Maready v. City of Winston-Salem
342 N.C. 708, 467 S.E.2d 615, 1996 N.C. LEXIS 150 (1996)
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Rule of Law:
A state statute authorizing local governments to make economic development incentive grants to private corporations for the purpose of increasing population, taxable property, and business prospects is constitutional under the public purpose clause and is not impermissibly vague, even if private entities receive incidental benefits, so long as the primary benefit accrues to the public. Closed sessions for discussing such incentives are permissible under the Open Meetings Law as long as final action is taken in public.
Facts:
- William F. Maready, a citizen and resident of Winston-Salem and Forsyth County, owns real and personal property subject to local property taxes.
- The City of Winston-Salem and Forsyth County engaged in twenty-four economic development projects, pursuant to N.C.G.S. § 158-7.1.
- These projects involved approximately $13.2 million in public funds, primarily from property taxes, provided as incentive grants to private corporations.
- City and county officials estimated these programs would increase the local tax base by $238,593,000 and create over 5,500 new jobs.
- The incentive grants typically reimbursed recipient corporations for purposes such as on-the-job training, site preparation, facility upgrading, and parking.
- Local government officials determined that public participation was necessary for projects to proceed, applied a formula to determine maximum assistance, and informally approved proposals during closed sessions.
Procedural Posture:
- William F. Maready (Plaintiff-appellant) initiated an action against the City of Winston-Salem, its Board of Aldermen, Forsyth County, its Board of Commissioners, and Winston-Salem Business, Inc. (Defendants).
- The State of North Carolina, ex rel. Michael F. Easley, Attorney General, intervened as a party defendant.
- The trial court conducted a three-day evidentiary hearing and oral argument.
- The trial court found N.C.G.S. § 158-7.1 unconstitutional, enjoined defendants from making further incentive grants, denied Maready's motion for a mandatory injunction to recover past grants, and dismissed the claim that defendants violated the Open Meetings Law.
- All parties appealed the trial court's decision.
- The North Carolina Supreme Court granted the defendant-appellants’ petition for discretionary review prior to a determination by the Court of Appeals.
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Issue:
1. Is N.C.G.S. § 158-7.1, which authorizes local governments to make economic development incentive grants to private corporations, unconstitutional because it violates the North Carolina Constitution's public purpose clause or because it is impermissibly vague and ambiguous? 2. Did local governing bodies violate the State’s Open Meetings Law by discussing and informally deciding on grant matters in closed sessions?
Opinions:
Majority - Whichard, Justice
No, N.C.G.S. § 158-7.1 is not unconstitutional, nor were the Open Meetings Laws violated. The General Assembly’s enactment of N.C.G.S. § 158-7.1 and related statutes clearly indicates a legislative determination that expenditures for local economic development serve a public purpose, and such legislative determinations are given great weight. The Court distinguished prior cases like Mitchell and Stanley, noting that the General Assembly now unequivocally embraces such expenditures, unlike its reluctance in Mitchell. Furthermore, constitutional amendments in 1973 (Article V, Section 9 and Article V, Section 2(7)) explicitly allow direct appropriation to private entities for public purposes and the issuance of revenue bonds for industrial facilities, thus removing the constitutional problems perceived in the earlier cases regarding the means used. Applying the two-prong public purpose test from Madison Cablevision, the Court found that economic development activities authorized by the statute have a reasonable connection to municipal convenience and necessity and primarily benefit the public generally by creating a stable economy, jobs, and a broader tax base, with private benefit being merely incidental. The Court also held that the statute is not impermissibly vague, as the General Assembly intended local governments to have broad discretion within statutory limits, as evidenced by N.C.G.S. §§ 160A-4 and 153A-4. Regarding the Open Meetings Law, the Court affirmed that N.C.G.S. § 143-318.11(a)(4) permits closed sessions for discussions relating to industry location or expansion. Informal approvals in closed sessions are lawful, provided that final action authorizing contracts or expenditures occurs at a public meeting after due notice. The requirement for “full and accurate minutes” of closed sessions refers to actions taken, not discussions, so cursory references to “discussion” are sufficient when no formal action is taken.
Dissenting - Orr, Justice
Yes, N.C.G.S. § 158-7.1 is unconstitutional as vague and ambiguous, and violates the public purpose clause. The majority's reasoning that new jobs and an increased tax base automatically result in significant public benefit is unsupported by the evidence, as the trial court found no economic distress and the projected benefits were limited (less than 4% of the workforce, 1.5% of the tax base). The dissent argued that the grants primarily benefited private companies for specific purposes like on-the-job training, site improvements, and even spousal relocation assistance, rather than the general public, thus contravening the principle from Mitchell that the ultimate gain must be the public’s, not that of an individual or private entity. The dissent found the distinctions from Mitchell and Stanley unpersuasive, stating that while constitutional amendments allow direct assistance, they still require a genuine public purpose, which was not met here due to the direct private benefit. The dissent also rejected the “changing times” theory for constitutional interpretation and emphasized the Stanley principle that aid to a private concern is not justified by incidental public advantage. Finally, the dissent expressed concern about the lack of limits under the majority’s theory and argued that while the closed meetings might technically fall under the Open Meetings Law exemptions, they violate the spirit of the law.
Analysis:
This case significantly broadens the interpretation of 'public purpose' under the North Carolina Constitution, allowing direct public funding to private corporations for economic development. It effectively reconciles state law with the common practice of offering business incentives, aligning North Carolina with the majority of other states. The ruling grants local governments considerable discretion in using taxpayer funds to attract and retain businesses, shifting the focus from preventing incidental private benefit to ensuring a primary net public gain. This precedent will likely embolden local governments in their economic development strategies and provides clarity on the permissible scope of closed sessions under the Open Meetings Law when discussing these incentives.
