The New York State Budget Division and the state comptroller's office are developing two different strategies to increase the oversight of local government in fiscal distress, said sources familiar with both proposals.

While the state Budget Division is advocating almost immediate fiscal oversight of municipalities facing budget problems, state Comptroller Edward V. Regan's office would give the local government more time to deal with its fiscal problems before implementing regulations, documents describing both plans reveal.

The need for a process to address the fiscal problems of municipalities across the state emerged during the past legislative session when a total of 10 local governments asked state lawmakers to approve plans to sell deficit bonds.

No formal process exists to identify and regulate local governments facing budget problems.

State officials fear at least as many municipalities will request deficit financing during the upcoming legislative session, which begins Jan. 1.

At the moment, officials at both the comptroller's office and the Budget Division agree that more oversight is needed too stem the tide of fiscal distress among municipal governments in the state.

In July, the comptroller's office announced a five-step plan keyed to the severity of a municipality's fiscal distress. In the months that followed, the Budget Division published a draft document outlining an oversight process for fiscally troubled towns, cities, and counties in the state.

The state Assembly is also considering proposed legislation for fiscal oversight, a spokesman said, but details are not available.

Officials from all three camps say the Legislature will likely adopt some type of oversight during the next session. But sources with knowledge of the legislative efforts said a debate has emerged over the degree of state-mandated oversight on fiscally troubled municipalities.

The sources said the budget division and the state comptroller's office disagree over one key issue: At what point should any increase in oversight and regulation take place?

The plans advocated by the comptroller's office and the Budget Division each call for a five-step process, beginning with increased state oversight over the municipality with a budget deficit.

Each plan also established a state financial control board that would take over the municipalities' finances in the case of severe budget problems, such as the inability to sell debt in the municipal bond market.

However, the Budget Division is proposing the creation of a local advisory board for all municipalities requesting deficit-financing legislation, according to documents obtained by The Bond Buyer.

Claudia Hutton, a spokeswoman for the state budget division, declined to comment directly on the Budget Division's plan because she said it has not yet been finalized.

Documents show, however, that the advisory board would have the ability to veto a local government's budget if, for example, if falls out of line with revenue projections.

But the plan advocated by the comptroller's office would force a municipality to established this panel only after a "prior history of fiscal distress" and if the local government has already sold deficit bonds.

The comptroller's office would delay the implementation of a local advisory board because the need for deficit financing is also related to factors that the municipality has no control over, such as increasing state mandates, said Cynthia Munk, a spokeswoman for Regan. She added that the board would comprise representatives from the comptroller's office, the governor's office, and the municipality.

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