This article was originally published by Carolina Public Press.
By Mackenzie Thomas, Carolina Public Press
Carolina Public Press is an independent, in-depth and investigative nonprofit news service for North Carolina.
If you follow the news in North Carolina, sooner or later you will come across a reference to the “Local Government Commission” or “LGC.” This is something unique to North Carolina, so those who have moved into the state may be scratching their heads about what this agency is. And many people who have lived here their whole lives aren’t too sure either.
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This article looks at some frequently asked questions about the North Carolina Local Government Commission to help readers understand what it is, what it does and why it matters.
What exactly is the Local Government Commission?
According to the NC State Treasurer’s website, the Local Government Commission “approves the issuance of debt for all units of local government and assists those units with fiscal management.”
In practice, this means that local governments entities, like towns or counties, have to ask the commission before borrowing money for projects, similar to getting loan approval from a bank.
Denise Canada, director of the State and Local Government Finance Division and secretary of the Local Government Commission, said the local government entity submits an application to the State and Local Government Finance Division that describes the project, the finance request and other financial information.
Commission staff then review the request, considering factors such as the local government entity’s financial condition, audit results, whether it can repay the loan and more. Then, the borrowing plan is presented to the commission at one of its monthly meetings where members vote to approve it, Canada said.
Once approved, a financing agreement is drawn up and the commission sells the local government entity’s debt to investors in the capital markets. The revenue from this is what funds projects, unless local governments get direct financing from a bank, Canada said. The commission is never responsible for funding local government projects; it simply facilitates project financing.
“Investors purchase the bonds or notes issued on behalf of the local government, providing the proceeds used to finance the project,” Canada said. “The local government then repays those investors over the life of the debt.”
The commission’s other main function is overseeing the annual audit process, which requires every local government across the state to submit an independent audit of its finances. Things staff look for in these audits include any major weaknesses or deficiencies in internal controls, any instances of not following state or federal laws, fund balance, amount of debt, if prior audit findings have been addressed and if the audit was submitted on time, Canada said.
“Without completed and filed audits, there is no reliable basis for the Commission, the governing board, creditors, or the public to determine whether the Town is complying with State laws,” Canada said.
The commission also keeps tabs on the financial status of local government entities throughout the state. Though it tends to stay out of a unit’s everyday financial decisions, it likes to offer general advice and guidance on how a unit can best manage its finances.
What makes the LGC unique?
What makes the LGC unique is that it’s one organization handling multiple responsibilities that are normally handled separately in other states, Canada said. Some agencies in other states only have the ability to approve debt, not to sell it on behalf of the unit like the LGC can, according to its website.
“This centralized oversight system was created to protect the financial integrity and credit quality of North Carolina’s local governments and has contributed to the state’s strong reputation in the municipal bond market,” Canada said.
How long has the LGC been around?
The LGC was created by the North Carolina General Assembly under G.S. 159-3 following the Great Depression in 1931, making it almost 100 years old. Its intended purpose was to help resolve local government finance issues brought on by the Great Depression, which included defaulting on the principal or interest of outstanding debts. In 1933, 62 out of the state’s 100 counties had this issue, including 152 cities and towns and roughly 200 special districts, according to the LGC website.
Who is part of the Local Government Commission?
The commission is housed under the North Carolina Office of the State Treasurer and consists of nine members, who are currently: Brad Briner, the State Treasurer; Dave Boliek, the State Auditor; Elaine Marshall, the Secretary of State; and McKinley Wooten Jr., the Secretary of Revenue, while the rest serve four-year terms and are appointed by other officials. Three are chosen by the governor and two are chosen by the General Assembly. The State Treasurer serves as the chairman of the commission, according to G.S. 159-3.
How often does the LGC meet and where?
Legislation indicates the LGC should meet at least once a quarter, or every three months, but it currently meets once a month in Raleigh. The LGC can have additional special meetings, but must give at least five days’ notice to all members in person or by mail.
What’s the Unit Assistance List?
The LGC has a Unit Assistance List to monitor units that are struggling financially and need additional support because of “financial, operational or reporting concerns,” allocating resources and aid to local government entities experiencing the most financial hardship, Canada said.
Municipalities, counties and utility authorities can find themselves on the list. The LGC doesn’t typically place other types of local government entities on the list, even if they’re under increased monitoring, Canada said.
Based on findings from annual audits and other factors like fund balance and cash flow, the commission will decide whether a local government entity warrants additional monitoring and support and place it on the list. To get off the list, the LGC typically wants to see that the local government entity has resolved the issues that put it there in the first place, Canada said.
“This may include sustained audit compliance, improved financial condition, corrected internal control deficiencies, and resolution of reporting issues,” Canada said.
How does the LGC decide whether to take over?
The LGC only escalates to a financial takeover of a local government entity when absolutely necessary. Three scenarios could lead to this happening, Canada said.
The first is if the local government entity defaults — fails to pay — on principal or interest payments on its debt, or seems like it will default if improvements aren’t made.
The second is if the local government entity continues to violate the Local Government Budget and Fiscal Control Act — which lays out financial guidelines for units to follow — even after a formal warning. The third is if the General Assembly suspends the charter of a municipality so that it no longer exists.
If any of these situations occur, the LGC would take over the local government entity’s finances by essentially becoming the unit’s governing body when it comes to financial matters. The LGC would assume authority over budgeting, spending, taxation and other functions as necessary, Canada said.
The LGC has only taken over a unit’s finances 12 times in its history, Carolina Public Press previously reported.
Has the LGC’s function evolved through the years?
The LGC’s mission has remained the same since its establishment in 1931, Canada said.
“Today, the Commission continues to oversee local government borrowing, protect the creditworthiness of local governments, and safeguard taxpayers and investors,” she said.
“While its responsibilities have expanded to include broader fiscal monitoring, audit oversight, financial analysis, and technical assistance, those activities support the same underlying mission: maintaining the fiscal integrity and financial stability of North Carolina’s local governments.”
