Auditor: Small towns face financial challenges

At least two dozen municipalities in Louisiana either are in serious financial trouble or on the verge of trouble, according to the legislative auditor. In some cases, the reasons why are very specific and local.
For example, Sterlington, a town with less than 1,600 residents, managed to rack up $20 million in debt partly by borrowing to build a sports complex. Town officials also may have overstated their revenue and understated expenses to institutions that bought some of their bonds and spent more than $3 million in bond revenue for reasons other than the stated purpose, according to a recent legislative auditor report.
But there are broad systemic issues that can’t be blamed on a few bad actors or shoddy bookkeeping. Declining population is a major common factor, said Bradley Cryer, director of local government services for the Louisiana legislative auditor.
As people and businesses leave rural areas for urban centers, small towns lose their tax base. But the infrastructure built for a larger population still must be maintained.
“It’s kind of a snowball effect,” Cryer said. “The government [in many cases] never really downsizes their operations to meet their current revenues.”
Utilities often are a major problem area, he said. Many small-town officials use sewer and water fees to pay for other services and don’t set aside money for maintenance.
So when it’s time to upgrade or replace the water or sewer system, the money isn’t there. In St. Joseph, the water system was underfunded for decades, forcing state government to step in with $10 million to ensure the town’s residents had drinking water.
“It’s really an endemic problem around the state,” Cryer said. “We have a large number of municipalities that use water and sewer revenues to subsidize their other operations.”
Many officials are simply unwilling or unable to raise taxes and fees to a sufficient level to pay for basic services. For example, Cryer said auditors repeatedly identified problems with the finances of the village of Epps.
While the auditor’s office said Epps needed to raise its utility rates to be self-sustaining, the village elected a new mayor who ran on a lower-the-rates platform.
“We see that a lot across the state,” Cryer said. “The elected officials that are in office today, they don’t want to increase the rates because they may not get reelected next term.” But by doing so, they force a future administration to jack up rates much higher than they otherwise would need to be to make up for all the years of neglect, he said.
State lawmakers recently established a Rural Water Infrastructure Committee within the Governor’s Office. Officials are urging small communities to tie into larger parish or private water systems and looking for ways to help the larger systems upgrade, Cryer said.
Baldwin made the list over concerns about ongoing operations and " Rural Water Infra-structure Committee concerns."
It has been suggested, by state Treasurer John Schroder and others, that some small towns should consider unincorporating and turning over operations to their parishes. But towns may not want to give up their identities, and parish governments may not want to take on their debts, Cryer notes.
In theory, a municipality that can’t pay its bills can file for bankruptcy, though by law the state Bond Commission would have to approve.
The legislative auditor offers free training for local officials, but the “bad actors” don’t necessarily show up for the training, Cryer said. Lawmakers might consider making such training mandatory, he suggests.
Though the legislative suditor’s annual budget is about $30 million, much of that is paid by other agencies for state government audits. State general fund spending to support local government work and investigative audits is about $8 million.
Cryer has seven people who work with local governments around the state, all of whom have other duties. He said he can’t even guarantee that he’ll be able to put “boots on the ground” in all 18 of the municipalities the LLA recently identified as being on the verge of not being able to provide basic services.
Four towns and cities – Bogalusa, Jeanerette, Sterlington and St. Joseph – already have been assigned unelected court-appointed fiscal administrators. The state Fiscal Review Committee has voted to put the villages of Clarence and Clayton under fiscal administration but administrators have not yet been identified.
Cryer urges state residents to pay attention to their local elected officials’ financial management and questions whether those decisions are good for the long-term health of the town.
“That helps us help them try to resolve some of these problems on the front end,” he said.