DLS: How Maryland Keeps Counties In (Fiscal) Line

In response to a number of municipalities nationwide falling upon fiscal distress following the Great Recession, The Maryland Department of Legislative Services (DLS) has analyzed the tools and obligations the State has in addressing fiscal challenges faced by local governments in its report, Fiscal Challenges of Local Governments In Maryland, issued this month.

From the report:

Following the Great Recession of 2007 through 2009, several cities across the country experienced financial emergencies or filed for bankruptcy, most notably in Alabama, California, Pennsylvania, and Rhode Island. One of the issues to emerge as a result of that uptick in municipal fiscal distress is what role, if any, a state should have in helping municipalities recover and regain fiscal stability.

Unlike 20 other states, Maryland law contains no statutory provisions for any State intervention practices, nor does it define local fiscal distress or authorize a local government to file for Chapter 9 bankruptcy. Maryland is one of 22 states, however, with active local fiscal monitoring responsibilities. Under Section 16-306 of the Local Government Article, each county, incorporated city and town, and taxing district is required to conduct an annual audit, and file it with DLS’ Office of Legislative Audits (OLA). OLA must perform desk audits of the annual audits submitted.

In addition to these requirements, Maryland has several laws limiting the amount and type of debt that a local government may incur.  The report’s Appendix 4 summarizes debt limitations on counties and municipalities.

DLS calls attention to a 2010 letter of advice from the Office of the Attorney General which states that the State has “no legal obligation” to assist local governments experiencing fiscal crisis. Further, a local government’s deficit generally may not be considered a State obligation.

The full report is available here. The study largely draws upon work performed nationally on the subject issue by The Pew Charitable Trusts, including the 2013 report, The State Role in Local Government Financial Distressand the 2016 report, State Strategies to Detect Local Fiscal Distress.