1996 North Carolina Legislation Concerning Planning, Development, and Land-Use Regulation

Planning and Zoning Bulletin

Number 7
October 1996
Richard D. Ducker, Editor

Richard D. Ducker and David W. Owens

This year was relatively quiet for planning and development issues. There were few statewide laws of interest adopted, and some of the expected controversies did not materialize. Bills to mandate compensation for reductions in property value due to land-use regulations were not considered this session. A bill limiting the use of amortization to remove nonconforming outdoor advertising was defeated in committee with little debate.

The General Assembly did adopt some legislation of note, however. It changed the process cities must use to adopt and amend the boundary ordinance defining a city's extraterritorial planning jurisdiction and the composition of municipal planning boards and boards of adjustment when this authority is used. It shortened the time for filing court challenges to zoning amendments, and it authored an election on highway bonds. In addition, the legislature adopted new initiatives concerning the management of intensive livestock operations, preserving and restoring wetlands, and generally addressing the nonpoint source impacts on the state's water quality. A number of local bills were also adopted.

Extraterritorial Planning Jurisdiction

Some of the most important planning and zoning legislation enacted in 1996 concerns the authority of cities to plan and control land development outside their corporate limits. Except for several last-minute amendments dealing with municipal annexation and the statutes of limitations for challenging zoning actions (discussed below), Chapter 746 (H 1083) bears a relatively close resemblance to legislation recommended by the Property Issues Study Committee of the Legislative Research Commission during the spring of 1996. In this regard Chapter 746 includes the only legislation adopted that is based on the recommendations of the study committee.

The municipal extraterritorial legislation included in Chapter 746 is clearly designed to benefit residents in a city's extraterritorial planning area (ETPA). The new law requires cities to give additional notice to residents outside city limits when an ETPA is expanded. It gives greater emphasis to the process that the county uses for appointing members to city planning boards and boards of adjustment. Finally, it requires that the number of "inside" and "outside" members on these boards be proportionately related to the relative population of the city and the ETPA. The new law became effective October 1, 1996. The provisions governing notice to ETPA residents apply when a city chooses to amend its extraterritorial boundary ordinance. However, the changes calling for proportional representation on city boards have the practical effect of requiring a city exercising extraterritorial planning jurisdiction to assess its representation arrangements right away and, if necessary, to amend the text of its planning and zoning ordinances as soon as possible.

The first set of changes brought about by Chapter 746 concern the notice that a city must provide to owners of property in an area proposed for a city's ETPA. To establish or extend an ETPA, a city must adopt an extraterritorial boundary ordinance after holding a properly advertised public hearing. Chapter 746 requires that all owners of land in an area proposed for municipal extraterritorial jurisdiction be notified of the hearing by first-class mail. The notice must inform the landowner of (1) the effect of the extension of extraterritorial jurisdiction, (2) the landowner's right to participate in a municipal public hearing to consider the extension of the ETPA, and (3) the right of area residents to apply to the board of county commissioners to be appointed as representatives on the municipal planning board and the municipal board of adjustment. Unfortunately, the new law requires that this special notice to adopt the extraterritorial boundary ordinance be mailed at least four weeks in advance of the hearing. In contrast, the notice advertising proposed zoning amendments must be mailed at least ten but not more than twenty-five days before the date of the hearing. The four-week notice requirement makes it impossible for a city to combine notice of a hearing to adopt an extraterritorial boundary ordinance with notice of a hearing to amend the zoning map that will apply in the new area, even though both hearings could be held simultaneously.

The second set of changes brought about by Chapter 746 concerns the appointment of extraterritorial residents to city boards. Under the new law the board of county commissioners must hold a public hearing of its own before making appointments to the municipal planning board and municipal board of adjustment. The county hearing on appointments must be advertised by newspaper once a week for two successive weeks prior to the hearing. One important change is that the board of commissioners may only appoint someone who applies for the appointment at or before the hearing. The board must make the appointments within forty-five days following the hearing. The law still requires, however, that the county make the appointments within ninety days following the city's request that the appointments be made or else the right to appoint "outside" members to city boards is forfeited to the city council. Chapter 746 also clarifies that once a municipality provides by ordinance for an adequate number of ETPA representatives on the planning board and board of adjustment, the powers of these boards are not affected by the failure of the county to make prompt appointments to those municipal boards.

The final set of changes affects the representation of ETPA residents on city boards. The new law requires their representation to be "proportional" and to be "based on population." The thrust of the new law seems to be to equalize the per-capita representation of extraterritorial members on city boards with the per-capita representation of city members on these boards. For example, a city with a population of 12,500 and a board of adjustment with five city members would be obligated to provide an ETPA representative for every 2,500 residents in the ETPA. Chapter 746 seems to provide, however, that a city may disregard fractions when figuring how many residents of the ETPA it needs to add to an existing board. Thus, in the example above, if the board already included one ETPA resident, the city would not be obligated to add a second outside member until the extraterritorial population reached 5,000.

Two local acts affected the extraterritorial planning jurisdiction (ETPJ) of particular towns. Chapter 558 (H 1230) removes an existing charter limitation to allow the town of Maggie Valley to exercise ETPJ. Chapter 580 (S 1190) grants the extraterritorial planning jurisdiction described in the act to the town of Wallace.

Annexation

Bills That Failed to Pass

The most prominent annexation news from the General Assembly concerned statewide annexation legislation that failed to pass. The Property Issues Study Committee of the Legislative Research Commission, which met throughout the winter and spring of 1996, spent much of its time discussing proposals that would make annexation by the standards and services method (involuntary annexation) more difficult for cities. The committee recommended two annexation bills for introduction in the short session. Both H 1082 (affecting larger cities) and H 1084 (affecting smaller ones) would have altered various features of the so-called "urban standards test"; would have increased various notice and reporting requirements for cities; and would have provided that if water, sewer, or road paving services specified in the annexation report were not provided within two years of the annexation's effective date, the affected property owner would be entitled to reimbursement for back property taxes and would not be liable for future taxes until services were provided. Both bills were introduced in the House by Representative Sam Ellis (R-Wake), who served as the study committee cochair, and were referred to the House Local Government and Regional Affairs Committee II, chaired by Ellis. However, the committee adopted committee substitutes for both bills that removed virtually all of the most important changes in the law advocated by the Property Issues Study Committee. The committee substitutes for both H 1082 and H 1084 were later amended on third reading on the House floor to require a three-fourths vote by a city council to adopt an involuntary annexation. Although the bills passed the House, the annexation proposals failed to advance in the Senate. Both bills were allowed to die in a Senate committee.

Municipal Actions for Lost Revenue

One relatively unimportant remnant of the bills recommended by the Property Issues Study Committee was tagged onto Chapter 746 (H 1083). It prevents a city from defending an annexation suit by countersuing for lost property tax revenues while the case is on appeal. It will apply retroactively to a suit involving the town of Cornelius, but the provisions should have little impact otherwise.

Local Acts

Almost a dozen local annexation acts were also adopted. Chapter 6 (2d Ex. Sess.) (H 15) annexes an area described in the act to the town of Mount Olive, effective July 31, 1996. Chapter 7 (2d Ex. Sess.) (H 17) corrects and clarifies the boundaries of the town of Danbury and validates past actions taken by the town with respect to territory thought to be within the town at the time. Chapter 654 (S 282), affecting the city of Rockingham, amends Section 160A-58.1(b)(4) of the North Carolina General Statutes (G.S.), which prohibits the satellite annexation of less than an entire subdivision, to allow such annexation if the area is developed for commercial or industrial use. Chapter 3 (2d Ex. Sess.) (H 4) amends the same statute as it applies to the city of Henderson to allow the annexation of a satellite that is within three miles of the primary limits of another city, if the other city consents to the annexation by ordinance and a copy of the ordinance is attached to the annexation petition when it is submitted to the annexing city. Chapter 707 (H 1357) amends the charter of the city of Edenton to exclude satellite annexation airport property from G.S. 160A-58.1(b)(5), which limits the total land area of satellites to 10 percent of the land area within the primary corporate limits of a city. Chapter 692 (S 1244) accomplishes the same result with respect to the airport owned by the city of Wallace. Chapter 8 (2d Ex. Sess.) (H 34) includes a similar exclusion with respect to annexed property described in the act that is added to the town of Spruce Pine.

Several acts remove territory from the corporate limits of a city. Chapter 697 (H 1272) "deannexes" territory described in the act from the city of Statesville, Chapter 5 (2d Ex. Sess.) (H 6) removes certain territory from the corporate limits of the town of Spruce Pine, and Chapter 660 (S 1389) does the same with respect to a parcel of land mistakenly annexed by the city of Albemarle. Chapter 12 (2d Ex. Sess.) (H 20) allows the town of Four Oaks to repeal by June 30, 1997, any satellite annexation ordinance it had previously adopted. (The repealing ordinance must recite that the town was unable to obtain funding to extend municipal services.) Another act, Chapter 640 (S 1365), adjusts the boundary between the Garner city limits and the Raleigh extraterritorial zoning jurisdiction line so that the new boundary will coincide with the relocated alignment of Mechanical Boulevard.

Zoning

Time Period for Challenging Zoning Amendments

In a surprise move, the General Assembly on the last day of the 1996 regular session reduced to two months the period within which judicial challenges to zoning amendments must be filed.

The General Assembly in 1981 enacted a nine-month time period within which challenges to zoning map and text amendments must be filed. In a series of cases since that time, courts have applied this statute of limitations to dismiss various legal challenges to city and county zoning map amendments, to the adoption of extraterritorial zoning, and to the adoption of sign amortization requirements, all because the suits were filed more than nine months after adoption of the provisions in question.

Chapter 746 (H 1083) began life as one of the recommendations of the Property Issues Study Committee addressing municipal extraterritorial planning issues. The study committee had not discussed the issue of statutes of limitations, and the original bill as introduced did not address this issue at all. The provisions to amend the statute of limitations appeared for the first time in a Senate committee substitute that was presented to and adopted by the Senate Judiciary II committee on June 20. The bill including this feature, advocated by the North Carolina Homebuilders' Association, was approved by the committee that day, and both the full Senate and House adopted the amended bill the following day, the final day of the 1996 regular session. The law amends G.S. 1-54.1, G.S. 153A-348, and G.S. 160A-364.1 to provide that appeals must be filed within two months of adoption rather than nine months. The legislation became effective October 1, 1996.

Gun Regulation

Chapter 727 (H 879) establishes a policy of uniform state standards for a number of local regulations on guns, including restricting local zoning control of various aspects of gun sales. The law creates G.S. 14-409.40 to provide that zoning must treat the sale of firearms the same way it treats any other commercial activity. Similarly, firearm shows must be treated the same way as any other commercial show. In other words, zoning regulations may not single out firearms sales and shows for more restrictive treatment. There is one exception to address safety concerns near schools. The new statute does allow local governments to require a special or conditional use permit for any commercial firearms activity within a set distance from a school and authorizes the permit to be granted only if the use does not pose a danger to the health, safety, or welfare of those attending the school.

Amortization

Proposed limits on local authority to use amortization to phase out zoning nonconformities was expected to be a major issue in 1996. It was not. H 220, adopted by the House in 1995 and eligible for consideration in 1996, would have prohibited the use of amortization of outdoor advertising. The bill was defeated in the Senate Judiciary II committee and the issue received no other legislative consideration this session.

Local Bills

Two local bills affecting zoning were adopted in 1996. The first brings zoning referenda to Calabash. This is a popular tool in some parts of the country but relatively rare in North Carolina. Chapter 621 (H 1384) sets a height limit of thirty-five feet for buildings (excluding belfries, cupolas, antennas, water tanks, chimneys, and the like) in Calabash. The law allows the town council to grant exceptions, subject to voter approval. Similar legislation, affecting Long Beach and Holden Beach, has already been in effect for several years.

The second local bill, Chapter 684 (H 1401), amends the Fayetteville city charter to remove specific references to the Cumberland County Joint Planning Board, thereby allowing Fayetteville to withdraw from the joint board and create its own individual planning board. The joint board had been established by interlocal agreement in 1968 with membership from Fayetteville, Cumberland County, and seven other municipalities in the county. The remaining joint city-county planning boards in the state include Charlotte/Mecklenburg County, Winston-Salem/Forsyth County, and Durham/Durham County.

Subdivision Regulation, Developer Exactions, and Streets

All the acts relating to subdivision regulation, developer exactions, and streets were local acts. Chapter 565 (S 1245) amends G.S. 160A-376, the statute defining "subdivision" for purposes of regulation, to add certain exemptions that apply to land within the extraterritorial planning jurisdiction of the town of Rose Hill. Chapter 722 (H 1138) amends the Apex charter to allow the town to regulate the subdivision of land by establishing fees in lieu of park land or open space dedication that are based on a per-dwelling-unit charge without reference to property tax valuation. However, the fee may not exceed the fair market value of the land that would otherwise be required to be dedicated, measured at the time the initial application for plat approval is made. The act also authorizes the town to condition approval of zoning site plans upon the dedication or reservation of property, the making of public improvements, or the payment of fees in lieu of dedication, reservation, or public improvements.

Chapter 757 (S 1380) allows Durham County to provide in its subdivision control and zoning ordinance that a developer may pay fees in lieu of constructing required sidewalks. Such fees must be deposited in a capital improvements reserve fund and may be expended only for sidewalks that benefit the development for which they were collected. Chapter 613 (H 1137) expressly allows the town of Fuquay-Varina to accept by resolution the dedication of any interest in land for street, utility, or other town purposes, either inside or outside town limits. In addition, it provides that the town's acceptance of such an interest by resolution defeats any attempt to with-draw an offer of dedication pursuant to G.S. 136-96.

Historic Preservation

One development of note to those interested in historic preservation involves the increased oversight that the General Assembly has chosen to exercise over the acquisition of historic properties by the North Carolina Department of Cultural Resources after the decisions have been approved by the North Carolina Historical Commission. Section 7.7 of the Appropriations Act, Chapter 18 (2d Ex. Sess.) (H 53), requires the historical commission to report to and consult with the Joint Legislative Commission on Governmental Operations before acquiring, restoring, or disposing of property of historical, architectural, archaeological, or other cultural importance. If real estate is involved, the historical commission must report the following information to the commission on governmental operations: (1) the statewide historical significance of the site, (2) the potential uses of the site, (3) the capital requirements associated with the site over a twenty-year period of time, (4) the annual operating costs associated with the site, (5) the expected levels of site visitation, and (6) other information that would assist in determining the full cost of maintaining, operating, and administering the site as state property.

Environmental Protection

Animal Waste

The emergence of large-scale intensive livestock operations in North Carolina, particularly very large hog farms in the eastern part of the state, focused attention on the adequacy of state environmental management programs to manage the impacts of these operations. Large and highly publicized spills from hog waste lagoons late in the 1995 session of the General Assembly spurred the adoption of several laws and the creation of a Blue Ribbon Study Commission on Agricultural Waste. The commission adopted a series of recommendations for consideration by the 1996 session of the General Assembly. What resulted was the adoption of Chapter 626 (S 1217).

This law creates G.S. 143-215.10A to G.S. 143-215.10G to establish a permitting system for large-scale animal operations. The permitting requirement (which will become effective January 1, 1997, and has a five-year phase-in period) applies to animal operations with 250 or more swine, 100 or more confined cattle, 75 or more horses, 1,000 or more sheep, or 30,000 or more poultry. Permits are issued by the Division of Water Quality (DWQ) in the Department of Environment, Health, and Natural Resources (DEHNR) and require the waste systems to generate no pollution (except as the result of a storm so severe that it occurs not more frequently than once in twenty-five years). A waste management plan must be approved by technical specialists approved by the Soil and Water Conservation Commission before it is submitted as a permit application. At least once a year these technical specialists review each animal operation for its efficiency, and the DWQ reviews it for permit compliance. The law also establishes a graduated annual permit fee that ranges from $50 to $200 and is based on the size of the operation. Chapter 626 repeals G.S. 143-215.74C to G.S. 143-215.74F, which provide for animal waste application. These provisions had been adopted in 1995 and were to become effective on January 1, 1997. The law also makes conforming changes to G.S. 143-215.1(a) (list of activities requiring permits) and G.S. 143-215.2(a) (special orders of consent). Maximum penalties provided by G.S. 143-215(e) for violations of discharge permits are raised from $5,000 to $10,000. Finally, the law creates G.S. 90A-47 to G.S. 90A-47.6 to require certification of animal waste system operators as of January 1, 1997. Certificates are to be issued by the Environmental Management Commission, and operators are required to have at least ten hours of classroom instruction prior to sitting for the certification exam. At least six hours of continuing education is required every three years to maintain a certificate without having to retake the exam.

The law amends the swine farm siting requirements initially adopted in 1995. It amends G.S. 106-803 to increase from 100 feet to 500 feet the distance swine houses and lagoons must be set back from the property boundary (the setbacks of 1,500 feet from an occupied residence and 2,500 feet from a church, school, or hospital were not amended). The increased setback applies to swine farms that had not completed the required site evaluation prior to October 1, 1996. New G.S. 106-804 provides that directly affected persons can bring civil actions to enforce the siting requirements. In addition to injunctions, these persons can recover damages and costs (including fees for attorneys and expert witnesses). G.S. 106-805 requires applicants for animal waste management systems to provide certified mail notice of their applications. The notice must be sent to adjoining property owners and those across a public road from the proposed site. Proposals for published notice were discussed but not included in the law.

The law also amends G.S. 143-74(b) to allow agricultural cost share funds to be used to assist in lagoon closure, riparian buffers, odor and insect control, and other aspects of animal waste management and increases the maximum grant from $15,000 to $75,000 per applicant (the current cost share formula, 75 percent for the state and 25 percent for the applicant, remains). Finally, the law mandates several reports. The Division of Soil and Water Conservation, the Cooperative Extension Service, and the Department of Agriculture are directed to prepare a coordinated plan for addressing nonpoint source pollution prevention and control. The plan was to be submitted to legislative committees and commissions by September 30, 1996. The Environmental Review Commission is to evaluate the permitting program this law establishes and report to the 1997 General Assembly about whether to transfer permitting responsibility to the Division of Soil and Water Conservation from the Division of Water Quality. By October 1, 1996, the Environmental Management Commission was to review its definitions of "chronic rainfall" and "no discharge" as they relate to animal waste systems. The Soil and Water Conservation Commission is to specify best management practices for odor control by September 1, 1996. An interagency group is also created to provide technical support and coordination of the implementation of these new program requirements.

Water Quality Initiatives

Two major new programs were created by the 1996 budget bill adopted in the special session of the General Assembly. The Senate had proposed creation of a new Clean Water Management Trust Fund and the House had proposed a more focused Wetlands Restoration Program. Both new programs were included in Chapter 18 (2d Ex. Sess.) (H 53).

The Clean Water Management Trust Fund. The Clean Water Management Trust Fund may well become a significant part of the state's water quality efforts. The fund will automatically receive 6.5 percent of the state's unreserved credit balance at the end of each year. This provides $47.1 million for the fund in 1996–97. Grants may be made from the fund to state and local governments and nonprofit conservation groups. Among the projects that may be funded are acquisition of riparian buffers, acquisition of conservation easements, restoration of degraded lands, repair of failing waste treatment systems and septic tanks, elimination of illegal drainage connections, stormwater control, and planning for reductions in surface water pollution. Policy oversight, rule-making, and establishment of grant criteria for this program are assigned to a new eighteen-member board of trustees. The board will hire an executive director to staff the program. The administrative costs and operating expenses incurred for the program are to be paid by the fund but are subject to a cap of 2 percent of the fund or $850,000 (whichever is less). The statutory provisions concerning the fund are codified as G.S. 113-145.1 to G.S. 113-145.8.

The Wetlands Restoration Program. The Wetlands Restoration Program is intended to restore wetland functions and values across the state, to assist with wetland mitigation requirements of the Corps of Engineers imposed under the federal Section 404 wetlands regulatory program, and to streamline the wetlands permitting program. The program is to be based in part on seventeen basin-wide plans for wetland and riparian-area restoration required to be developed by DEHNR. The program is intended to facilitate compliance with Section 404 mitigation requirements by allowing mitigation fee payments into a Wetlands Restoration Fund, donation of land to the program, and cooperation with private mitigation banks. The program is codified at G.S. 143-214.8 to-214.13. The General Assembly appropriated $500,000 to DEHNR to staff this program for 1996–97, and $9.2 million was allocated from the new Clean Water Management Trust Fund to start up the Wetlands Restoration Fund.

Neuse River cleanup. Chapter 572 (H 1339) sets a state goal for reduction of the nitrogen load for the Neuse River estuary. The goal is to reduce the average annual load from point and nonpoint sources from 1991 to 1995 by 30 percent. The Environmental Management Commission is directed to publish a plan for achieving the goal by November 1, 1996, and to adopt the plan through formal rule-making procedures.

Water quality funding. In addition to the two new programs described above, Chapter 18 (2d Ex. Sess.) (H 53) targeted funding for several existing programs to improve efforts to address water quality, particularly focusing on the impacts of intensive livestock operations. In the agricultural cost-share program to reduce nonpoint source pollution, $1.75 million was targeted for the Neuse River basin and $5.75 million was allocated for other river basins in the state. Some $1.1675 million was allocated for technical assistance in developing animal waste management plans. Another $2 million was allocated to implement the Neuse River Sensitive Water Management Strategy. In addition, $1.55 million was added to enforce animal waste system regulations. Funding was also allocated for studies of atmospheric deposition of nitrogen in the Neuse, the groundwater impacts of animal waste lagoons, and alternative animal waste disposal technologies.

Other Environmental Issues

Septic tanks. Chapter 585 (S 687) makes modest changes in the statutes on approval of septic tanks (G.S. 130A-334, -335). Improvement permits may now be issued that have an indefinite duration if the application includes a plat prepared by a registered land surveyor on a scale of 1 inch equaling no more than 60 feet and showing the specific location of the facility served, the wastewater system, the water supply, and any surface waters. Improvement permits may only be issued for a five-year duration if the application upon which they are based does not have a surveyed plat. Even the application for a five-year permit, however, must include a less precise site plan.

Structure of DEHNR. As recommended by the Department of Environment, Health, and Natural Resources, the General Assembly passed legislation in 1996 to reorganize the department. These changes are included in Chapter 743 (S 1328). The principal change is to split the Division of Environmental Management into two new divisions—the Division of Water Quality and the Division of Air Quality. In addition, the Office of Waste Reduction is now known as the Division of Pollution Prevention and Environmental Assistance, and the Solid Waste Management Division is now the Division of Waste Management.

Underground storage tanks. Chapter 648 (S 1317) makes several changes in the state's program to clean up leaking underground storage tanks. First, the fee charged under G.S. 143-215.95C for commercial underground storage tanks was increased from $150 to $200 for smaller tanks and from $225 to $300 for larger tanks. Each independent compartment of a tank is subject to the fee. Second, G.S. 143-215.94E was amended to allow the current owner who is cleaning up a discharge from a noncommercial tank to seek reimbursement from the Noncommercial Fund for 90 percent of the cleanup costs over $5,000 (with a $1,000,000 cap). Third, the act targets cleanup activity toward the highest priority sites—those that affect public water supplies or that involve imminent threat to public health, safety, or environment.

Solid waste. Chapter 594 (H 859) makes a number of revisions to the Solid Waste Management Act of 1989. Under the amendments to G.S. 130A-309.4, each local government is required to develop a ten-year solid waste management plan that makes a good faith effort to reduce the solid waste stream by 40 percent per capita by 2001. Plans are to be in place by July 1, 1997. They no longer must be submitted to DEHNR for approval, but a copy must be provided to the state upon request. Previous recycling programs are to be replaced with a broader waste reduction program. If the plan is not prepared or fails to meet state standards, the local government loses eligibility for grants from a variety of solid waste programs, including the Solid Waste Management Trust Fund, the Scrap Tire Disposal Account, and the White Goods Management Account. This act also amends G.S. 130A-309.09D(c) to require generators of industrial solid waste to prepare similar ten-year waste management plans.

Economic and Community Development

Economic Development Board. Last year new legislation established the North Carolina Economic Development Board and directed it to report annually on development progress in each of the state's economic regions as defined in the board's Comprehensive Strategic Economic Development Plan. Chapter 13 (2d Ex. Sess.) (H 18) directs the Department of Commerce to review the annual report and to strive in its recruitment and development work to promote balance and equality among the economic regions. It expressly directs the department to use its "best efforts" to locate new industries in the less developed areas of the state.

Enterprise Tier Designations

One new feature in economic development programs adopted by the General Assembly this year is a new terminology for determining and ranking the economic distress of the state's counties. This terminology and the rankings to which it applies are important because a growing number of economic development programs give preference or priority to counties in the greatest need. The past county-ranking system, set forth in G.S. 105-129.8(c), defined "severely distressed counties," but did not group counties into tiers or subgroups. Chapter 13 (2d Ex. Sess.) (H 18) establishes a new ranking system in G.S. 105-129.3, based on "enterprise tier" designations. The new legislation provides that the North Carolina secretary of commerce will annually assign each county of the state an "enterprise factor." The factor is the sum of the following: (1) the county's rank in a ranking of counties by the unemployment rate from lowest to highest, (2) the county's rank by per capita income from highest to lowest, and (3) the county's rank by percentage growth in population from highest to lowest. (These factors are the same as before.) Counties are then grouped into five "enterprise tier areas." The counties in the lower tier areas are then generally eligible for greater aid than those counties in enterprise tier areas with a higher number.

Tax Incentives for New and Expanded Businesses

One new state program to assist business development will provide new tax incentives for new and expanding businesses. Chapter 13 (2d Ex. Sess.) (H 18) adds a new article 3A to G.S. Chapter 105 to provide for new income tax or franchise tax credits to taxpayers investing in (1) machinery and equipment, (2) research and development, (3) job creation, and (3) worker training. The tax credits are only available to taxpayers engaging in manufacturing, processing, warehousing, distributing, or data processing. For purposes of determining the eligibility for these credits, taxpayers located in the most needy tier of counties are eligible for the greatest tax credits, and those located in the most thriving areas are eligible for the least.

Industrial Development Fund

Several changes were made in the structure of the Industrial Development Fund, which has been operating out of the North Carolina Department of Commerce for many years. Now the funds must be expended at a rate of $4,000 per job (it was $2,400 per job) with a cap of $400,000 per project (it was $250,000 per project). In addition, funding eligibility for this program will be tied to the enterprise tier area classifications established under the tax incentive program. For example, most Industrial Development Fund money will be used for "economically distressed counties," which are defined as counties in tier one, two, or three. Local matching requirements do not apply in enterprise tier one. A special funding account has also been established to assist local governments in tier-one counties in constructing or improving new or existing utility lines or equipment that will serve qualifying industrial buildings.

Community Development Block Grants

The enterprise tier theme is also evident in changes made in awarding the Community Development Block Grants (CDBG) for economic development. Chapter 13 (2d Ex. Sess.) (H 18) directs the Department of Commerce to ensure that no local match is required for grants awarded for projects located in enterprise tier-one counties and that priority is given to projects in such areas to the extent practicable.

Chapter 575 (H 361) made several other modest revisions in the statute regarding the Community Development Block Grants. It amends G.S. 143B-431 to allow CDBG federal appropriations to be pledged as loan guarantees for projects supported either by a single local government or a pool of multiple local governments. The minimum size of the loan guarantee is set at $250,000 for projects supported as part of a loan pool. It remains at $750,000 for a project supported by a single local government. The required equity to support a loan guarantee was reduced from 25 percent to 10 percent.

Transportation

State Highway Bond Act of 1996

Chapter 590 (H 540), the State Highway Bond Act of 1996, submits to the voters in November 1996 a $950 million general obligation bond issue for highway construction. Bond proceeds may be used to construct, improve, or relocate roads that are part of North Carolina's Intrastate System, are part of the state's secondary roads system, or are one of the state's urban loops. The act earmarks $500 million for urban loops, $300,000 for highways making up the intrastate system, and the remaining $150 million to pave unpaved roads on the state secondary system. Projects in the last category will be undertaken in each county in the proportion that the miles of unpaved roads in that county bears to the total mileage of unpaved roads throughout the state.

Funds from this bond issue are generally intended to supplement the money generated by the state's Highway Trust Fund because the revenues assigned to this fund have lagged behind expectations. Bond proceeds are intended to expedite the construction of road projects and make their programming more predictable and regular. Revenues dedicated to the trust fund are not pledged to secure the bonds, but may be used to pay the debt service. All the highway bonds issued under the act may mature no later than December 1, 2013, the date by which the projects funded by the trust fund are to be completed. The new act also directs the North Carolina Department of Transportation to spend $10 million in federal funds for urban loops and an identical amount for roads in the Intrastate System. The money is expected to come from the Federal Aid Highways Program between now and fiscal year 2010.

Durham Northern Loop

Chapter 590 also directs the Department of Transportation to provide certain special notices to the owners of all property within the corridor located in Durham County that is being considered for the proposed Durham northern loop. The department must notify these owners of at least one informational meeting and all public hearings concerning the loop's location. Owners must be notified by first-class mail at least thirty days prior to the scheduled workshop or public hearing. In addition, the act directs the department to consider all alternatives advanced by interested parties (including improvements to existing corridors), neighborhood growth, economic development patterns and trends, the best protection for the environment, and limitations on state park encroachment. The department must consider these factors prior to making a decision on location and publish a report of its findings and the basis for its decision.

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