A number of towns and cities have gone overbudget and lack the staff or oversight to successfully manage their finances warned State Auditor Beth Wood and Revenue Secretary Ronald Penny at a recent Local Government Commission meeting. The biggest problem is their small size. In the most recent estimate from the state demographer, 511 municipalities had fewer than 21,500 residents, including 183 of the 185 towns and cities that lost population since 2010. Although many are able to get by without tapping their savings, the Wood and Penny are worried about the ability of municipalities to survive much longer.
The Local Government Commission was created in 1931 to save cities from what Stateline called “a wave of municipal bond defaults” during the Great Depression.
Since 1942, when most of the 414 Depression-era defaults had been refinanced, no North Carolina city, county or special district has failed to meet a bond obligation. The local government commission has had to take over financial control of only three cities and one water and sewer district during that 70-year period, a remarkable run considering the frequency of hurricanes that strike the state and the vulnerabilities of the recent Great Recession.
Local governments have received assistance, but legislative consequences could be ahead. Dan Way of Carolina Journal quoted Penny:
“Some of them are just too small to be financially feasible,” Penny said. As residents leave, so do businesses vital to the tax base. “And so once we go down that road, recognize there’s probably going to have to be some — more than tough love, I’d say — harsh love.”