N.C. Towns Face Insolvency As Financial Oversight Falls Short

By Andrew Dunn
Carolina Journal News Service

RALEIGH — After a decade of financial struggle, the small town of East Laurinburg in Scotland County could soon cease to exist.

It could be the start of a trend: State Treasurer Dale Folwell now warns that a growing number of North Carolina towns are at risk of insolvency.

To date, a half-dozen other small rural N.C. towns have had their financial operations taken over by the Local Government Commission due to a lack of fiscal controls.

“These aren’t revolutions; these are evolutions. These are patterns and trends that have been evolving for, in some cases, 20 years and they’re just now coming to a head,” said Folwell, who chairs the Local Government Commission as part of his role.

The Local Government Commission is made up of nine members, including the treasurer, state auditor, secretary of state, secretary of revenue. The other five members are appointed by the governor or General Assembly.

Along with a staff of about 20, the commission is responsible for overseeing more than 1,300 local governments across the state, reviewing their audited financial statements and making sure they prudently manage their finances.

Now, more than 100 towns, counties, or water and sewer districts are on the Local Government Commission’s “watch list” due to problems with financial management.

Many of them are small, rural towns. Their financial difficulties often began when a major employer closed or left town, Folwell said. As people began to leave as well, essential town services then had to be paid for by a smaller and smaller population. Costs rose, forcing more people out.

The most dramatic situation is in East Laurinburg, a former mill town with fewer than 300 residents. The town’s books now reside in Raleigh after the town failed to submit audited financial reports for the past four years. The state treasurer’s staff has spent months trying to untangle things.

Last week, the Local Government Commission determined the town was “no longer viable” and unanimously voted to recommend its charter be suspended. It was the first such vote in the commission’s history.

East Laurinburg’s fate now moves to the General Assembly, which would need to pass a law to de-incorporate it.

But it’s far from alone.

The towns of Pikeville, Robersonville, Eureka, Kingstown and Bethel, as well as the Clilffside Sanitary District, have all been essentially brought under the financial management of the Local Government Commission.

The reasons each town is in financial hot water are different. Some have to do with poor governance, others a lack of financial audits.

In Eureka, for example, there’s a disconnect between what the town charges its residents for sewage versus the amount it pays a neighboring town to process it.

Larger towns aren’t exempt from trouble, though. The towns of Goldsboro and Wilkesboro have also run into difficulty; they’ve failed to turn in an audit over the past two years, Folwell said.

Folwell said the Local Government Commission will likely give towns a shorter leash moving forward, simply because the small staff doesn’t have the resources to manage finances for the growing number of municipalities facing insolvency.

But bringing in the Local Government Commission doesn’t have to be a death sentence. Folwell pointed to the town of Ahoskie in Hertford County as a success story.

The town racked up $21 million in debt in the early 2000s, hoping to revitalize its infrastructure with a new police station, fire station and newly repaved streets. By 2017, though, the Town Council realized it would have trouble paying down the debt, already having been forced to shuffle money around to cover payments.

With the help of the commission, Ahoskie and its new town manager outsourced some services, reduced staff, and even moved from collared uniforms to T-shirts for some workers. The last item netting more than $7,000 in savings.

Last month, Ahoskie was able to refinance its debt to a shorter loan term — putting the town’s finances on a path to stability.