How the budget deficit and state takeover will impact Spring Lake
State officials reviewing Spring Lake’s financial situation have become increasingly troubled in recent months, leading the Local Government Commission to vote on Tuesday to seize the city’s books and records and take control of city finances.
“It’s like an onion,” State Treasurer Dale Folwell said Thursday. “The more we peel, the more we cry.”
Folwell is the chairman of the Local Government Commission.
Folwell said residents of Spring Lake will continue to receive the same services and see little change due to the commission’s action.
State officials are concerned about Spring Lake’s ability to balance its budget and live within its means, Folwell said. Accounting and finance officials are working on the issue, he said.
Folwell said state officials are also trying to determine where the money for the debt payment will come from.
Tuesday’s resolution said the city had $ 219,385 in principal and interest due in November.
State officials recently learned that the city had another $ 1 million loan, which was not submitted to the Local Government Commission last year, Folwell said.
The resolution the commission approved on Tuesday indicates that the city closed the loan on October 28, 2020 with the South River Electric Membership Corp.
North Carolina government entities are required to approach the Local Government Commission before borrowing money, according to its website.
The commission “provides assistance to local governments and public authorities in North Carolina” and “approves the issuance of debt for all units of local government and assists these units in budget management,” its website says.
Spring Lake officials have twice been warned by the commission about the city’s finances since June.
In a declaration released on behalf of the commission in July, state auditor Beth Wood said she recommended the commission assume statutory control of the city’s finances.
Wood is a member of the commission.
“We’re out there investigating and looking for the missing money,” Wood said. “There’s a lot going on. ”
A spokesperson for the auditor’s office did not confirm or deny whether the investigation was still ongoing on Thursday.
Ideally, “nothing would be broken in North Carolina regarding local governments,” Folwell said.
“It’s a situation at the end of the day where we have a responsibility to the taxpayers of this community to know that the money they pay in taxes goes to a government that is competent, transparent and solvent,” he said.
Folwell said the Local Government Commission decision to take control of Spring Lake’s finances was unanimously approved by the board of directors, which is made up of government appointees, including the auditor of Spring Lake. State and Secretary of State.
In a statement posted on the city’s website, Mayor Larry Dobbins said the Spring Lake board of directors had been made aware of the Local Government Commission decision and held an emergency meeting on Tuesday.
Ahead of the Local Government Commission meeting, the board approved a resolution recognizing “the importance of adhering to sound fiscal policy and the need to get the city’s finances in order,” said said Dobbins.
Spring Lake Alderman Sona Cooper thanked the treasurer, committee members and staff for their work with Spring Lake and said she supported the resolution, according to a statement released Tuesday by the office of Folwell.
According to the resolution approved by the Local Government Commission on Tuesday, the city has failed to comply with state law in previous years by allowing the spending of funds that were not in the general fund ordinance.
“Commission staff have informed officials and the city’s board that the city has let its general fund fall into a deficit position,” the resolution says.
The resolution says the commission assuming control of Spring Lake’s financial affairs was “as a measure of last resort following long notice and warning the city to take corrective action.”
What’s next for Spring Lake?
The resolution says the commission will provide a recommendation and a timetable to restore Spring Lake’s financial health and restore control of its financial affairs to the city.
The resolution says the commission approves interim city manager Samantha Wullenwaber to also act as the city’s finance officer.
He also appointed David Erwin, a member of the staff of the Local Government Commission, as the deputy financial officer responsible for receiving and depositing funds, approving purchase orders and contracts, keeping records. accounting, pre-audit of obligations and disbursement of funds.
Erwin is also authorized to sign cards for the city’s existing bank accounts and to sign disbursements in the absence of the finance officer, and Mayor Larry Dobbins and Mayor Pro Tem Taimoor Aziz are also approved as signatories of the accounts.
Folwell said he didn’t expect any visible changes to customers and taxpayers though Spring Lake, as state officials have been working internally over the past few months “to reconcile the books and try to determine Who owes Spring Lake and who Spring Lake may owe. ”
Wullenwaber, who has served as city manager and interim finance officer since March 22, said she will work with Erwin and the Local Government Commission as they review the city’s finances and develop a plan to change policies financial and looking at cash flow to move forward. .
Resident services will remain, along with the city’s current employees, Wullenwaber said.
Water, sewage, bulk garbage collection, police, fire, recreation and all other municipal services will continue to operate as usual, she said.
“It doesn’t mean there is no more city,” said Wullenwaber. “It’s a financial question.”
Spring Lake Finances
Folwell said Local Government Commission staff were unable to determine the exact amount of Spring Lake’s budget deficit as past issues or record keeping made it difficult to review the city’s finances. .
Spring Lake’s path to financial stability could take at least six years, according to the 2021-2022 budget documents – the time the budget documents show it will take the city to bring its negative general fund balance back to 1.8 million dollars to $ 0.
Wullenwaber said the city has adopted a balanced budget for this fiscal year based on actual income and spending, which she says has not been done in previous budgets.
However, she said there is no fund balance in the general fund, which is similar to a savings account.
Debt service, similar to paying a mortgage, is a segregated fund.
Wullenwaber said this year’s budget is $ 218,500 to try to replenish the fund’s balance, in the hopes that city spending will stay low and income will be higher.
If the next few years go the same way, she said, it could take around 6-7 years to no longer have a negative general fund balance.
Geographically, Folwell said there is no reason Spring Lake should not be vital, as communities around it like Fayetteville or Pinehurst are sustainable.
He said it was now the responsibility of the Local Government Commission to help city leaders “find out what is right, do it right, and keep it right”.
Folwell said the community will have to “question assumptions about how it ended up in this situation.”
Folwell said that Ahoskie is another city in North Carolina it was in a similar situation seven years ago.
The new city council and city leadership were ready to challenge assumptions and “get out of the ditch, fix the car and now drive the car.”
“There are communities that have gone this route before and have come out of it better and stronger on behalf of taxpayers,” Folwell said.
Spring Lake is now the sixth unit of local government under the financial control of the Local Government Commission, according to Tuesday’s press release. Others are Eureka in Wayne County, Kingstown in Cleveland County, Pikeville in Wayne County, Robersonville in Martin County and Cliffside Sanitary District in Rutherford County.
Editor Rachael Riley can be reached at [email protected] or 910-486-3528.
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