A three-judge panel of the North Carolina Court of Appeals heard oral arguments Monday in a case that could impact how state legislators allocate economic incentives in the future.
A lawsuit, filed by the N.C. Institute for Constitutional Law on behalf of two Charlotte-area residents, seeks to force Johnson & Wales University to refund $7.5 million in taxpayer funds the culinary school has received since 2003.
The university decided to consolidate two of its campuses in Virginia and South Carolina into one $82 million facility in downtown Charlotte after then-House Speaker Jim Black and Senate President Pro Tem Marc Basnight, both Democrats, pledged millions in state money to the project in 2002.
In a letter to Johnson & Wales president Jack Yena, Black laid out the specifics of his pledge. “You have my personal commitment of support for a $10 million investment over the next five years by the State of North Carolina for this project,” Black wrote.
The remaining portion of Black’s promise hasn’t been fulfilled. During the last legislative session, bills were introduced in the House and Senate to allocate another $2.5 million, but both died in committee.
The NCICL suit (PDF download) alleges that the plaintiffs were “harmed by the cash grants” to the school because the allocations diminished taxpayer funds available for other lawful purposes. NCICL is asking the court to declare the incentives “unauthorized, unlawful, unconstitutional, and arbitrary.”
The crux of the suit, said NCICL staff attorney Jeanette Doran, is that legislators never explained adequately their reasons for giving funds to Johnson & Wales.
“We have no idea why the government gave out $7 million, other than we know that Jim Black made what he described as a personal commitment,” she said.
A superior court dismissed the case last year, ruling that the funds for the school were appropriate.
In a brief (PDF), attorneys for Johnson & Wales argued that the allocations were legal and constitutional. State courts “have repeatedly and consistently held that appropriations of this type to private nonprofit educational institutions fulfill two important public purposes — education and economic development — and do not violate the Constitution of North Carolina,” they wrote.
“The grants in this case all served a public purpose by stimulating the economy … and training people the General Assembly hoped would attract new industry in these changing economic times,” said Reed Hollander, the culinary school’s lawyer, at oral arguments Monday, according to the Associated Press.
Although the first allocation in 2003 required the funds to go to Johnson & Wales’ Charlotte campus, the subsequent appropriations weren’t specific, Doran said. Johnson & Wales has a presence in Colorado, Florida, and Rhode Island, in addition to North Carolina.
“There is nothing that would require them to spend that money here,” Doran said.
The case could be appealed to the N.C. Supreme Court after the appellate court rules.
David N. Bass is an associate editor of Carolina Journal.