North Carolina Takes Over Finances of Town Bordering Fort Bragg

(Bloomberg) -- North Carolina took over the finances of a town bordering Fort Bragg, highlighting the state’s strong authority to intervene in cases of municipal fiscal distress. 

The state’s Local Government Commission this week took control of all spending decisions at Spring Lake, population 12,000, citing concerns the town might default on $221,385 of payments due next month for bank loans for streets, wastewater and two fire trucks.  

The town, which has also been under investigation by the State Auditor for months, also didn’t disclose to the commission a $1 million loan to build a fire station. Local governments must seek approval from the LGC to borrow money.  

“We started adding up all the debt service and then we started looking at some of the contractual arrangements that they’ve entered into that may have not been properly cured, said North Carolina Treasurer Dale Folwell in a phone interview. “We made a decision on behalf of the taxpayers of that community to move forward.” 

State Oversight

North Carolina’s control over local government finances is arguably the most rigorous of U.S. states. The state’s local government commission -- formed during the Great Depression when more than 200 North Carolina counties, cities and towns defaulted-- approves all local debt, monitors budgets and provides technical assistance. 

Rating companies factor that oversight into their assessments of local debt in North Carolina. For example S&P Global Ratings cited the Local Government Commission’s monitoring as a positive for a bond issue from Surry County earlier this year.    

As of 2016, North Carolina was one of of only eight states that have laws defining when local governments are in fiscal distress and systems to identify whether the locality’s fiscal health is heading for trouble, according to a report by the Pew Charitable Trusts. Pennsylvania, New Jersey, Rhode Island, Ohio, Tennessee, Louisiana and Nevada, were the others. 

Less than half of U.S. states analyze local budgets, financial reports and audits to detect signs of fiscal stress, the Pew report said. 

Town Violations

Folwell chairs the commission that oversees 1,300 local government units. It has the power take over their finances if they default on any debt service payment or if the commission deems them in danger of default. 

There are now seven local government entities under state control in North Carolina, of which Spring Lake is the most populous. The town’s Board of Aldermen supported the takeover. 

Spring Lake Mayor Larry Dobbins, didn’t respond to an e-mailed interview request. 

In 2016, the state auditor found town officials and employees spent more than $366,000 on purchases that violated Spring Lake policies and another $122,000 on purchases that the state deemed questionable. Josh Love, spokesman for State Auditor Beth Wood, declined to comment on the current investigation.

Spring Lake was in danger of missing debt service payments on loans totaling $3.2 million, including two from BB&T Financial Corp., which merged with SunTrust Bank in 2019 to form Truist Financial, and one loan from First Bank, according to the Treasurer’s office. The $1 million loan for the fire station came last year from the South River Electric Membership Corporation, an electricity distributon cooperative. 

In addition, the town didn’t have an accounting system that showed revenue, spending and liabilities in detail and in past years its general fund ran a deficit.  

Spring Lake is located in the Fayetteville metropolitan area and borders Fort Bragg, the largest U.S. military base by population and home to the 82nd Airborne Division and the U.S. Army Special Operations Command. Fort Bragg has about 57,000 military personnel, 11,000 civilian employees and 23,000 family members, according to its website. 

The town of Spring Lake is also about 35 miles east of Pinehurst, home to the Pinehurst Resort, which will host the U.S. Open golf tournament in 2024 and four additional U.S. Opens in the future. Pinehurst is also the headquarters of First Health of the Carolinas a network of nonprofit hospitals that serves a 15-county region. 

“There’s no geographic reason for this community to be in the situation it’s in,” Folwell said, referring to Spring Lake. 

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