Thursday, May 26, 2022

For years, Navassa has struggled with financial issues. It’s working to get on the right track

Navassa is taking steps to bring its utility fund out of the red, payback debts owed, and increase its financial sustainability after years of accounting issues. (Port City Daily photo/Johanna Ferebee)
Navassa is taking steps to bring its utility fund out of the red, payback debts owed, and increase its financial sustainability after years of accounting issues. (Port City Daily photo/Johanna Ferebee)

NAVASSA — Over the past decade, the small rural town of Navassa has struggled with financial issues.

With five full-time employees, the town has submitted late audits to the Local Government Commission, seen low tax collection rates, and maintained a utility fund that’s been in the red for years.

Related: Navassa makes progress on relieving its long-term debts with Brunswick County

However, recent assistance from state agencies is helping the town work out its financial issues, and get on the right track.

Financial issues

As of last month, the town appears on the Local Government Commission’s (LGC) Unit Assistance List. This list tracks and reviews government units with identified accounting issues.

Navassa is currently considered a “high risk” based on an LGC review of its internal controls and utility fund issues. This designation is based on the most recent fiscal year’s financial data, which ended June 30, 2018.

In both 2017 and 2016, the town’s utility fund was also designated as a high risk, according to the LGC’s Unit Assistance List. During those years its general fund was considered low risk but in 2018 it was moved up to a moderate risk designation.

Though financial issues have persisted for years, an LGC spokesperson said staff has never discussed assuming control of the town’s financial affairs (the worst-case scenario for government units).

LGC provides a team of experienced accountants that conduct site visits to government units to provide training and assistance. The goal, according to North Carolina State Treasurer Dale Folwell, is to help governments be self-sufficient so they no longer require heightened LGC attention.

We don’t have the resources to keep going back into a situation every five years to try and fix it,” he said.

Though it may seem like bad news, being on the LGC’s Unit Assistance List list can be positive, Folwell said. “I think that anytime that you disclose something and not wait for the public or taxpayers to discover it, I always think that’s a good thing,” he said. “Anytime something comes up, you disclose it, put sunshine on it, and not wait until something gets worse.”

About Navassa

In communications to the LGC, Navassa has attributed stressed-out CPAs, limited financial resources, and the town’s low-income population as reasons behind its accounting struggles.

A town of 2,100, Navassa has few businesses operating within its borders. But the completion of I-140, growth in the surrounding region, recently-announced Pacon Manufacturing, and the potential to redevelop the town’s Superfund Site all could provide new opportunities to help boost the town’s tax base.

Navassa has a significantly lower median income level than both Brunswick County ($51,164) and the state ($50,320) — residents had a $32,130 median household income between 2013 and 2017, according to the U.S. Census Bureau, with many Navassa residents likely like near, at, or below federal poverty guidelines. The Census estimates 22.1% of the town’s residents meet federal poverty thresholds, compared to a 11.9% county and 14.7% state average.

Nearly 79% of the town’s population has a high school diploma or higher, compared to 89% and about 87% statewide.

Today, the town is 77% minority, compared to an 18% county minority population — far lower than the 37% state minority population. Located off the Brunswick River, Navassa is home to descendants of the region’s 1800s rice plantation slaves, according to research extensively documented by its longtime mayor.

Treasurer Folwell said small towns can be more likely to struggle with finances. Hiccups can be more obvious, with fewer revenues rolling in that may help smooth things over.

Tax collections have been an issue for the town but, as of its 2018 audit, have greatly improved. Between 2008 and 2015, collection rates averaged at 84%, below state average collection rates of approximately 97%. This means less revenue made its way into the town’s accounts to cover expenses, putting the town in a difficult position.

“Our town’s population is extremely low income and collections have always been a problem and probably always will be,” Mayor Eulis Willis wrote in a letter to the LGC in 2016.

But as of the fiscal year which ended this summer, collection rates are the highest they’ve been in a decade. At 93.34%, collections are closer to the state average.

Canceling debt, getting sewer fund out of red

“Navassa’s position right now is to reach a level of sustainability,” Barnes Sutton, Navassa Town Planner, said.

The town’s utility fund, for instance, has operated in the red for years. Generally, amounts charged to customers have not been sufficient to cover high utility costs.

In 2017, after years of pointing out the utility fund was weak, LGC told the town in a review letter that it has “serious problems” and must immediately address this fund.

The town developed a pattern of subsidizing its negative utility fund by making temporary payments from its general fund. In 2013, 2014, 2015, and 2016, these temporary payments exceeded $100,000. In 2016-2017, the utility fund borrowed $236,271 from its general fund. Though the trades were meant to be temporary loans, according to the town, the LGC warns against this practice.

“Because utility customers and property taxpayers are not necessarily the same groups of people, it is important for equity reasons to ensure that the General Fund and the utility enterprise funds are self-supporting,” the LGC wrote to the town over multiple letters.

Last year, the LGC noted utility fund loses were declining, but still not self-supporting.

This spring, Navassa conducted a utility rate study with the assistance of the North Carolina Rural Water Association. “From that, as a council, myself and staff met and determined what rates we needed to set moving forward to determine a level of sustainability with the upkeep we had,” Sutton said.

The town adopted the rate changes in its 2019-2020 budget, slightly increasing water and sewer rates enough to stabilize the utility account. Because of the town’s demographic profile, Sutton said the town was sensitive to the effect increasing utility rates would have on its customers.

“We have to make decisions that are going to be difficult but necessary,” Sutton said.

Addressing I&I

Operations and maintenance costs tied to the town’s sewer collection system were driving utility fund’s losses, according to Sutton. Inflow, meaning stormwater entering a collection system from above ground, has been an issue for the town.

Navassa’s collection system operators, Envirolink, conducted smoke testing this spring to identify problem areas. Infiltration, stormwater entering pipes from below ground, requires internal camera work, which has not yet been performed.

Inflow and infiltration, I&I, was a major contributor to Brunswick County’s recent sewer moratorium at the Northeast Wastewater Treatment Plant. Navassa has sent over its allocation to the plant for years, records show.

However, the town has also attributed issues in its collection network to Brunswick Regional Water and Sewer H2GO, whereby wastewater was allegedly improperly delivered through the town’s system. This inflated the town’s operations and maintenance costs, town communications to the county assert.

According to an H2GO’s spokesperson, “H2GO wastewater is not and never has been improperly conveyed through Navassa’s system – it’s rather how the regional partnership transmission system was constructed.”

The shared Navassa-H2GO wastewater system is being addressed with the Old Mill Road Force Main project approved by Brunswick County Commissioners in May.

“I think I&I is very common,” Sutton said. “I don’t think there’s a community out there that doesn’t have it.”

Navassa will begin the bidding process to address inflow issues identified through smoke testing “as soon as possible,” Sutton said. Cracked manholes caused by outside contractors contributed to the inflow leaks, according to Sutton.

“Reducing these [operations and maintenance] costs will bring us to a level of sustainability,” he said.

After being notified of receiving a $375,000 North Carolina Office of Resilience and Recovery (NCORR) grant this spring, the town is waiting for the full award. This grant was awarded to financially-distressed local governments that struggled to bounce back after natural disasters. After Hurricanes Matthew, Florence, and Michael, the town has not had an easy time recovering, Sutton said.

“We’ve had kind of a streak of bad luck when it comes to weather,” he said. “Whenever you have a town of this size it takes a while to sort of get yourself out of that.”

The NCCORR grant will be used to cancel Navassa’s past-due debt with Brunswick County, currently totaling $183,609.95.

Funds will also be used to allow the town to purchase a vehicle for debris cleanup ( $25,000) and to pay back Department of Environmental Quality loans to connect the town’s Pheonix community to its wastewater system ($46,000).

“There’s definitely a lot of good things happening in the town that a lot of people don’t know about,” Sutton said.


Send tips and comments to Johanna Ferebee at johanna@localvoicemedia.com

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