Bankruptcies, defaults, and other local government financial emergencies Page: 31
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Freeport-September 1980 (population 525). This
tiny village had net overdue general fund accounts payable
of $4,004 on December 31, 1979, compared to total
1979 general fund receipts of $18,888. It thus failed test
4. However, because of its very small size, it was considered
uneconomical to establish a state financial planning
and supervision commission. Instead, the state
auditor worked directly with local officials after the
emergency was declared.
Ironton-December 1980 (population 14,290). Ironton
failed test 5 with net fund deficits of $457,331, an
amount equal to 14% of total 1979 receipts in the deficit
funds. It failed test 6 with actual cash of only $34,151,
compared to fund balances of $548,105. Moreover, the
$34,151 cash on hand understates the problem because
the city had short-term bond anticipation notes outstanding
of $3.4 million on December 31, 1979. Thus,
that jurisdiction could have been faced with a much
more serious cash problem, if it could not issue bonds to
repay the notes or renew the notes when they came due
in December 1980. In fact, the city was briefly in default
on $2 million of these notes on December 15,1980, until
the bank agreed to renew them; Ironton also defaulted
on $966,000 payable to another bank. This latter bank
did not renew the notes but it did not officially declare
them in default either. The note defaults occurred after
the state auditor's review and thus did not technically
constitute a failure of test 1.
The city also did not meet its December 1980, payroll
until six weeks after it was due, but at the time of the
auditor's review it was not 30 days past due and, therefore,
its delay in meeting the payroll did not constitute a
legal failure to meet test 2.
Lincoln Heights-December 1981 (population 5,300).
The city failed test 4 with overdue general fund accounts
payable of $46,875, an amount equal to 9% of 1980 receipts
and slightly in excess of the one-twelfth allowed.
The city failed test 5 with net fund deficits of $66,901 or
a little under 10% of combined deficit funds' receipts of
$700,731 for 1980.
East Liverpool-February 1982 (population 16,687).
East Liverpool failed test 4, with net overdue payables in
its general fund on December 31, 1981, of $293,002, an
amount equal to 16% of its 1981 general fund receipts.
The city did not officially fail the test 6 cash measure
because the law does not require notes outstanding to be
deducted from cash. However, on December 31, 1981,
the city had total cash of $224,324, with notes of
$308,022. The difference is a negative net cash balance
of $83,698, compared to book balances of $256,593 and,
on this basis, would have constituted a failure to meet
Manchester-August 1983 (estimated population
2,300). Manchester failed test 4 with overdue net payables
on December 31, 1982, in both the general fund
and all funds that were equal to 13% and 14% of the
respective 1982 receipts. It failed test 5 with net fund
deficits of $48,000 or 27% of total deficit funds receipts.
Summary of Tests Used
The results of the applications of the fiscal emergency
tests to the ten local governments declared to have financial
emergencies shows that test 5, the measure of fund
deficits relative to receipts was failed by eight of the ten
governments (see Table 2). In contrast, no governments
failed the technical test 3. Only one government (Ironton)
failed to meet its payroll for 30 days (test 2) and that
failure occurred after the government had already been
declared in a fiscal emergency.
OHIO LOCAL GOVERNMENT
1 2 3 4
3 1 0 6 8 6
Did not officially fail the tests as determined by state auditor,
but probably did unofficially.
_ _ _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Evaluation of Ohio Experience
The Ohio law can be evaluated by considering whether
it properly detected financial emergencies before they
caused serious adverse consequences to the government
and its citizens and whether the corrective measures
resulting from the state action were successful.
The correct timing of the declaration of a financial
emergency is important for two reasons. If the emergency
is declared too soon, it may unnecessarily involve the
state in local finances, and actually delay or impede
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United States. Advisory Commission on Intergovernmental Relations. Bankruptcies, defaults, and other local government financial emergencies, book, March 1985; Washington, D.C.. (digital.library.unt.edu/ark:/67531/metadc1317/m1/41/: accessed January 22, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.