State officials are warning Spring Lake leaders that the state will take control of the town’s finances if they don’t get the books in order.
The state’s Local Government Commission raised “deep concerns over potential budget deficits, longstanding fiscal disarray and an investigation into missing money,” a statement released Wednesday by the state treasurer’s office said.
State Treasurer Dale R. Folwell serves as chairman of the commission. Members of the North Carolina Department of State Treasurer’s State and Local Government Finance Division serve as its staff.
The commission voted unanimously at an emergency meeting Tuesday to send a warning letter to Spring Lake, according to the statement.
The town of 12,000 residents has accumulated a budget shortfall of about $1.2 million in its general fund during the 2020-2021 fiscal year, according to Sharon Edmundson, who serves as the commission’s secretary. The town’s budget only addresses about $285,000 of the shortfall, she said.
Town Manager Samantha Wullenwaber has proposed a break-even budget that included some significant reductions and restores some fund balance in the General Fund, according to the statement. Members of the Board of Aldermen have indicated that they want to restore the cuts with no way to pay for them, it said.
Spring Lake’s property tax rate of 70 cents per $100 in property valuation is the highest municipal rate in Cumberland County, the statement said
“There’s no logistical reason this town should be in the shape that it’s in,” Edmundson said. “This town cannot afford to continue spending the way they have been spending.”
Folwell said in an interview that state officials have been working with the town for months.
“It seems like it’s a spending problem, not a revenue problem,” he said.
Folwell said the financial problems like those faced by Spring Lake are not a partisan issue.
“This is all about the taxpayers, the citizens,” he said. “It’s not a Democrat or Republican issue; it’s a money issue.”
The town board is scheduled to hold a “public budget proposal meeting” on Monday, according to the town’s website.
Edmundson said the issue could come to a head at that meeting when the board is expected to adopt the budget. She said the commission’s staff members will attend the meeting.
If the board tries to pass a budget that is not balanced or fiscally sound, the staff members “will recommend that the Commission step in to assume full control of the town’s finances,” the statement said.
Wullenwaber said the town’s been working with the commission to prepare the budget and a fiscal accountability agreement that every board member had to sign that would ensure a sound budget was passed. Through the process, Wullenwaber said, 11 options for a balanced budget were developed. The final budget proposal was supported by the commission but wasn’t adopted by the Board of Aldermen.
“It was in hopes that they were going to adopt the budget as presented because it was a fiscally sound budget, and it replenished fund balance,” Wullenwaber said Thursday. “It did involve some cuts, but unfortunately the town has been living beyond its means for a number of years.”
Alderwoman Jackie Jackson said Thursday she’s concerned about the police department taking a possible hit as a result of the budget.
Jackson said she thinks a driving factor in Spring Lake’s financial predicament has been officials not being held accountable. She said the board needs to take responsibility now, not point fingers.
“What it is now is to get it in order and get it straight,” she said.
Wullenwaber said she thinks Spring Lake’s general fund will have a negative of about $1.8 million this year. The goal is to get it back to zero, she said.
This year’s budget process had to work through more than five years of increased spending without revenue, tax or property value increases, Wullenwaber said.
Wullenwaber said the adopted budget doesn’t have to be the one she presented, but it has to be responsible. If a responsible budget isn’t passed, and the board doesn’t come up with other options, the Local Government Commission can come in to adopt its own budget and take over the finances as long as needed.
Wullenwaber said she doesn’t know how long the commission would be in control if it came down to that situation.
When asked about what actions Spring Lake’s leadership could’ve taken to prevent the town’s current situation, Wullenwaber said it boiled down to prior leadership. She said there has been lots of turnover in town management.
“It’s just been more of a downward spiral for about five years,” Wullenwaber said. “And, unfortunately, I can speculate as what could and could not have been done, but we now have very qualified financial staff on board, through consultants and myself, and we are following all the rules and regulations in regards to running a town and running a town’s financials.”
Dobbins said that while he doesn’t want Spring Lake’s financials taken out of the town’s hands, he welcomes help from the commission. The town can’t spend more than it receives, he said.
State Auditor Beth Wood, who serves as a member of the commission, has urged the commission to assume statutory control of the town’s finances, according to the statement. She defended the new town manager and said leadership is lacking from the aldermen.
“We are in there investigating and looking for missing money,” Wood said. “There’s a lot of things going on.”
The town board voted 3-2 at its June 14 meeting to hire Wullenwaber, according to a draft of the meeting’s minutes that is posted on the town’s website.
Spring Lake is one of two municipalities in the state that have voluntarily entered into a financial management agreement with the commission, according to the statement from the state treasurer. The agreement is intended to help the town meet its obligations and duties under the Local Government Budget and Fiscal Control Act, the statement said.
The agreement inclu
ded a goal for Spring Lake to develop a “well thought-out FY2022 budget that is realistic in revenues and expenditure estimations,” the statement said.
Folwell said in the statement that the commission was created to ensure proper stewardship of taxpayer resources.
“It is never our desire to have to get involved with local government finances,” he said. “We would much prefer that government units all operate smoothly and without a wrinkle.”
During the 2019-20 fiscal year, most of Spring Lake’s departments spent more money than the town had budgeted for them, according to an audit report. Overall, the town spent about $2.02 million more than it had appropriated for expenses, the audit said.
Last year, the town was put on notice about its failure to comply with state budget guidelines. The commission sent a resolution in June to Spring Lake Mayor Larry Dobbins and the five-member Board of Aldermen. The resolution warned the town that it had failed to comply with budget and fiscal control practices, standards and laws.
In 2015, Spring Lake officials faced questions about how employees and leaders were using town-issued credit cards. The next year, the state auditor’s office flagged almost $579,000 in town expenditures and apparent faulty record-keeping for the previous five years.
The State Bureau of Investigation and the Cumberland County District Attorney’s Office reviewed the town’s audit and determined that further criminal investigation and prosecution were not warranted.
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Staff writer Steve DeVane can be reached at [email protected] or 910-486-3572.