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Carolina Public Press is launching a two-part series that takes a fresh look at why small rural towns in North Carolina are losing their charters as a result of fiscal distress, fraud, and an inability to operate themselves. In this, part one of the series, we investigate the signs of decline and which towns are top of the Local Government Commission’s financial watch list. In part two, the investigation will look into the impact of small towns losing their charters and what can be done to change it. Part two will be published later in October.
On June 30, the town of East Laurinburg ceased to exist as an incorporated municipality after its local government, elected officials and financial control were removed. No longer independent, it is now bound to the laws of Scotland County and the state. The Local Government Commission’s (referred to as LGC) unanimous vote last year to revoke East Laurinburg’s charter came after years of fiscal distress, fraud and, in the end, an inability to operate itself.
A once-vibrant mill town, East Laurinburg is little more than a half-mile in length and consists mainly of low-income homes, two churches and an old school building that now houses an after-school ministry. Its population peaked at 890 people in 1940, then gradually declined to its current level of 345, according to 2020 U.S. census estimates. Nearly 47% of the population lives below the poverty line, 33% higher than the state average. A quarter of the population is Black.
Other towns across North Carolina are showing similar signs of decline. State Treasurer Dale Folwell named five towns in April 2021 that caused the most concern for the LGC: Eureka, Robersonville, Pikeville, Spring Lake and Kingstown. All were forced to yield financial control to the LGC within the past three years, as East Laurinburg was forced to do in November 2021, seven months before losing its charter.
“I know this sounds a little bit like one of those old Tom T. Hall country music songs when I’m naming all these places,” Folwell said then. “But unfortunately, there’s a lot more where this is going to happen.”
He called out two additional towns while speaking at an N.C. Press Association forum in August, pointing to “serious issues” in Navassa and Goldsboro as well. He said the LGC will likely “see more East Laurinburgs in the future.”
“They aren’t alone,” Folwell warned.
These seven towns are on the LGC’s Unit Assitance List, or UAL, which is designed to monitor local governments plagued by financial incompetence and corruption. Along with others on the watchlist facing increased pressure from the LGC, they may soon face the most drastic punishment allowed by a new state law called the LGC Assistance Toolkit Act: removal of their charters and political representation.
The ‘red flags’ of East Laurinburg’s decline
Senate Bill 314 was signed into law in June 2021. The bill granted additional powers and resources to the LGC , including the ability to transfer all assets and “dissolve municipalities determined to be in financial distress.” The LGC is chaired by Folwell.
The agency has since ramped up its pressure on towns and cities on its watchlist. Last summer, for the first time in state history, the agency seized all financial assets of East Laurinburg and dissolved the town’s charter.
An investigative audit published by N.C. Auditor Beth Wood last October exposed serious financial negligence and corruption by town officials and elected leaders. The town had not filed a state-required annual audit since 2016, according to the report, and a former finance officer, Jennifer Lett, had also embezzled over $11,000 from town funds.
The LGC assumed control of the town’s financial affairs last November, and its assets were transferred to Scotland County the following June. At the time, only $30,000 remained in East Laurinburg’s cash reserves, said Scotland County Manager Kevin Patterson.
In the years leading up to the LGC’s decision, East Laurinburg showed the red flags of financial distress that many towns on the latest watchlist now exhibit: financial misconduct, a lack of internal control, town councils unable to make key decisions or work with the LGC and an inability to pass budgets or send in state-required audits.
Towns on the watchlist
Since April 2021, this Carolina Public Press reporter has discussed the issues surrounding East Laurinburg and other watchlist towns with Folwell over multiple interviews. A former motocross racer, Folwell often compares the LGC’s work to that of a repairman using the tools of oversight and guidance to fix broken towns across the state.
This list was compiled with data from the LGC’s 2022 Unit Assistance List. It is important to note that towns that failed to submit a 2020-21 audit did not receive risk scores and are not reflected in these rankings.
The seven towns Folwell has specifically mentioned — those he believes are vulnerable to losing their charters — are low-income, rural towns sharing similar demographic characteristics: according to the latest U.S. census estimates in 2020, the average per capita income of all seven towns is $23,500, nearly $12,000 below the statewide average; at least 12% live below the poverty line in six of the seven; and in four, the majority of people are Black.
According to Folwell, Wood and several town officials, these seven towns — along with others facing varying degrees of pressure by the LGC — face a critical issue: a shortage of qualified financial officers and audit firms willing to work with small local governments.
Additionally, all seven towns mentioned by Folwell are mired in financial control issues similar to those experienced by East Laurinburg prior to losing its charter. Goldsboro and Robersonville, for instance, have not yet submitted an audit for the 2020-21 fiscal year.
More towns may soon follow suit, especially those currently in the LGC’s bad graces for failing to submit state-mandated annual audits.
Like East Laurinburg, nearly 50 towns were marked “audit not yet submitted” on the 2022 UAL. As of Sept. 28, only 12 of those 49 towns had turned in late audits, according to LGC spokesman Dan Way. Ten of those 49 also failed to produce an audit the previous year. Two towns, Black Creek and Lucama, have skipped three consecutive audits, while Princeville has skipped at least four.
Trouble brewing in Navassa
The town of Navassa lies west of Wilmington across the Cape Fear River in northern Brunswick County — one of the fastest-growing regions in the state. Leland, which has attracted much of that growth, borders Navassa to the south.
Stark differences exist between the two neighbors. According to data from the 2020 census, Navassa’s estimated population of 2,135 — 57% Black — has a per capita income of $19,000 and a median home value of $137,300, while 16.5% live below the poverty line. In contrast, Leland’s population of 21,903 — 81% white — has a per capita income of $36,300 and a median property home value of $254,400, while only 5.6% live below the poverty line.
The town has received four “high risk” marks on the LGC’s watchlist over the past three years. In the past year alone, the town has been left without an administrator since June, has failed to hold a quorum among council members on multiple occasions to discuss directives issued by the LGC and has received advice from the district attorney to consider contracting its law enforcement services to Brunswick County Sheriff’s Office because its own officers were furloughed until a budget was approved earlier this year.
Councilman James Hardy acknowledged the town has “a lot of staffing positions that haven’t been filled” and is now using the services of its former finance officer and administrator, Claudia Bray, as a contracted certified public accountant, according to Wood. He said financial operations will continue to be bottlenecked until the town hires a new administrator.
Although Navassa did submit its 2020-21 audit, it was marked “high risk” for internal control issues, as it was on the 2020 and 2021 UALs.
The next target: Goldsboro
Goldsboro is the county seat of rural Wayne County, southeast of the state’s most populous county, Wake County. Acting upon a request by Folwell to investigate concerns of mismanagement and misappropriation of funds, Wood’s office opened an investigation into the town’s finances last January. The city scored “high risk” for financial issues and internal control issues on the 2020 and 2021 UALs, and has yet to submit an audit of the 2020-21 fiscal year. Wood said she could not comment when asked if the investigation was ongoing.
Town leaders, including the mayor and city manager, were asked what they are doing to improve the high-risk scores Goldsboro received in 2020 and 2021. City spokesperson LaToya Henry issued the town’s response.
“We are adding necessary staffing, adding procedures and policies, and implementing increased monitoring of activities,” Henry said.
She also praised the 14-year career in local government by its current finance director, Catherine Gwynn, hired in early 2019. The town believes it is “well prepared and equipped to continue to move the city forward with fiscal responsibility,” Henry stated.
She said FORVIS, one of the largest government auditing agencies in the Southeast, anticipates completing the 2020-21 audit by the end of October. The 2018-19 audit was delayed, she explained, because the previous finance director and assistant finance director had retired at the end of 2018.
High-Risk Spring Lake
Spring Lake, a Cumberland County town of 12,000 people bordering Fort Bragg, received high-risk scores across the board on its 2020 and 2021 UALs — one of seven towns that have received high-risk scores in all three categories in the last three years.
At the August media forum, Folwell mentioned recent media reports revealing 35 “missing” city vehicles in Spring Lake. The town has also faced intense scrutiny ever since an embezzlement case against the town’s former finance director reached offices of the FBI and federal prosecutor Michael Easley Jr. Last week, the former official pleaded guilty to embezzling more than $500,000 of the town’s funds; she faces up to 12 years in prison.
Spring Lake’s interim town manager, Joe Durham, who will return full time to his Raleigh consulting firm next week, said a list provided by the Department of Motor Vehicles actually showed 97 city vehicles were unaccounted for, far above the previously reported 35 missing vehicles. Those 97, according to Durham, consist of vehicles salvaged or auctioned long ago, including a 1957 Ford truck and 1962 International truck. After reviewing the matter, he believes each of the missing vehicles was a result of “a careless and unsystematic record-keeping process as it relates to the acquisition and disposition of motor vehicles,” not a result of any nefarious actions.
Durham pointed to the state auditor’s report, published in March, outlining serious financial discrepancies in the town’s books. In addition to the $500,000 embezzled by its former finance director, the report found that $36,400 was missing from Spring Lake’s revenue and recreation departments, and that town employees spent more than $100,000 on questionable credit card purchases.
“There are many issues related to the financial management of Spring Lake. And they have been there for many years; it’s a pattern that’s in place,” Durham said, a pattern of financial discrepancies spanning decades.
Other towns have faced scrutiny in the form of state Auditor Wood’s investigative audits. Reports published in 2022 include Robersonville, Franklinton, Ocean Isle Beach and Spring Lake.
Treasurer Folwell believes, however, that the conviction of Spring Lake’s former finance director “is the freshest example of government agencies coming together to stop people who are embezzling.”
An unknown future for East Laurinburg
On a hot summer afternoon in June, just weeks before her town would lose its charter, Betty Robbins recalled the “good old days” while sitting on her front porch. Robbins served as a town commissioner from 2010-14.
She spoke of her childhood in East Laurinburg, when the town hosted a Fourth of July celebration every summer and the children played in the streets with little concern for their safety.
“It was a nice place to live; I raised my children here,” Robbins, now 81, said at the time. “You didn’t have to lock the door every time you left your house like you do now, because the way crime is now. It’s terrible.”
She insisted that during her time on council, the town was led by a capable mayor and secretary who “kept the money straight with the state.”
Folwell insists that when it was dechartered, East Laurinburg hadn’t lost its “sense of community,” only its ability to govern itself.
For Robbins there is only uncertainty. “You have a sign up there now that says, ‘East Laurinburg City Limits.’ Now, what will we have? We’re in the [Scotland] county now.”
Corrections: An earlier version of this article misstated the name of East Laurinburg’s former finance officer, Jennifer Lett. Additionally, Wayne County is near Wake County, but does not border it and Spring Lake’s interim town manager, Joe Durham, has a consulting firm, not a law firm. A clarification is being made that Senate Bill 314 provided additional powers and not additional resources in the form of financial or personnel.