Several bills enacted into law in 2005 broadened the power of localities in North Carolina, including the powers to enact zoning ordinances over state land, promote tourism, and the way localities may invest their money.

Some of the more far-reaching laws are explained below:

Senate Bill 528 (Session Law 2005-407) broadened the authority of local governments to promote tourism projects through “project development financing,” a form of tax increment financing. Sen. Daniel Clodfelter, D-Mecklenburg, was the sponsor of SB 528, but he explained that after the House version of the original SB 528 became law, the original version of SB 528 was replaced with its present language, allegedly to accommodate tourist projects in Brunswick County.

Rep. Paul Stam, R-Wake, one of 14 House members to vote against SB 528, explained his vote by saying that the bill represents an increase in the power of local governments to use Tax Increment Financing. TIFs are a bad idea, Stam said, because they involve “making the taxpayers pay for private enterprise.” Stam cited the arguments he made as counsel for the John Locke Foundation in an amicus brief filed in the case of Maready v. Winston-Salem.

An online article based on that brief refers to government incentives to private enterprise in the following terms: “These incentives merely redistribute jobs and growth from one area to another, or from one firm to another, or even from one individual to another. . . . The government substitutes its own judg[]ment in place of the collective, autonomous, free decisions of the market on what type of goods and services should be produced. Any such judgment by the government is inherently arbitrary and capricious.”

HB 1169 (Session Law 2005-394) is a fairly complicated bill that broadened the investment authority of local governments. Rep. Walter Church, D-Burke, one of HB 1169’s sponsors, calls it “an outstanding bill” that “releases a lot of funds available for lending.”

For more information on HB 1169, Church referred Carolina Journal to Paul H. Stock, executive vice president and counsel at the North Carolina Bankers Association. Stock explained the legal and financial background of the new law.

Previous statutes allowed local governments to invest their money in North Carolina financial institutions, but if a local government invested more than $100,000 in a North Carolina bank, the deposit wouldn’t be fully insured by the Federal Deposit Insurance Corporation, and a “collateralization procedure” would be needed instead.

A financial device known as the Certificate of Deposit Account Registry Service provides a way for depositors to make large investments without triggering the FDIC’s $100,000 cap. However, previous law didn’t allow local governments to avail themselves of the CDARS procedure and thereby get full FDIC coverage.

That’s where HB 1169 would come in, Stock said. Thanks to this new law, for example, a local government could make a $2 million deposit in “Bank X,” a state bank. Bank X could then arrange to divide up the money into (say) $92,000 increments to be distributed among many other different banks, avoiding the $100,000 cap and thereby providing full FDIC protection to the entire $2 million. That’s “two million dollars to invest in the local economy,” Stock said.

HB 669 (Session Law 2005-280), has to do with the zoning power of local government over state land. This history of this measure goes back to 2004, when, in Section 41(e) of a “technical corrections” bill (Session Law 2004-199), the legislature declared that state land would be subject to local zoning authority.

Section 41(e) also abolished the Council of State’s veto over the inclusion of state land within an overlay district or special use zoning district. The Council of State retained its veto over the inclusion of state land in a conditional use zoning district, but Section 41(e) allowed the Council of State to delegate its veto power.

HB 669, adopted one year later, repealed Section 41(e) of the 2004 “technical corrections” bill, restoring earlier limits on the authority of local government over state land.
Andy Romanet, general counsel for the North Carolina League of Municipalities, said Section 41(e) of the 2004 bill was “beneficial” to local governments, since it expanded their zoning authority. However, Section 41(e) was “unsought” by the NCLM, and, Romanet said, he could “understand” the views of those responsible for repealing 41(e) in the 2005 session.

Romanet said that sound legislative procedure frowns on the inclusion of substantive provisions in technical corrections bills, as he said was done with Section 41(e) in 2004. Therefore, the repeal of Section 41(e) by SB 669 didn’t elicit much opposition from the NCLM, Romanet explained.
Romanet said the “banking community,” not his organization, sponsored HB 1169.

Another bill affecting local government was HB 1117 (Session Law 2005-238), which makes some changes to the laws regarding local bond issues. Rep. Deborah Ross, D-Wake, sponsored HB 1117. She explained that, having formerly worked with municipal bonds as a lawyer, she was approached to introduce the bill embodying bond reforms recommended by the State Treasurer’s Office.

The Local Government Commission, part of the treasurer’s office, which since the Depression has been responsible for reviewing proposed local bond issues, generates ideas for possible legal changes every couple of years, updating and modernizing the law regarding local borrowing. HB 1117 is a “bipartisan” measure, Ross said, supported unanimously in both houses of the legislature.

William McBride, a lawyer in private practice with the Raleigh firm of Hunton and Williams (and Ross’ former boss at that firm), was consulted by the treasurer’s office in the process leading to the introduction of HB 1117. McBride says HB 1117 didn’t adopt “great big sweeping changes,” but was a “general clean up” of various legal provisions.

These provisions slightly increase the objectives for which bonds may be issued, and the collateral that may be pledged. McBride said the broader powers of local governments under the bill remain subject to the Local Government Commission’s veto over local bond issues.

Maximilian Longley is a contributing editor to Carolina Journal.