Connecticut 2024 2024 Regular Session

Connecticut House Bill HB05472 Comm Sub / Analysis

Filed 04/11/2024

                     
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OLR Bill Analysis 
sHB 5472  
 
AN ACT CONCERNING MUNICIPAL FINANCE AND AUDITS.  
 
SUMMARY 
This bill makes various changes to the Municipal Accountability 
Review Board (MARB) law, including: 
1. changing the procedure for designating municipalities referred 
by the Office of Policy and Management (OPM) to the Municipal 
Finance Advisory Commission (MFAC) as tier I municipalities, 
2. modifying the criteria and procedure used for determining 
whether a municipality retains its tier designation, 
3. authorizing Municipal Restructuring Fund distributions to be 
used to pay an arbitrator selected under MARB’s existing binding 
arbitration requirements, and 
4. expanding the criteria MARB must use in determining whether 
to designate a tier III municipality as a tier IV municipality.  
The bill also amends the law on municipal audits to, among other 
things, (1) increase the maximum civil penalty the OPM secretary can 
assess a municipality, regional school district, audited agency, or 
auditor that misses the audit filing deadline and (2) allow him to assess 
the penalty by reducing state grants awarded to the entity. 
EFFECTIVE DATE: July 1, 2024 
§ 1 — DESIGNATION AS TIER I MUNICIPALITY 
The bill gives MFAC discretion to designate a municipality referred 
to it by OPM as a tier I municipality, rather than automatically 
designating these referred municipalities as tier I. Under the bill, MFAC  2024HB-05472-R000462-BA.DOCX 
 
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must base its decision on an evaluation of the municipality’s financial 
condition and practices. As under existing law, designated tier I 
municipalities must prepare and present a five-year financial plan to 
MFAC for its review and approval. 
By law, OPM must refer a municipality to MFAC if it (1) was not 
referred previously (e.g., because of evidence of unsound or irregular 
financial practices or specified deficiencies in its audit report) and (2) 
meets one of several fiscal distress criteria (e.g., if it has a negative fund 
balance, reported a fund balance percentage of less than 5% in the three 
immediately preceding fiscal years, or received a bond rating below A). 
§ 2 — CONDITIONS FOR RETAINING TIER DESIGNATION 
The bill changes the criteria for determining whether a municipality 
retains its tier designation. Under current law, a municipality in any tier 
retains its designation (regardless of any positive changes in the factors 
that led to its designation) until it meets the following four criteria in the 
fiscal years after its designation: 
1. it had no audited general fund operating deficits for two 
consecutive fiscal years; 
2. its bond rating either improved or remained unchanged since its 
most current designation; 
3. it presented, and either MFAC or MARB approved, a financial 
plan that projects a positive fund balance for the next three fiscal 
years, with a positive fund balance of at least 5% projected for the 
third fiscal year; and 
4. its audits for these three years have been completed and have no 
general fund deficit. 
The bill eliminates these requirements for tier I municipalities and 
instead requires that they retain their designation until MFAC 
unanimously votes to end it based on its evaluation of the municipality’s 
financial condition and practices.  2024HB-05472-R000462-BA.DOCX 
 
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For tier II, III, and IV municipalities, the bill authorizes MARB to 
determine whether a municipality must retain its designation, but 
allows it to do so at its own discretion or at a municipality’s request. 
MARB must do so using the current criteria described above, with the 
following changes: 
1. additionally requires that the municipality have a long-term 
bond rating from one or more rating agencies that is investment 
grade or higher, 
2. additionally requires (a) each fiscal year of the municipality’s 
approved financial plan be based on recurring revenue and 
expenses and (b) the plan exclude funding received as contract 
assistance or from the Municipal Restructuring Fund, 
3. requires the audits to report an audited fund balance for the 
municipality’s general fund of at least 5%, and 
4. additionally requires that there be no evidence that the 
municipality has engaged in unsound or irregular financial 
practices related to commonly accepted municipal finance 
standards. 
Under the bill, if MARB determines that a municipality meets these 
criteria, the OPM secretary must end the municipality’s designation or 
redesignate it to a lower tier, but not tier I. (This effectively allows 
MARB to redesignate only tier III and IV municipalities to a lower tier.) 
The secretary must do this at his discretion and considering the 
municipality’s fiscal condition and state’s best interests. Within 60 days 
after MARB’s determination, the OPM secretary must notify the 
municipality of his decision to redesignate or end the municipality’s 
designation. A municipality must keep its existing designation until it 
receives this notice. If the secretary does not provide it within the 60-
day period, the municipality’s tier designation terminates on the next 
day. 
Any tier III or IV municipality redesignated to a lower tier (1) must 
meet the statutory requirements for that tier and (2) may only ask MARB  2024HB-05472-R000462-BA.DOCX 
 
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to determine whether it should be ended after a year has passed. 
§ 3 — MUNICIPAL RESTRUCTURING FUND 
By law, the Municipal Restructuring Fund provides financial 
assistance to designated tier II, III, and IV municipalities. To receive 
assistance, an eligible municipality must submit a plan for approval to 
the OPM secretary that details the municipality’s overall restructuring 
plan, including the local actions it will take and how it will use the 
funds. 
The bill authorizes (1) the OPM secretary to distribute money from 
the Municipal Restructuring Fund to a third party on behalf of a 
designated tier II, III, or IV municipality and (2) these funds to be used 
to pay an arbitrator selected under MARB’s existing binding arbitration 
requirements. 
§ 4 — TIER IV DESIGNATION 
The bill expands the criteria MARB must use in determining whether 
to designate a tier III municipality as a tier IV municipality to include 
whether there is evidence of unsound or irregular financial practices 
related to commonly accepted municipal finance standards that MARB 
believes may materially affect the municipality’s financial condition. 
As under existing law, MARB may designate a tier III municipality 
as a tier IV municipality based on its finding that the municipality’s 
fiscal condition warrants it, based on its evaluation of specified criteria 
(e.g., the municipality’s reserve fund balance, liabilities, economic 
outlook, access to capital, and budget projections for the next five years). 
§ 5 — MUNICIPAL AUDITING ACT 
By law, municipalities, regional school districts, and other local and 
regional entities (i.e., audited entities) must have their financial 
statements and accounts audited by an independent auditor at least 
once every year and submit the audit reports to various local officials 
and the OPM secretary. (These audited entities include special taxing 
districts, municipal utilities, the Metropolitan District Commission, 
regional councils of government, and other local entities with more than  2024HB-05472-R000462-BA.DOCX 
 
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$1 million in annual revenues.) 
The bill makes the following changes to these auditing requirements: 
1. limits the amount of additional time the OPM secretary may 
grant an audited entity to file its required audit report to six 
months from the date it was due; 
2. increases, from three to five years after the filing date, the length 
of time auditors must preserve the working papers they used to 
prepare the audit and make them available to OPM for 
inspection;  
3. increases, from $10,000 to $50,000, the maximum civil penalty the 
OPM secretary can assess an entity or auditor that misses the 
filing deadline; and 
4. allows the secretary to assess the penalty as a reduction in one or 
more grants he awards to the entity, including a payment in lieu 
of taxes (PILOT) grant. 
Under current law, this civil penalty must be between $1,000 and 
$10,000. By law, unchanged by the bill, the secretary can waive the 
penalty for reasonable cause if the auditor or an official of the audited 
entity request it in writing. 
BACKGROUND 
MARB 
MARB is an 11-member board charged with providing technical, 
financial, and other assistance and oversight to municipalities 
experiencing fiscal distress. It is composed of state officials and 
members with business, labor, and municipal government expertise 
appointed by the governor or legislative leaders. Under the MARB law, 
distressed municipalities are designated as tier I, II, III, or IV, based on 
specified factors, including their fund balance, bond rating, equalized 
mill rate, and levels of state aid. The higher numbered tiers indicate 
higher levels of fiscal distress and MARB oversight.  2024HB-05472-R000462-BA.DOCX 
 
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MFAC 
MFAC is an eight-member commission that advises the OPM 
secretary about standards and practices for preparing and submitting 
audits and that works with any municipality referred to it by OPM to 
improve its fiscal condition. Its members include the secretary and 
finance experts, including four municipal executive or fiscal officers. 
COMMITTEE ACTION 
Planning and Development Committee 
Joint Favorable Substitute 
Yea 21 Nay 0 (03/22/2024)