to audit local finances and advise troubled municipalities.
  • Meanwhile, the Michigan Treasury is sponsoring a new training program this week for potential "emergency financial managers" who would help turn around distressed cities and towns.

The moves come as other states are evaluating their procedures for monitoring local finances as some investors in the nation's $2.9 trillion municipal-bond market raise concerns about the impact of the economy on state and local finances.

Observers say municipal bankruptcies and other fiscal troubles could damage investors' perceptions of financially healthier local governments and of the states themselves, making it costlier for them to borrow money for projects like roads and bridges.  States also can find themselves on the hook when cities struggle to fund certain programs, like schools, says the Journal.

Source: Vauhini Vara and Kelly Nolan, "City Budgets Put States on Edge," Wall Street Journal, February 12, 2011.

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