The state-owned North Carolina Railroad Company, which has become a major financial player in the evolving Greensboro-Randolph Megasite in Randolph County, has refused numerous requests from Carolina Journal to turn over records that might reveal where it obtained millions of dollars to complete recent land purchases.

CJ first asked on March 28 for all minutes of the railroad’s board of directors meetings dating from September 2015 in an attempt to collect more information on the process that led to the board’s decision to buy land.

Board Chairman Franklin Rouse refused to share the minutes. “It is our policy to not share confidential economic development or other information which can affect active negotiations, legal matters or economic development projects.  If you have specific questions about board matters, I’d be glad to entertain them,” Rouse wrote on March 29.

In subsequent discussions about obtaining meeting minutes, Rouse said that NCRR is a private company, not a state agency, and suggested it is exempt from the laws that apply to all state and local government agencies, such as the state’s public records law.

Attorney Amanda Martin, general counsel to the N.C. Press Association and a specialist in open meetings and public records, said, as an asset of the state, NCRR should be forthcoming with records and documents.

“Without question, NCRR is an asset of the state. If the state wants to be forthcoming and there is nothing to hide, it is well within the power of NCRR officials to release documents and they should if doing so would shed light on the operations of a state asset,” she said.

The company’s most recent annual report indicates it didn’t have enough cash on hand to make the land transactions.

Railroad company officials have given inconsistent and conflicting answers about the source of funds. A few days before concluding the land purchases, a company official also told CJ the railroad didn’t have the money on hand.

As CJ reported earlier, the Greensboro-Randolph Megasite may be years away from being ready to host an automobile manufacturer or other major industrial site. Meanwhile, two locations — one in Chatham County and another in Edgecombe County — have completed a state certification process for industrial sites that the Randolph site has not. The Chatham and Edgecombe locations have received no financial support from NCRR. Moreover, there is significant local opposition to the proposed Randolph site.

The N.C. General Assembly established the railroad as a private company in 1848, but the state is the only shareholder.  The governor and legislative leaders appoint NCRR’s 13 board members, and the company is subject to oversight by the General Assembly. NCRR owns and manages a 317-mile rail corridor connecting Morehead City to Charlotte.

The NCRR announced in January that it would spend $13 million to purchase 875 acres of private land for the 1,500-acre Randolph project for the purpose of attracting a major manufacturing facility.

Previous CJ stories noted the railroad’s participation and investment in the project was a deviation from its stated mission “to develop the unique North Carolina Railroad assets for the good of the people of North Carolina.” NCRR’s rail corridor is in Greensboro approximately 13 miles from the site. A rail line owned by Norfolk Southern is adjacent to the site in northeast Randolph County.

North Carolina Railroad's rail corridor runs east-west through Greensboro and never gets closer than 13 miles to the Greensboro-Randolph Megasite. (CJ graphic)
North Carolina Railroad’s rail corridor runs east-west through Greensboro and never gets closer than 13 miles to the Greensboro-Randolph Megasite. (CJ graphic)

The project

The property, located along U.S. 421 west of Liberty in Randolph County, is under the control of three entities: Randolph County, NCRR, and the Greensboro-Randolph Megasite Foundation Inc., a nonprofit established to help develop the site.

The three entities have approved a document titled “Greensboro-Randolph Megasite Project Agreement,” laying out the responsibilities and duties of the organizations. The agreement states that all decisions need to be unanimous.

Since it has promised to provide water and sewer services to the site, the city of Greensboro is in effect a fourth partner, even though the city is not a signatory to the agreement. According to the agreement, the goal is to recruit a “high-yield project” that would employ a minimum of 1,750 workers.

The agreement states that Randolph County has purchased 425 of the 1,400 acres for the location. The Megasite Foundation has purchased 43 acres and plans to purchase another 70 acres. The NCRR is in the process of acquiring 862 acres in 19 separate parcels.

Source of funds

The railroad has provided conflicting reports about its schedule for acquiring property and its source of funding for the acquisitions.

According to its 2014 Annual Report, NCRR’s primary revenues of nearly $15 million came from leasing its tracks to Norfolk Southern Railway. NCRR had a net income of $4.1 million.

On Feb. 17, CJ asked NCRR spokeswoman Megan Hoenk where it would get $13 million for the land purchases. Citing the annual report, Hoenk said, “if you want to determine an estimated annual cash flow, you should also consider depreciation totaling $10,509,215. The $13 [million] will largely come from sales of legacy properties no longer used for railroad purposes, such as old right-of-way and smaller storage yards,” she replied.

In a March 18 email, Rouse said, “As we stated in our discussion with you in January, we are in the process of completing our due diligence on the properties within the site, with closings expected within the next few months. The purchase of these properties will be funded in part through sales of legacy properties no longer used for railroad purposes.”

The process moved much faster than that, and the railroad made public statements that varied from those given to CJ. On April 4, NCRR President Scott Saylor wrote to Randolph County Commission Chairman Darrell Frye, stating, “Within the next two weeks, we will close on the majority of the properties, followed by completing all remaining closings within the few months that follow, consistent with contracts and the sellers’ expectations.”

Saylor also stated that his board had set aside enough money to buy all the property and that NCRR would use “a wholly-owned LLC structure in order to optimize NCRR’s income tax planning.”

On April 5, NCRR chief financial officer Daniel Halloran registered two new limited liability companies with the N.C. Secretary of State: North Carolina Railroad Lessee LLC and North Carolina Railroad Holdings I LLC.

On April 13, NCRR Holdings bought 14 parcels totaling 633 acres. Excise taxes indicate the total purchase price was $8,007,500.

One was a 16-acre parcel already owned by the Megasite Foundation. NCRR Holdings paid $419,500 for it even though the foundation paid $399,500 for the same property in December.

That same day NCRR Holdings granted a deed of trust to NCRR for a stated indebted amount of $8,402,404, indicating that NCRR loaned NCRR Holdings the purchase money and used the newly purchased properties as security for the loan.

When asked about the source of the funds, Rouse responded in an April 19 email: “The purchase funds are from NCRR funds set aside for this purpose. None of the funds for Randolph purchases were borrowed. Regarding your question about the sale of land, no land was sold for this transaction.”

Legislative oversight

Even though NCRR is a private company, state law requires it to submit an annual report to the Joint Legislative Commission on Governmental Operations and the Joint Legislative Transportation Oversight Committee. At press time, Rouse said the 2015 report is being prepared and is not available.

The report must include a copy of the company’s strategic plan and capital investment plan; a list of properties owned; compensation paid to officers and directors; descriptions of any transactions between the company and directors, officers, and their family members; and anticipated dividends for the next three fiscal years.

Transportation Oversight Committee Co-Chairman Sen. Bill Rabon, R-Brunswick, said, “I have no idea,” when asked if he thought the railroad should abide by the public records law. Rabon, a veterinarian, suggested contacting committee member Sen. Warren Daniel, R-Burke, an attorney who also serves on the oversight committee. Daniel told CJ he would look into the matter.

The laws

Martin, the NCPA’s attorney, said two laws — the open meetings and public records laws — may apply to CJ’s request for NCRR meeting minutes.

The laws seek to establish whether an organization is legally or functionally part of government. The open meetings law applies to any organization that comprises two or more members who are elected or appointed by government. It includes decision-making and advisory boards. Even a citizen advisory council to the Wake County Board of Commissioners is subject to the open meetings law. She said because NCRR board members are appointed by the governor and the legislature, NCRR appears to be subject to the open meetings law, meaning members of the public and reporters can attend board meetings.

The public records law is less precise, she said. It applies to any public agency, including any agency of North Carolina government or its subdivisions, elected or appointed institutions, and boards. A court would look to determine how independent or how much government control exists over an organization.

In the case of NCRR, she said it’s unclear how much the company is controlled by government, and if the agency continues to fight CJ’s records requests, the matter may have to be decided by a judge in court.

But she added not every dispute over public records needs to go to court. NCRR could decide to comply with a request based on the public’s right to know how government entities operate.