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Until the 1920s, local government units conducted their financial affairs with little assistance or oversight from the state. During the course of the decade the legislative and executive branches became increasingly aware of the potential hazards of such decentralization. In 1921 the General Assembly authorized the state auditor to examine annually the accounts of all counties and county officials and to make improvements in their accounting systems. In 1923 Governor Cameron Morrison urged the General Assembly to pass constitutional amendments limiting the state's power to contract debt and generally prohibiting the legislature from using or authorizing the use of sinking funds for purposes other than the retirement of the specific bonds for which they had been created. The General Assembly enacted the proposed amendments, which were ratified in November 1924. These constitutional changes had a significant effect on the state's subsequent involvement in local government finance. In 1925 the General Assembly established a Sinking Fund Commission to manage all state sinking funds and to maintain public debt within safe bounds. The commission consisted of the governor, the state treasurer, and the state auditor. That same year the General Assembly enacted the Municipal Bond Recording Act, which broadened the responsibilities of the state auditor in local government finance, requiring that statements of outstanding bonds or notes of counties, townships, school districts, municipal corporations, and taxing districts be filed with the state auditor. Although this act was repealed in 1927 and superceded by the Public Securities Recording Act, the responsibilities of the state auditor relating to local government finance remained the same until the end of the decade. The 1927 General Assembly, in recognition of the magnitude of long-term debts accumulated by many local governments, established the County Government Advisory Commission to assist county officials in administrative matters and in the management of county finances. In 1929 the legislature authorized the advisory commission to approve contracts for audits and the accounting systems used in the various counties. However, the advisory commission provided only limited aid in such areas as financial planning and debt management, its recommendations were not mandatory, and its jurisdiction extended only to county governments. In 1929 the General Assembly transferred to the State Sinking Fund Commission those duties of the state auditor that involved recording all financial obligations incurred by local units of government. Additionally, the Sinking Fund Commission was given supervisory power over the sale of bonds and notes and was authorized to hold public hearings whenever it questioned a proposal to increase the local unit's indebtedness. The commission's judgment in such matters would prevail, unless the proposed indebtedness was approved in a commission-authorized referendum. Despite these efforts, by the beginning of the Great Depression neither the Sinking Fund Commission nor the County Government Advisory Commission had dealt adequately with the unhealthy debt situation among the state's units of local government. In 1931, sixty-two out of one hundred counties and one hundred and fifty-two incorporated towns and cities, all hard-pressed by the Great Depression, were known to be in default of loans. In response to this chaotic financial situation, the General Assembly of 1931 enacted the Local Government Act, following the recommendation of Governor O. Max Gardner that the state provide more extensive supervision over the financial affairs of local governments. This act abolished the County Government Advisory Commission and replaced it with the Local Government Commission. The new commission also acquired the powers and duties previously vested in the state auditor and the Sinking Fund Commission regarding the recording of notes and bonds and overseeing their disposition. All books and documents utilized previously by those officials were to be turned over to the new commission. Although the Local Government Commission was to offer advisory services, it was also given broad powers for the purpose of stabilizing the finances and maintaining the good credit of all local governments under its jurisdiction. The act's provisions now applied to all counties, cities, and towns in the state, and had precedence over any local acts previously enacted. Under terms of its enabling act, the Local Government Commission was charged with the following specific duties: to approve or reject the issuance of bonds or notes and the establishment of special revolving funds by local governments; to supervise withdrawals from the reserve or revolving funds of local units; to sell all approved bonds and notes of local governmental units through calls for sealed bids; and to enforcement fulfillment of contracts by bringing suit either in a county superior court or federal district court. The commission was to consist of the state auditor, the state treasurer, the commissioner of revenue, all of whom served ex officio, and six members appointed by the governor to serve at his pleasure. One of the appointees was required to be a member of the governing body of a city or town, while another was required to belong to the governing body of a county. The governor was to designate one of the appointees to serve as director and secretary of the Local Government Commission. The state treasurer was to serve as treasurer. The commission itself was authorized to elect a chairman and vice-chairman from among the membership, to adopt rules and regulations, and to call upon the state attorney general for legal advice pertaining to its powers and duties. The Local Government Commission's enabling legislation also provided for an executive committee to consist of the commission's ex officio members and its director. The committee was authorized to act for the commission, but was prohibited from reversing any action taken by the body as a whole. Most actions of the executive committee were subject to review by the entire commission when requested by an aggrieved party. In 1933 the General Assembly transferred the duties of the director of the Local Government Commission to the state treasurer, an elected official whose office was provided for under the constitution. The state treasurer became the ex officio director of the commission and was required to maintain the commission as a distinct division of the Department of State Treasurer. Additionally, the secretary of state replaced the former director on the commission's executive committee, reducing gubernatorial appointees to five. In 1943 the General Assembly enacted the Municipal Capital Reserve and the County Capital Reserve Acts, which required these governmental units to obtain approval of the Local Government Commission when establishing capital reserve funds, to report all deposits, and to submit all withdrawals for approval. In 1953 the General Assembly amended the Local Government Act to permit citizens and taxpayers to petition the commission against the issuance of bonds by a governmental unit. In such cases, the commission was authorized to decide whether or not a public hearing would be held. From 1953 through the following decade, the Local Government Act remained virtually the same, except that the 1961 General Assembly extended the act to include every governmental unit having power to levy ad valorem taxes. In 1963 the General Assembly authorized the state treasurer, as the director of the Local Government Commission, to appoint the commission's secretary and assistant to the director, as well as a deputy secretary and other assistants as needed. Under terms of the Executive Organization Act of 1971 the Local Government Commission was formally placed under the Department of State Treasurer for purposes of administration and appointment of personnel, while retaining its previously granted powers and duties. Under separate legislation, the General Assembly of 1971 extensively revised the Local Government Act and made it applicable to all types of local governmental agencies and public authorities. The act also authorized the commission to require periodic financial reports, to approve or reject annual budgets, and to investigate the internal control procedures utilized by these various units, specifying modifications as needed to prevent mishandling of public monies. Under terms of the act, the commission was empowered to impound books and records of governments or authorities and to assume full control of a unit's financial affairs when deemed necessary. Additionally, the Local Government Finance Act changed the composition of the commission, authorizing the governor to appoint three of the members, and the lieutenant governor and the speaker of the House to appoint one each. Terms were set at four years, to be served at staggered intervals. The act was to become effective 1 July 1973. During that year the General Assembly made various technical amendments to the act, including redesignating one of the ex officio commission members as the secretary of revenue instead of the commissioner of revenue. Beginning in the late 1970s and into the next decade the General Assembly expanded the powers of the Local Government Commission to deal with a variety of financial services and forms of indebtedness. In 1979 the legislature stipulated that no public housing authority could execute mortgages without the commission's approval. In 1981 the commission was authorized to establish rules and regulations on all financial issues handled by governmental units, in addition to general obligation bonds, and on all types of pool investments, including mutual funds. When the North Carolina Educational Facilities Finance Agency was established by the legislature in 1986, its enabling act specified that no bonds or notes would be issued until approved by the Local Government Commission. Under an act to provide for greater separation of powers between the legislative and executive branches, the 1991 General Assembly stipulated that the president pro tempore of the Senate, rather than the lieutenant governor, make one appointment to the Local Government Commission. Currently, the State and Local Government Finance Division of the Department of State Treasurer provides staff assistance to the Local Government Commission. The division is organized along functional lines, including services as required by the commission in the areas of debt and fiscal management, and services to local governments and public authorities. The state treasurer selects the head of the administrative staff serving the Local Government Commission and has traditionally delegated to that position the duty of serving as commission secretary. REFERENCES: P.L., 1921, cc. 163, 236. P.L., 1923, c. 223. P.L., 1925, cc. 62, 100. P.L., 1927, cc. 91, ss. 14-19; 214. P.L., 1929, c. 277. P.L., 1931, cc. 60, 296. P.L., 1933, c. 31. S.L., 1943, cc. 467, s. 5; 593, s. 5. S.L., 1953, c. 1121. S.L., 1961, c. 1106. S.L., 1963, c. 1130. S.L., 1971, cc. 780; 864, s. 6(5). S.L., 1973, cc. 474; 476, s. 193. S.L., 1979, c. 690. S.L., 1981, cc. 445, 1175. S.L., 1986, c. 794. S.L., 1991, c. 739, s. 23. G.S. 159 [1992]. Corbitt, David Leroy, ed. PUBLIC PAPERS AND LETTERS OF ANGUS WILTON MCLEAN, GOVERNOR OF NORTH CAROLINA, 1925-1929. Raleigh: Council of State, 1931. Corbitt, David Leroy and William H. Richardson, ed. and comp. PUBLIC PAPERS AND LETTERS OF CAMERON MORRISON, GOVERNOR OF NORTH CAROLINA, 1921-1925. Raleigh: Edwards & Broughton Company, State Printers, 1927. Pp. 40-41. Corbitt, David Leroy, ed. PUBLIC PAPERS AND LETTERS OF OLIVER MAX GARDNER, GOVERNOR OF NORTH CAROLINA, 1929-1933. Raleigh: Council of State, 1937. Pp. 13, 40-42, 305-306, 402, 546-547, 662, 673, 675. North Carolina Historical Commission. NORTH CAROLINA MANUAL, 1929. Edited and compiled by A. R. Newsome. Raleigh, 1929. Pp. 205-206. Office of the State Auditor. PLAN OF REORGANIZATION OF STATE DEPARTMENTS, BOARDS, AND COMMISSIONS: SUBMITTED TO THE GOVERNOR AND GENERAL ASSEMBLY, 1923. Raleigh, 1923. Pp. 53-54. Office of the Secretary of State. NORTH CAROLINA MANUAL, 1991-1992. Edited by Julie W. Snee. Raleigh, 1992. Pp. 48-53. Powell, William S. NORTH CAROLINA THROUGH FOUR CENTURIES. Chapel Hill and London: The University of North Carolina Press, 1989. p. 482. Rankin, Robert S. THE GOVERNMENT AND ADMINISTRATION OF NORTH CAROLINA. American Commonwealths Series, edited by W. Brooke Graves. New York: Thomas Y. Crowell Company, 1955. Pp. 383-389. |
