North Carolina Senate overrides governor’s veto of audit bill

The North Carolina Senate Tuesday overrode Gov. Roy Cooper’s veto of Senate Bill 299, legislation aimed at promoting financial accountability for municipalities across the state. The action moves to the state House for an override vote.

The bill, called the “act to increase compliance by counties and municipalities that fail to timely submit an annual audit report,” was vetoed by Cooper on Monday, who called its enforcement provisions too harsh for smaller localities to bear.

Cooper, a Democrat, is often at odds with the GOP-controlled legislature, and the Senate voted Tuesday to override the veto; the action was set to be followed by the House on Wednesday.

Provisions in the bill would withhold sales tax distributions from counties or municipalities if they don’t file their annual comprehensive financial report within 12 months of the county or municipality’s fiscal year-end.

“It is important that local governments follow the law on auditing their finances in order to foster accountability and fiscal responsibility,” Cooper said. “While well-intentioned, this legislation as written is likely to punish residents of some of our state’s smallest communities.”

State Treasurer Dale Folwell pushed back, saying the legislation, which had bipartisan support, is necessary to ensure timely compliance and promote fiscal transparency and discipline.

Folwell, a Republican, has entered the 2024 race to replace Cooper, who is barred by term limits from serving another term.

“I was traveling around different parts of the state when the governor vetoed this bill and in all my years of public service, I’ve never seen people more bewildered,” he told The Bond Buyer Wednesday, “because who can possibly be against transparent government, competent government and good governance.”

Folwell noted the override in the Senate was immediate and also bipartisan.

He said the bill was not about a state power play or money grab.

“We’re not penalizing anyone — we’re basically taking the money that the municipalities should have spent on their own, and get an audit performed so that the taxpayers can have comfort — especially lower- and fixed-income people — that the money they’re sending in for essential services is being properly accounted for.”

He added that the state doesn’t “want one penny more than what an audit costs and we don’t want one penny less than what an audit costs.”

“Our goal with this legislation is for us to never to have to use it,” he said, “because that would mean everybody was compliant and doing their jobs at the local level.”

The bill states that a county or municipality which fails to file a copy of its annual audit report with the Secretary of Revenue within 12 months of the end of its fiscal year could have a portion of its sales tax distributions withheld. They’ll get a notice at the nine-month mark, according to the legislation.

“The total cumulative amount that may be withheld is an amount equal to 150% of the cost of the required annual audit as indicated in the audit contract between the county or municipality and its external auditor for the audit report, if such a contract has been executed, or 150% of the actual fee for the most recently filed audit report if a contract has not been executed for the current year audit,” the bill says.

Cooper urged lawmakers to go back to the drawing board on Monday.

“Rather than having state government seize sales taxes that are needed for local government, the North Carolina General Assembly should reconsider this legislation and provide more help for these communities to make sure they do it right rather than impose financial punishment that could make matters worse,” he said.

Folwell and State Auditor Beth Wood expressed their displeasure with the governor’s stance.

“As members of the Local Government Commission we see the leadership of many counties and municipalities perennially failing to submit audits on time to the LGC,” they said in a joint statement. “When the leadership of governmental units fail to submit timely audits, the state has no insight as to whether they are in financial difficulty. The taxpayers hurt by this lack of transparency are often those on lower and fixed incomes.”

Folwell said that he, along with the state auditor and legislature, is taking the lead on this issue so that other states could follow.

“I fully expect that in a few years from now, this legislation will be as groundbreaking as the creation of the Local Government Commission was 75 years ago,” Folwell said. “I expect that other states will acknowledge that they have their own problems and that this is a tool that they need in their toolkit.”

Folwell has been state treasurer since 2017.