A county purchased real property with the intention of preserving it for use as an industrial park or for sale to a business seeking to locate within the county. Authority for making the purchase of land was
G.S. 158-7.1. County officials followed the advice provided in this
prior post and held a public hearing, properly noticed, prior to approving the purchase of property. Now the county is the proud owner of a fine piece of dirt not far from the highway, but for the moment, there is no room in the budget for making other improvements, such as installing utilities infrastructure. That’s perfectly fine, reasons Tim Taylor, the county economic developer. The county will simply hold on to the land until the budget permits the county to construct improvements or until an interested business purchases the land.
Tim is not the type to sit around and wait for something to happen. Tim markets the property in several economic development trade publications and prepares to bring prospective businesses by the site. After lining up a company to visit the site next week, Tim drives by the property and notices that the grass is too high and that someone dumped heavy vehicle debris on the property. That simply won’t do, Tim thinks to himself, and he visits the purchasing officer in order to make arrangements for grass cutting and for a salvage company to clean up the debris. “Sorry, Tim, you must have missed the memo,” The purchasing officer smiles—Tim has the feeling he is being mocked. “The county manager just reminded all of us that a public hearing is required prior to making any expenditures pertaining to this economic development property. If you want to mow the grass and get that debris picked up, you’ll need to talk to the county manager about setting a public hearing.” Tim is speechless. Does he need a public hearing to have the grass mowed?
Background on the public hearing requirement
In the scenario above, the economic development statute, G.S. 158-7.1, provided authority for the initial purchase of land. Pursuant to subsection (b) of G.S. 158-7.1, local governments may:
- “Acquire and develop land for an industrial park” for manufacturing, warehousing, and “other similar industrial or commercial purposes” and “may demolish or rehabilitate existing structures” ;
- “acquire, assemble, and hold for resale property that is suitable for industrial or commercial use”
- “acquire, construct, convey, or lease a building suitable for industrial or commercial use”; and
- extend utilities and conduct other site preparation for industrial facilities.
A public hearing must be held prior to approving “any appropriation or expenditure pursuant to subsection (b).” It is advisable for local governments to take this provision seriously in light of the landmark economic development incentive case,
Maready v. Winston-Salem. In
Maready, the North Carolina Supreme Court evaluated 24 economic development incentives paid to private companies by the City of Winston-Salem and Forsyth County. The analysis centered on whether a public purpose was served by paying an incentive to a company in exchange for the company’s promise to create jobs and increase the tax base. The court decided that the incentives did serve a public purpose, and in coming to that conclusion, the court was comforted by the “strict procedural requirements” of G.S. 158-7.1. Therefore, in the context of offering an incentive to a company as explained in this
prior post, the public hearing is not merely a statutory hurdle but also a constitutionally necessary procedure.
Public hearings for maintenance and upkeep of economic development property
It is against this backdrop that we evaluate the need for holding a public hearing prior to approving expenditures for the maintenance and upkeep of economic development property. Maintenance and upkeep, while not specifically listed in G.S. 158-7.1(b), is arguably implied within the activities listed in G.S. 158-7.1(b)(1)-(4), which include rehabilitating existing structures (G.S. 158-7.1(b)(1)), holding properties for economic development (G.S. 158-7.1(b)(2)), and otherwise acquiring and leasing buildings (G.S. 158-7.1(b)(4)). The conservative approach, articulated by the purchasing officer in the example above, is to consider any maintenance and upkeep of economic development property as a subsection (b) activity requiring a public hearing. There is nothing wrong with this approach, aside from the time and expense associated with issuing proper notice and then holding the public hearing. The time and expense could be mitigated somewhat by anticipating future annual expenses in a budget and then approving at one time the entire amount necessary to perform all maintenance and upkeep on economic development property.
However, it should be acknowledged that reasonable arguments can be made for not holding a public hearing prior to approving every unanticipated expense related to the maintenance and upkeep of economic development property.
It could be argued, for example, that maintenance and upkeep expenses are not approved pursuant to subsection (b) at all; rather, so the argument goes, maintenance and upkeep is approved pursuant to other statutory authority that does not require a public hearing, such as the general authority for local governments to acquire and hold real property (
e.g.,
G.S. 153A-11 and
G.S. 153A-158 for counties, and
G.S. 160A-11 and
G.S. 160A-240.1 for cities). A weakness of this argument is that specific authority trumps general authority (
see Krauss v. Wayne Cnty. Dep’t of Soc. Servs., 347 N.C. 371, 378–79, 493 S.E.2d 428, 433 (1997)), so a court would look first to the economic development statutes as authority for the activity, rather than relying on a more general authority.
Given that
Maready’s holding
centered on the public versus private benefit of economic development expenditures, perhaps a reasonable distinction could be made at the point that maintenance and upkeep of property would be expected to inure to the benefit of a private company if the property were offered as an incentive. Viewed through this lens, painting a building or repairing damaged plumbing would probably be appropriately characterized as an investment in the property (or rehabilitation) that would benefit a future owner, falling within the purview of subsection (b) of G.S. 158-7.1. But mowing grass or removing debris from property might reasonably be characterized as a short-term upkeep activity rather than an economic development activity.
Perhaps a distinction could be made between expenditures designed to prevent waste of the public asset, such as fixing a leaking roof or installing locks to prevent theft and vandalism, as opposed to expenditures to improve or rehabilitate the property. The former might be considered general maintenance expenditures rather than economic development expenditures under subsection (b).
Perhaps such distinctions would carry more weight—or at least would appear less arbitrary—if they were informed by general accounting principles related to capital expenditures versus ordinary operating expenditures.
The issue is further clouded in the case of property that was originally constructed or acquired for some other purpose and is now being repurposed for economic development—for example, an old county administrative building or property that was acquired through a tax foreclosure process. At what point in time does maintenance and upkeep of such property become an economic development activity rather than a general property maintenance activity related to the building’s original purpose? The answer is unclear.
These fine distinctions involve judgment calls on the part of the local government. In these cases where no bright line rule has been articulated in the statutes or case law, many local governments take a conservative approach and err on the side of holding a public hearing. However, other local governments reject the conservative approach and seek to make distinctions that allow them to avoid a public hearing for upkeep and maintenance expenditures. The latter governments should exercise caution, because what we know is that expenditures related to property that becomes part of an incentive transaction will be evaluated in light of the public purpose analysis of
Maready, which emphasized the importance of “strict procedural requirements” such as public hearings. A court would likely evaluate any distinctions used to avoid a public hearing with a critical eye, taking into account the over-arching public purpose of the expenditures and the public’s interest in remaining informed about economic development expenditures.
