News: CJ Exclusives

Prisons Continue Trend on Nonprofits

State to avoid voter referendum on construction debt

The North Carolina General Assembly has fallen in love with nonprofit organizations that shield it from the direct responsibility for special projects funded by taxpayers.

One example is Golden LEAF, which administers half the state’s share of the 1998 lawsuit settlement with tobacco companies. Another is the E-NC Authority, which distributes public funds for Internet access in rural areas of the state.

Two years ago the legislature authorized a new way to finance capital projects without the need for voters to approve new debt, as the constitution mandates. The method was used to build three prisons.

The legislature required State Treasurer Richard Moore to create the nonprofit North Carolina Infrastructure Finance Corp., which would be owner and landlord of the prison properties. The state was able to skirt the voter-approval requirement because technically it is the finance corporation taking on the debt, then turning around and allowing the state to use the facilities under a lease-purchase agreement.

The state may not be the borrower, but the only way the finance corporation could obtain its funding was because the state is obligated to make the lease-purchase payments.

Former Deputy State Treasurer Charles Heatherly said at the time, “I don’t think it’s legal. If this is legal, then we can just borrow money for everything.”

Heatherly’s prophecy came true June 30 when Gov. Mike Easley signed the budget for fiscal 2004-05. Lawmakers authorized lease-purchase agreements to build three more prisons ($234 million).

Similar arrangements will allow the state to finance: two prisons that were previously run by a private company (cost not determined yet); preliminary work on three juvenile delinquency facilities ($6.8 million); a new state psychiatric hospital ($110 million); funding for renovation and repairs to state property ($300 million); and a “Structural Pest Control Training Facility” at North Carolina State University ($310,000).

Chesser is associate editor at Carolina Journal.