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The More Things Change...Changes in the Local Development Act

NC Bar Association Government and Public Sector Section newsletter | Public Servant

March 7, 2016

The following first appeared in the NC Bar Association Government and Public Sector Section newsletter, "Public Servant."

N.C.G.S. § 158-7.1, “The Local Development Act” (the “Act”) is the primary statutory authority under which local governments are authorized to make appropriations or to utilize real estate (business parks or buildings) to enhance or promote economic development.

Subsection (a) of the Act has been in existence since 1925. This subsection grants extremely broad discretion to the governing board of the city or county to make appropriations to support economic development. This language has been relied upon since 1993 by many local governments to make direct grants to companies to encourage them to locate new facilities or expand existing facilities within or proximate to the local government’s jurisdictional territory.

Subsection (b) of the Act, which was enacted much later than subsection (a), lists specific activities local governments may undertake to promote economic development. In general, these activities include authority to acquire and develop or construct business parks and buildings to assist in recruiting industry. It is under subsection (b) that local governments derive the authority to convey or lease land or buildings on a negotiated basis (as opposed to utilizing a public bid process), below fair market value to encourage companies to locate new facilities or expand existing facilities within or proximate to the local government’s jurisdictional territory.

Prior Hearing Requirements

Subsection (c) of the Act, until a recent amendment referred to below, provided in part that:

“(c) Any appropriation or expenditure pursuant to subsection (b) of this section must be approved by the county or city governing body after a public hearing. The county or city shall publish notice of the public hearing at least 10 days before the hearing is held.”

This seemed to clearly indicate that real estate-oriented recruitment incentives required a public hearing, preceded by at least a 10 day public notice, be conducted before the local governing board could act on a decision of whether to implement that incentive. Also, this statutory language seemed to plainly specify that a public notice and public hearing were not required for a direct cash grant under subsection (a) of the Act.

Hearing Requirements Now

Session Law 2015-277, signed by Gov. McCrory on Oct. 20, 2015, made a number of amendments to the Act. Among these revisions included the deletion of the portion of subsection (c), which is cited above, referencing the language “subsection (b) of.” It is quite clear now that, by statute, a public notice of 10 days and a public hearing are required before a local government board can act on direct cash incentive grants under subsection (a).

So, is this a significant procedural change? Not really.

Is This a Change in Actual Practices?

Since 1993, local governments have been utilizing incentives more frequently. Now they are routine in industrial recruitment efforts and most local governments issue public notices and hold public hearings for direct cash incentive grants under subsection (a) of the Act. Why is this the case? The statutory language of subsection (c) of the Act did not require these procedural steps prior to Session Law 2015-277. There were three reasons.

First, some attorneys have interpreted language in the 1996 case, Maready v. Winston-Salem, 342 N.C. 708, to require this for direct cash incentive grants under subsection (a) of the Act. Although the Supreme Court cited these “strict procedural requirements” as desirable protections against an abuse of a local government’s incentive power, this writer never interpreted the Maready ruling as requiring these procedural steps for direct cash grants under subsection (a) of the Act.

Secondly, whether these procedural steps are required or not by the Maready ruling, going through these procedural steps is a desirable “hedge” against any potential future legal challenge. Having taken these measures would provide a stronger position in court. Since almost all public hearings do not result in any citizens appearing to oppose the possible incentive measures, why not hold a public hearing preceded by a public notice?

Lastly, having a public hearing is good politics. It is an opportunity for elected officials to get publicity and public credit for supporting the creation of new jobs and property tax base enhancements. Also, going through these procedural steps provides “political cover” from any constituents who later complain about the incentive measures.

So, has there been a change on public notice and public hearing requirements for direct cash grants under subsection (a) of the Act? Statutorily, yes there has been; however, from a practical, historical point of view, little has changed.

There were other amendments to the Act that are worthy of note. But those revisions are not the subject of this article.

Sometimes the more things change, the more they remain the same.

Ernie Pearson is a member of Nexsen Pruet PLLC whose practice has focused on economic development matters since 1993, when he left state government after serving as Assistant Secretary of Economic Development for the State. He can be reached at (919) 755-1800 or at