Now Jimmy, why can’t you be more like North Carolina?

Last week (the week begining April 21) Standard & Poor's rating agency released a report lauding North Carolina as a shining example of financial prudence as part of the organization's explanation for its AAA rating for the state. Other reasons include the Tar Heel State’s diverse economy, which continues to expand in the wake of a sharp decline during the last recession. The state has a “long history” of good financial management, Standard & Poor's credit analyst Sussan Corson said in her report (available to subscribers).

North Carolina is the most assertive state in the country when it comes to keeping watch over local governments. The state learned the hard way: during the Great Depression, more than 400 local governments and public authorities in North Carolina defaulted on debt. So the state created a Local Government Commission (LGC) to sign off on all local debt issuance. Today it still monitors local property tax intake and will not allow localities to issue debt if fund balances drop below 8 percent of expenditures. "In our view,” says Corson, “North Carolina consistently has had well-defined financial management policies and a commitment to reserves despite budget challenges.”

Lean on me

New York State Comptroller Thomas DiNapoli has a legislative proposal aimed at helping local governments improve long-term budget planning. The bill would provide reimbursement for all or part of the cost for municipalities to hire financial advisors to help develop multi-year budget plans. (The exact reimbursement cap isn't clear but the state's Financial Restructuring Board has separately said it will offer loans or grants of up to $5 million to distressed governments.) The reimbursement isn’t available to every local government – just the 45 identified as fiscally distressed by the comptroller’s Fiscal Stress Monitoring System.

“Long-term budget planning is vital to the fiscal health of our localities,” said a press release quoting DiNapoli. “The tax cap and our state’s continued slow economic recovery underscore the need for accurate, balanced budgets reflecting realistic multi-year financial plans. State policymakers must continue to do their part to help localities find and implement real, lasting solutions.”

And then there's Illinois

Fitch is joining the chorus of warnings to Illinois that its A-level credit rating is in jeopardy unless it finds some more sustainable fixes to its precarious budget situation. Earlier this month, S&P issued a report detailing why Illinois has serious financial problems. Fitch Ratings Agency now says Illinois’ maintenance of its A- rating “will require timely action” before the state’s temporary tax increases expire at the end of this fiscal year. The governor's recommended budget for the coming fiscal year would make the tax increases permanent and “provide a basis for the state to achieve fiscal balance,” Fitch says. “Deterioration in the state's financial position, as evidenced by excessive use of non-recurring revenues or additional payment deferrals, would likely lead to a downgrade.”

Uncle Sam and you

The U.S. Treasury is reportedly opening up a new office to focus on state and local finance issues. First reported this month by the Wall Street Journal, the office is to be headed up by a J.P. Morgan Chase veteran and will track state and local pensions and infrastructure financing, among other issues. The office, which is slated to open in May, won’t have the same enforcement authority that the Securities and Exchange Commission does. This new office marks the second high-level federal office focusing on state and local governments since the end of the recession. In 2012, the SEC opened its Office of Municipal Securities to more closely monitor the municipal market.