News: CJ Exclusives

Cooper order throws local governments into financial havoc

(CJ photo by Don Carrington)
(CJ photo by Don Carrington)

An executive order giving people a break on utility payments threw local governments across North Carolina into financial havoc.

In late March, Gov. Roy Cooper’s executive order banned utility providers from disconnecting non-paying customers. The executive orders aimed to protect people from losing water, electricity, natural gas, sanitation, or wastewater services during the COVID-19 pandemic. Cooper extended the order in May to last until the end of July.

The extension caused other problems. State Treasurer Dale Folwell says the executive orders are driving local governments into potential economic and financial peril. Local governments are on the hook to pay for residents’ utilities as non-payments surge statewide.

The coronavirus hammered tax collections when shutdowns began in March. Now, officials expect sales tax revenue to plunge 20% to 30%, along with shrinking hotel occupancy fees and damage to property taxes.

The town of La Grange filed a lawsuit in Lenoir County Superior Court, challenging the constitutionality of the order. Town leaders said the order’s extension crippled their ability to repay the debt on their electric system and keep it fiscally healthy.

“There’s no juice, no cushion. It’s bone on bone,” Folwell said. “This is not Duke [Energy] with billions of dollars in reserves. These are the cities themselves who have to pay their bills, some of which who have barely recovered from the last recession.”

Increases in utility rates, property taxes, and decaying infrastructure could result should shutdowns and non-payments continue, advocates for local governments say.

“What’s a printable word for that? Bad,” Folwell said. “It becomes nearly mathematically impossible not to do those things.”

Elizabeth City warned of a 30% spike in its utility rates after 2,300 customers failed to pay for services. Roughly 30% of its utility customers now qualify for disconnection, and the city has applied for a waiver of relief from Cooper’s executive order.

Folwell called for local governments to have more autonomy to decide utility payments.

“What is that going to do to all the people who are on the edge? They’re out, they’re done,” Folwell said. “The city has to get the money somewhere, and no one knows their customer better than the local city councils that have found the balance between the city and citizens for decades.”

More than 150 local governments made the Local Government Commission’s watch list for risk of insolvency before the pandemic. Folwell fears the shutdowns could force the state to take over the finances of dozens or even hundreds of troubled entities. He says the LGC isn’t staffed to handle such a surge.

The N.C. Department of Health and Human Services set aside $26 million to help poor residents pay rent and utilities.

“The governor’s moratorium on evictions and utility shutoffs is the only thing keeping many families in safe and stable housing,” NCDHHS Secretary Mandy Cohen said Monday, June 15, in a news release. “This flexible funding will allow our Community Action Agencies to continue to meet a wide array of needs in our communities, including helping families remain in their homes when the moratorium is lifted.”

April’s unpaid utility bills would swallow nearly half of that funding. That month, customers racked up $12.1 million in late fees and penalties for utilities. Almost 454,000 households and businesses became eligible for disconnection.

The executive order only delayed utility payments. Customers remain responsible for their bills, but local governments fear some will never pay. After the order expires, there’s a six-month ban on charging fines or interest on late payments.

“What happens when months go by and people haven’t paid? Will they ever be able to pay their bills to make up those back payments?” Scott Mooneyham, a lobbyist for the N.C. League of Municipalities, told Carolina Journal. “Clearly some of those costs are going to be written off, and they’re never going to be paid.”

After the Great Recession in 2008, local governments scrambled to balance their budgets. Across the state they froze hiring, abandoned capital projects, paused maintenance, and increased fees for service, according to a UNC School of Government report.

But cost-cutting by utilities is more complicated, said Mooneyham. Utilities bear so many fixed costs that cuts usually postpone needed maintenance.

“Those things add up over time. You end up in a worse and worse situation,” Mooneyham said.

Local government advocates want Congress to provide more flexibility with federal coronavirus relief funds, Paige Worsham, general counsel for the N.C. Association of County Commissioners, told CJ.

“This is not a good time to raise utility rates, when the economy is hurting,” Mooneyham said. “If you raise rates too high, you’re cutting off your nose to spite your face. If you cause a major business to leave, you haven’t made that system more sustainable.”