(a) In the event of a failure of any local government to collect and remit in full all amounts due to the department and all amounts due to others, which involve the credit or guarantee of the state, it shall be the duty of the department to notify the director of the Office of Treasury and Fiscal Services who shall withhold all funds of the state and all funds administered by the state, its agencies, boards, and instrumentalities allotted to such local government until such local government has collected and remitted in full all sums due and cured or remedied all defaults.

(b) Nothing contained in this Code section shall mandate the withholding of funds allocated to a local government which would violate contracts to which the state is a party, the requirements of federal law imposed on the state, or judgments of any court binding the state.