When a local government or Ohio school system encounters budgetary problems, it may be placed in fiscal caution, fiscal watch, or fiscal emergency status.
Fiscal distress is a legislative mechanism used to identify financial problems as soon as possible and provide assistance to entities in need.
Ohio’s fiscal distress system was created in 1979 when the original municipal fiscal emergency law was enacted as a response to a financial crisis in the city of Cleveland. Since that time, financial planning and supervision commissions have aided over 50 Ohio local governments declared to be in fiscal emergency.
In 1996, fiscal emergency protection was extended to counties and townships through a legislative change. House Bill 462 modified the fiscal emergency statute to create the "fiscal watch" status to provide early warning to faltering entities whose finances are approaching emergency status.
In 2011, House Bill 153 further modified the fiscal emergency statute to create the “fiscal caution” designation to identify fiscal practices and budgetary conditions that, if not corrected, could result in a declaration of fiscal watch or fiscal emergency.