PRINCEVILLE — The sky-blue town hall in this historic hamlet on the banks of the Tar River once stood as a symbol of rebirth.
The bronze plaque on the front stoop marks its construction in 2002, three years after the chocolate river waters, swollen by Hurricane Floyd, topped the levies and swallowed the first town in America chartered by African-Americans.
Now, years later, the town hall is mostly empty. On one recent day, the front doors were locked. Inside, the phones just rang. No one answered, not even the line for the police department.
The drastic cutbacks are designed to keep the town from bankruptcy. The state seized financial control in Princeville eight months ago, invoking powers used only five times in the past 70 years. The state has reduced town operations, cut employees and slashed costs.
Princeville is the only local government entity in North Carolina taken over by the state twice, an ignominious achievement for a town whose story has resonated far beyond Eastern North Carolina.
What state officials say they discovered: a small-town political power struggle worsened by incompetent managers and corruption that has once again led the town to the brink.
Charles Burton and other longtime residents are growing impatient as they wait for answers. For too long, Burton says, the town has languished.
“The problem is too many people with a hand in the cookie jar,” he said, repeating a frequent refrain in town. “Where did all the money go?”
The state auditor’s office is expected to release a report Monday about Princeville’s finances and the possible misuse of taxpayer money by the current mayor and other officials. The State Bureau of Investigation’s financial crimes division also is examining the town’s state-funded construction projects.
The turmoil represents the town’s greatest challenge since the flood but also shows how North Carolina’s unique oversight system can prevent bankruptcies and the need for bailouts that plague other states.
An hour east of Raleigh, Princeville, with a population of roughly 2,100, nearly ceased to exist after the flooding caused by two hurricanes in 1999.
The town was inundated with 16 inches of rain in one day, and its dam broke. It was underwater for days. Of 700 households, seven had flood insurance. Town leaders even took a vote on whether to dissolve.
A comeback, then trouble
But Princeville persisted. It became a national symbol, showered with a presidential proclamation and outside donations from such luminaries as the musical artist Prince.
Historical significance kept it alive but not immune from the deep financial problems that now threaten its existence.
Sitting at his kitchen table, Princeville resident William Boyd, 74, gripped an unlit cigar as he explains the town’s troubles in stark terms – mismanagement and a water system mired in debt.
“The town should have never got in this condition; a lot of people care about it,” he said, exasperated. “When the state comes in, something is very wrong.”
The troubles are documented in strongly worded letters sent to Princeville leaders from the Local Government Commission, a little-known agency in the state treasurer’s office that oversees municipal and county finances.
Princeville spent more than its budget allowed. It didn’t collect all its tax money. It didn’t force residents to pay their utility bills. And the financial officer used public money twice to repair her personal vehicle and still kept her job, state records show.
Just before the takeover, the town had an estimated $1,000 in its operating account. State officials found $290,000 in outstanding debts, a large sum for a town with a $1.2 million annual budget.
For months, Princeville did little to correct the problems, the state says, and when the town neared default on its debt, the state intervened. The July 30 takeover letter put it plainly: The town “willfully and negligently” violated state law.
“When the town found itself in trouble, the LGC offered help time after time after time, but the town didn’t take them up on the help until the last minute, and they had gone a little too far,” said Viola Harris, a Local Government Commission member who also represents the town as an Edgecombe County commissioner.
The state takes over
North Carolina’s powers to intervene on such a broad level are unlike other states. The system is widely credited with giving North Carolina higher municipal bond ratings and lowering borrowing costs for taxpayers statewide.
“The work of the LGC is legendary,” said Chuck Watts Jr., a Durham lawyer who serves as Princeville’s attorney.
The General Assembly created the commission in 1931 as hundreds of local governments couldn’t pay their bills amid the Depression.
All local governmental entities – from cities to sanitary districts – must obtain approval from the commission before borrowing money and the agency sells the bonds on their behalf. It also reviews annual financial reports and provides assistance when requested.
About three dozen counties, cities and other entities in North Carolina are being watched by the commission as they face financial challenges. But none are more serious than the situation in Princeville.
The commission oversees all the town’s financial affairs, making payroll decisions, setting trash fees, paying day-to-day bills and crafting annual budgets. The town lists five employees, but only one full-timer is now working. The police department has four full-time police officers.
In 1997, the state impounded Princeville’s books for nearly a year when town services weren’t being delivered and sewage littered the streets. How long the commission remains in control this time is uncertain, but most officials expect it will continue into 2014.
So far, state officials report that they reduced the town’s unpaid accounts to $138,000. They facilitated a transfer of the beleaguered water and sewer system to Edgecombe County’s control. They are enforcing tax collections. The water cutoff list went from 150 accounts to 50.
“I think it’s still going to take some time to have the cash to pay the bills, but they are making good progress,” said State Treasurer Janet Cowell. “It’s just one step at a time.”
Welcoming state help
It’s a delicate situation when a town and its people lose their autonomy.
But many welcomed the state’s intervention. Residents gave state officials impromptu hugs at a recent community forum.
“I wish they would have come in here earlier,” said Commissioner Ann Howell.
Like many, Howell wants the state to get answers about the town’s questionable spending. A 2011 audit found Princeville didn’t disclose federal stimulus money it received, violated terms of other loans and imposed no controls over the use of credit cards. The mayor, mayor pro tem and two others are facing questions about $20,000 in questionable credit card expenses on meals, hotels and travel.
“I’m waiting,” Howell said. “I’m hoping that something will take place and these people that have mistreated the funds of the citizens ... will have to give it back.”
But the takeover also galvanized the political rift in town that splits loyalties and colors every move.
At one point, the town’s interim manager took out a restraining order against a Princeville commissioner. And rumors continue that the state wanted to revoke the town’s charter – an idea repeatedly rejected by state leaders.
Mayor Priscilla Everette-Oates labeled the state’s role as “an unwarranted intrusion into our local administration (that) has only hindered Princeville’s recovery.” She blames the prior administration and “witchcraft” for the town’s woes.
“There are things that have been done that are raised by the devil ... to destroy what is right,” said Everette-Oates, a minister.
Everette-Oates, 47, filed a police report against the Local Government Commission for taking files related to town grants. Sharon Edmundson, the state official managing the town’s finances, said the records are properly under her control.
The mayor denies any improper spending and provided explanations for the credit card expenses to the state auditor. She said they were all related to town business.
But the corruption allegations hide deeper questions about Princeville’s future.
The aging rural area is one of the most impoverished in the state; Edgecombe County’s unemployment ranked No. 3 in the state at 15.8 percent, according to seasonally adjusted January numbers.
Boyd says Princeville always has been an underprivileged area. He says it won’t move forward until it elects new leaders, possibly this fall, who embody the spirit of the freed slaves who founded the town in 1885.
“They came in the wilderness and made something out of nothing,” he said. “...And when you build something as beautiful as this is, I feel like people should be able to care something about it.”
News researcher Brooke Cain contributed to this report.