Over the past decade, reforms enacted in North Carolina have made the state a national trendsetter in tax reform, school choice, and spending restraint. The most recent reform enacted in North Carolina could make the state a model for reining in profligate and irresponsible local governments.
The GOP-controlled North Carolina General Assembly recently enacted Senate Bill 299, which stipulates that sales tax revenue typically distributed to municipalities must be withheld by the state government from any local governments whose annual financial audit is well overdue. Amazingly, legislators needed to override a veto from Governor Roy Cooper (D) to enact this commonsense bill.
Cooper’s veto was overridden in the North Carolina senate by a vote of 31–16 with a lone Democrat, Sen. Mike Woodard (D-Durham) siding with the Republicans. The House overrode the veto by a vote of 75 – 44 with three Democrats siding with Republicans.
Governor Cooper issued a statement explaining his veto of SB 299, in which he claimed the bill, “is likely to punish residents of some of our state’s smallest communities.”
A bipartisan statement of support for SB 299, however, was issued by North Carolina Treasurer, Dale Folwell (R) and State Auditor, Beth Wood (D): “When the leadership of governmental units fails to submit timely audits, the state has no insight as to whether they are in financial difficulty,” Folwell and Wood said. “The taxpayers hurt by this lack of transparency are often those on lower and fixed incomes.”
It is not just local governments who failed to produce mandated financial audits in a timely manner; some states have been consistently late in submitting their annual public financial reports. Take two states ruled by a Democratic trifecta, Massachusetts and California, both of which have produced financial reports well after their due dates in recent years. A report published by the Cato Institute in March 2023 highlights how California has failed to produce its annual financial report on time in every one of the past five years.
According to Cato: “[In March], the State Treasurer’s Office notified the municipal bond market that the state’s Annual Comprehensive Financial Report (ACFR) for the Fiscal Year Ending June 30, 2022, would be late,” the Cato report notes. “The last time the state filed its report within the required nine-month reporting window was for its 2017 fiscal year.”
Submitting government financial audits on time is important, the Cato report explains, because “the lack of audited, accrual‐ based financial data can lead to confusion over the state’s true fiscal condition.” Sheila Weinberg, Founder and CEO of Truth in Accounting, told Cato that the remedy is timeliness.
Sheila stated: “Timeliness is an important characteristic of information in state financial reporting.” She added: “As the Governmental Accounting Standards Board highlights in its first concept statement, ‘If financial reports are to be useful, they must be issued soon enough after the reported events to affect decisions. Timeliness alone does not make information useful, but the passage of time usually diminishes the usefulness that the information otherwise would have had.’”
The timeliness of financial reporting for local governments is important for the same reasons. North Carolina lawmakers have done an excellent job of keeping spending in check for most of the past decade. The enactment of SB 299 will incentivize greater accountability among local governments, which has not reflected the spending restraint practiced by state lawmakers. ATR commends the North Carolina General Assembly for their efforts in making sure local governments become more transparent and accountable to taxpayers by enacting SB 299.