Towns in trouble

Published October 22, 2020

By Tom Campbell

In the “Roaring Twenties” times were good for many and there was optimism for the future. Then, like the flipping of a light switch, everything changed on October 29, 1929. The stock market crashed. Quickly businesses were closed, fortunes wiped out, unemployment soared and the mood turned to despair.
In North Carolina, many cities and towns, convinced their future was bright, had borrowed heavily - some irresponsibly - to build new buildings, expand utilities systems and improve infrastructure. They never envisioned being unable to make the payments on the large debts, but in just months that’s what happened. By 1933, the picture in our state was grim. 62 counties, 152 cities and towns and some 200 special districts were in default on the principal, interest or both.
When Asheville declared bankruptcy, alarm spread across the state. North Carolina, already severely impacted by the loss of tax revenues, would suffer. Municipal governments are the creation of and are responsible to the state, so unpaid debts would reflect on the financial condition of state government. And when the state attempted to borrow money lenders would hike up interest rates based on these financial woes.
To help these local governments work through their debts and ensure this situation didn’t happen again the state created the Local Government Commission. The LGC provides financial oversight assistance to some 1,300 local units that must provide financial audits each year. It approves their borrowings and even helps them sell their bonds.  Housed in the State Treasurer’s office, the LGC can, in extreme circumstances take over the financial management of a local unit.
While not so desperate as The Great Depression, many local units are currently facing severe financial problems. State Treasurer Dale Folwell recently reported there are 200 entities on the “unit assistance list,” meaning their financial status is of concern.
Some of these units have been severely impacted by the coronavirus. Cares Act relief money was so little and came with so many restrictions that it didn’t help much. Relief from the federal and/or state government without red tape would help greatly. Adding to their financial strain were large numbers of municipal utilities customers, unable to pay their bills, who were given a four-month reprieve and utility systems were prohibited from disconnecting service to them.
Other small towns have been impacted by population losses and their tax base has shrunk. Sometimes they have lost tourist revenues or the shuttering of businesses. In some there is no financial officer and required financial reports haven’t been filed in several years. Some places you can’t get anyone to answer the phone.
Tyrrell County is a good illustration. When the state announced they were building a prison work farm, with about 600 inmates, the county borrowed $3.5 million to expand the water system to accommodate increased needs. Then, faced with a shortage of staff, the state suddenly closed the prison, leaving Tyrrell, one of our smallest counties, with a debt service it couldn’t pay.
Options for small towns are not attractive. Raising taxes or service fees to a level to become self-sustaining is likely to cause citizen protests and further population loses. If mergers with nearby towns or the county can’t be made, they face the probability the state will take over the handling of their finances, as is happening now in several instances. Some will likely lose their charters. But the state cannot take over all the local units with financial problems.
Part of what makes North Carolina such a wonderful place to live and visit is our large number of small towns and we hate to see them in trouble.  Is this just a sign of the times or can solutions be found to save our towns in trouble? We would hope so.