Richard D. Ducker, David W. Owens, Anita Brown-Graham

The 1997 General Assembly adopted a number of significant initiatives regarding zoning, land use regulation, planning, historic preservation, building and housing code enforcement, and public transportation. For the first time, county governments may regulate large-scale swine farms through county zoning. The General Assembly also enacted legislation providing that the adoption and implementation of a comprehensive land use plan will give a local government a higher priority in the competition for funds from the state’s Clean Water Revolving Loan and Grant Fund. Legislation was adopted to establish a three-year schedule for revisions to the State Building Code to require the appointment of a county plat review officer to review plats for conformity with state law and to change the state’s land subdivision statutes. In addition, new funding sources and organizational arrangements were made to support public transportation.

When the authority to adopt zoning ordinances was extended to all counties in 1959, the legislation provided that bona-fide farming must be exempt from zoning regulation. While cities have the authority to regulate agricultural operations through zoning, counties do not. In 1991 the General Assembly added language to the bona-fide farm exemption in G.S. 153A-340 to clarify that the exemption includes “the production and activities related to the production of . . . livestock . . . having a domestic or foreign market,” thereby clearly including all hog farms, no matter how large.

However, the presence of large-scale hog farms in North Carolina has expanded dramatically over the past decade. It is now estimated that over 10 million hogs are being raised in the state. As a result, there have been increasing calls to allow some county zoning of particularly large hog farms. A proposal to allow county regulation of intensive livestock operations was considered by the Blue Ribbon Study Commission on Agricultural Waste in 1995–96 and the desirability of allowing local siting standards has been debated by environmental and agricultural groups for several years. Several counties recently adopted moratoria and health board regulations on large-scale hog farms. Before 1997, however, the General Assembly elected to regulate hog farms by enacting uniform state standards for hog operations (G.S. 106-800 through 106-805) and deny counties the authority to regulate hog farms through zoning. But litigation and uncertainty as to the legal status of these county health regulations and moratoria on large-scalehog farms, as well as concern about the environmental impacts of large-scalehog farms, led the 1997 General Assembly to allow for the first time some county zoning regulation of agricultural operations.

S.L. 1997-458 (H 515) includes a number provisions addressing water quality concerns, including authority for county zoning of large-scale hog farms. It amends G.S. 153A-340 to remove large swine farms from the bona-fidefarm exemption from county zoning. The law ties the definition of large-scalehog farms to the permitting requirements for animal waste management systems. As of January 1, 1997, state law requires all hog farms with 250 or more swine to have an animal waste management system approved by the state under G.S. 143-215.10C. S.L. 1997-458 provides that those hog farms served by an animal waste management system with a design capacity of 600,000 pounds steady state live weight or greater may be subjected to county zoning. A county may subject these large hog farms to its zoning ordinance, such as by prohibiting their location in certain zoning districts and establishing conditions for approval where they are permitted. A county, however, may not adopt regulations that have the effect of excluding these farms from the zoned area of the county. Also, zoning regulations may not require the discontinuance of large swine farms that are already in existence at the time county regulations are adopted. The law also imposes a two-yearstate-wide moratorium (from March 1, 1997 to March 1, 1999) on Environmental Management Commission approval of new or expanded large swine farms (those with 250 or more swine) and on new or expanded animal waste management systems for swine farms. It also adds to and strengthens the restrictions in the state Swine Farm Siting Act.

Zoning of Shooting Ranges In other legislation, the General Assembly modestly limited zoning regulation of sport shooting ranges in S.L. 1997-465 (H 1012). The principal provisions of this legislation limit the applicability of noise ordinances and the liability under private nuisance actions for the owners of sport shooting ranges. However, the law also prohibits zoning ordinances from amortizing some nonconforming shooting ranges. It provides that a shooting range that was lawfully in operation as of September 1,1994, must be allowed to continue to operate, as long as there has been no substantial change in the use. The law otherwise does not limit local regulatory authority regarding the location and construction of sport shooting ranges.

The General Assembly also enacted a number of local bills affecting zoning.

S.L. 1997-445 (S 683) allows Alamance County to conduct precinct-levelreferenda on whether to establish county zoning in the unincorporated areas of that precinct. A referendum must be held upon the petition of 35 percent of the registered voters in a precinct. If the voters reject zoning for that precinct, no new election may be held for two years. This authority to submit zoning to the voters is in addition to, and apparently does not limit, the county commissioner’s general authority to adopt partial county zoning.

S.L. 1997-359 (H 146) authorizes Jacksonville to require sidewalk improvements as part of the site plan review process under the city zoning ordinance.

Three laws were enacted affecting zoning in Durham, which has merged many of its city and county planning and zoning operations. S.L. 1997-165 (H 879) allows the county board of adjustment to decide cases in favor of the applicant by a three-fifths majority vote (previous local legislation allowed the city board of adjustment to use a three-fifths majority rather than the four-fifths majority required in state-wide legislation). S.L. 1997-166 (H 881) allows the city to have a board of adjustment of more than five members (the city charter previously specified a five-member board). S.L. 1997-452 (H 786) allows the city to require that zoning protest petitions be received by the city clerk four normal work days before the public hearing on the zoning amendment, in contrast to the generally applicable provision requiring receipt two work days before the hearing.

The 1997 General Assembly also considered extending to additional local governments the specific authority to adopt tree protection ordinances. These tree protection provisions frequently are enacted as part of a local zoning ordinance, but are sometimes adopted as a separate ordinance. S.L. 1997-420 (H 437) authorizes Cornelius, Davidson, Huntersville, and Nags Head to regulate planting, removal, and preservation of trees on public and private property, excluding property being developed for single-familyresidences or duplexes. Similar authorization was considered but not adopted for Cary, Apex, Knightdale, and Durham.

S 452, which addresses local regulation of sexually-oriented businesses, was not enacted in 1997 but remains eligible for consideration in 1998.Interest in legislative action on this topic was largely sparked by the increasing location of topless bars and adult book stores in rural, small town, and resort areas of the state, as well as by continuing litigation regarding the terms and implementation of local regulations in the state’s larger cities. S 452 would remove any state preemption of local regulations based on state obscenity, indecent exposure, adult establishment, or alcoholic beverage laws, as long as the local regulation is consistent with constitutional protections afforded free speech (e.g., that the regulation be based on adverse secondary impacts rather than on the content of the speech and that reasonable alternative avenues be provided for the dissemination of protected speech). The bill also explicitly allows a wide range of local regulation of these businesses, including location requirements, such as limitations to specified zoning districts and minimum separation from sensitive land uses; operational regulations, such as clothing requirements or limits on hours of operation, exterior advertising, and noise; licensing requirements for owners and employees; moratoria on new facilities while studies are being conducted and ordinances developed; amortization of nonconforming facilities; and interlocal cooperation on siting. The bill also allows facilities with a history of violations to be deemed public nuisances. S 452 passed the Senate and is pending in the House.

S.L. 1997-309 (S 875), a bill supported by the state’s registers of deeds, will transfer their responsibility for reviewing plats for conformity with state law before allowing them to be recorded. The bill also includes much of interest to planners and others involved with land subdivision control.

A key feature of the legislation directs the board of county commissioners of each county to designate one or more persons experienced in mapping or land records management as a “review officer.” The review officer is responsible for reviewing each map or plat submitted for recordation before it is presented to the register of deeds. The review officer must certify the map or plat if it meets the statutory requirements for recording.

The new legislation provides that each review officer must be a certified property mapper, if “reasonably feasible.” For example, an employee of the county tax office may be designated as the county’s review officer to review plats of land located anywhere within the county. If the county or a municipality within it has adopted a subdivision ordinance, the subdivision ordinance administrator will forward each approved subdivision plat from that unit to the county review officer so that the officer may review it for conformity with state law. When it is not feasible to appoint a county tax mapper to be the review officer, the county might choose to appoint both a county planner and a municipal subdivision ordinance administrator to serve as official review officers. Each may act primarily with respect to plats of land within the territory of each unit’s planning jurisdiction. Since review officers must be appointed by name and may not delegate their duties, counties may wish to appoint multiple review officers.

The statutory requirements of interest to planners come primarily from three sources: (1) the requirements governing the physical form of and conventions used on the plat, found in G.S. 47-30; (2) the requirements of G.S. 39-32.1 to 39-32.4 that a map or plat of a subdivision with streets must show the location of control corners on it; and (3) the requirement of G.S. 136-102.6 that subdivisions in unincorporated areas that involve new or revised streets must be platted and recorded and, if they involve publicly dedicated streets, approved by the a state district highway engineer.

S.L. 1997-309 (S 875) also includes a number of other changes in the land subdivision control and planning statutes that have not received much attention. For example, amendments to G.S. 160A-373 (municipal subdivision statute) and G.S. 153A-332 (county subdivision statute) delete the requirement that a copy of a local government’s subdivision ordinance must be filed with the register of deeds before the ordinance may be enforced. Compliance with the former requirement was not widespread, and the practical value of filing land development ordinances in the register of deeds office has long been questioned. A second change to these statutes removed the requirement that the subdivider or his agent sign a statement on the plat declaring whether the land shown on the plat was within the local government’s regulatory jurisdiction. Since 1993, another statute, G.S. 47-30(f)(11), has required the surveyor to certify the status of plats. One of the possible certifications that the surveyor may choose is that the land involved is being subdivided and is within the regulatory jurisdiction of a city or county. Because of this scheme, the references in G.S. Chapters 160A and 153A became redundant. Third, the subdivision statute now allows the approval of a plat to be entered onto the face of the plat by an authorized representative of the city or county approving it. In the past the statute required the signature of the head of the plat approval agency, who was sometimes unavailable.

Finally, the definition of a “planning agency” was changed by the new legislation to eliminate the language that a city or county may designate a planning agency “with any staff that the governing board considers appropriate.” This change paves the way for an interpretation that a local government governing board may designate a department of local government or a technical review committee as a planning agency for purposes of approving subdivision plats. If a technical review committee or staff committee is designated a planning agency, arguably there is no need for additional staff to be appointed to support the planning agency.

The sections of this act that are described in this bulletin became effective October 1, 1997.

Not all boundaries between and among North Carolina counties are defined by unambiguous modern property descriptions. As a result, the exact boundaries of some counties have remained in dispute for years. G.S. 153A-18 allows the counties to appoint special commissioners who supervise the surveying, marking, and mapping of the boundaries. However, it has recently become clear that the modern technology of orthophotography (aerial photography) can be used to establish boundary lines. A local act adopted in 1985 amended G.S. 153A-18 to allow the counties of Orange and Chatham to establish the boundary between them by using orthophotography. This authority was extended to Person and Caswell counties in 1995. S.L. 1997-299 (H 265) makes this authority to use orthophotgraphy to resolve boundary disputes applicable state-wide.

In the last several decades it has become clear that the data and information stored in geographic information systems (GIS) maintained by governmental units can have a substantial market value. Since this data and information qualify as public records, some private vendors have requested electronic copies of these databases, paid the duplication fees charged by the governmental unit (which may be based only on the actual costs of duplication), and then resold the information commercially at substantial profit. In 1995state-wide legislation was adopted that requires a local government to make GIS data available only if the recipient agrees in writing not to resellor use the data for trade or commercial purposes. However, G.S. 132-10provides that the publication or broadcast by the news media of this information is not a commercial use. Neither is the use of the information, without resale, by a licensed professional, such as a land surveyor, attorney, or real estate appraiser, in the course of his or her work. S.L. 1997-193 (H 499) amends G.S. 132-10 to provide that publication or resale at cost of GIS information by a real estate trade association or a multiple listing service operated by a real estate trade association does not constitute a resale or use of the data for trade or commercial purposes.

S.L. 1997-246 (H 685) alters the definition of the term “subdivision” for purposes of land subdivision control by Harnett County and its municipalities. The act specifically exempts from subdivision regulation divisions of land by any method of transfer among members of a lineal family. Under the terms of the act, members of a lineal family include direct lineal descendants (children, grandchildren, and great- grandchildren), direct lineal ancestors (father, mother, grandfather, and grandmother), and brothers, sisters, nieces, and nephews.

Section 7 of S.L. 1997-452 (H 786) changes the name of Durham’s Subdivision Review Board to the Development Review Board so that the board may be assigned responsibilities with respect to ordinances other than a subdivision ordinance. (Durham’s charter first authorized the delegation of the approval of subdivision plats to the Subdivision Review Board in 1975.)

S 801 would fill a void in the North Carolina statutes by establishing a Planned Community Act that would provide for the establishment and governance of homeowners’ associations and for the legal relationships among such associations, the developer that creates them, and the lot purchasers that become members of them. S 546, a local bill, would require Wake County property owners to disclose certain information about flood hazards affecting their respective properties before selling them. Both bills have passed the Senate and await further action in the House.

One of the highlights of the 1997 session was the General Assembly’s adoption of legislation that could encourage land use planning aimed at protecting water quality. S.L. 1997-458 (H 515) amends G.S. 159G-10 to provide that priority in loans and grants from the state’s Clean Water Revolving Loan and Grant Fund be granted to those local governments that adopt land-use plans containing provisions to protect existing water uses and to assure compliance with water quality standards. Additional priority will be given if the plan has provisions that exceed state minimum standards and if actions are taken to implement the plan (such as by adopting zoning). The act directs the state Division of Community Assistance to provide technical planning assistance to local governments in economically distressed counties.

S.L. 1997-458 (H 515) also amends G.S. 143-214.7 to authorize the Environmental Management Commission to develop model stormwater management programs that can be implemented by local governments and state agencies. Management plans are subject to review and approval by the commission. This legislational so directs the commission to develop basin-wide water quality plans for each of the state’s seventeen major river basins. These plans must consider the cumulative impacts of all point and nonpoint sources of water pollution. The commission is given authority to adopt strategies for assuring water quality standards are met, such as requiring additional monitoring, setting effluent limitations, and using best management practices and protective buffers. These strategies are likely to be related to the planning and stormwater initiatives noted above.

Two acts relating to conservation of natural areas have particular relevance to those interested in planning and land use regulation. S.L. 1997-226 (H 260) substantially increases the attractiveness of donating natural areas to public and nonprofit conservation groups. G.S. 105-130.34 (for corporations) and G.S. 105-151.12 (for individuals) provide for a state income tax credit for the donation of conservation lands to the state, to local governments, or to qualified nonprofit conservation organizations. These statutes, initially enacted in 1983, allow a tax credit of 25 percent of the market value of the interest donated. When first enacted, the maximum credit allowed was $5,000; this was increased to $25,000 in 1989. A 1996study of the program documented its successful operation and showed that a substantial increase in donations occurred following the 1989 increase in the allowable credit.[1]

S.L. 1997-226 enhances the protection of conservation lands in the state in two ways. First, the act increases to $250,000 the maximum credit allowed under the conservation tax credit program. Second, the act creates a Conservation Easements Program in the Department of Environment and Natural Resources (DENR) to promote the increased use of conservation easements. The program includes creation of a Conservation Grant Fund (G.S. 113A-232, 113A-233) from which grants may be made for reimbursement of transaction costs associated with donations of conservation lands, management support, monitoring compliance with conservation easements, education about conservation, stewardship, and overall program administration costs. S.L. 1997-226 also amends G.S.105-287 expressly to allow property tax assessors to adjust the assessed value of land to reflect the existence of conservation easements.

The second act, S.L. 1997-366 (S 178), amends the Natural Heritage Trust Fund (G.S. 113-77.9). These amendments include authorizing the secretary of the Department of Cultural Resources to propose lands for acquisition, to make grants for conservation and protection planning and for informational programs for owners of natural areas, and to allow the state to enter into management agreements or leases with qualified nonprofit agencies as well as with local governments.

Several environmental laws enacted in 1997 have implications for redevelopment of property.

Brownfields Property Reuse Act. S.L. 1997-357 (H 1121) creates the Brownfields Property Reuse Act (G.S. 130A-310.30 through 130A-310.40) to encourage and facilitate redevelopment of abandoned sites that were contaminated by past industrial or commercial activity. The statute allows a prospective developer of previously contaminated property to enter into a “brownfields agreement” with the Department of Environment and Natural Resources (DENR). The agreement delineates remediation being conducted on the site and the land use restrictions that will be employed to protect public health and the environment. A developer who enters into a brownfields agreement with DENR is protected from any additional liability for environmental cleanup beyond that specified in the agreement. The statute also includes provisions for public notice and comment on the remediation and redevelopment proposed for the site, for recordation of land use restrictions on the site, and for fees to defray part of the costs of implementation.

Waste Sites. A second measure, S.L. 1997-394 (S 125), allows DENR and owners of inactive hazardous waste sites, waste disposal sites (G.S. 130A-310.3), and oil or hazardous substance discharges (G.S. 143-215.84) to enter into remedial action plans that include land use restrictions on the property. These restrictions may be enforced by the state or by any local government with jurisdiction over the site.

Dry-Cleaning Solvent Cleanup Program. A third act, S.L. 1997-392 (H 225), establishes a dry-cleaning solvent cleanup program (G.S. 143-215.104Athrough 143-104U). This comprehensive program provides for remediation plans and land use restrictions comparable to those for the brownfields program.

Urban Waterfront Development. A fourth act, S.L. 1997-337 (H 1059), promotes urban waterfront redevelopment areas by requiring permits under the Coastal Area Management Act to be granted for specified projects. Before enactment of this law, only “water dependent” structures (such as piers, boat docks, and the like) were allowed to be built over public trust waters. The law was generated by interest in waterfront redevelopment along a small portion of the Cape Fear River in downtown Wilmington that could involve location of commercial or residential structures over the river. S.L. 1997-337 enacts G.S. 113A-120.2, which requires the state to grant CAMA permits for non-water-dependent structures located over the water if the site involved is in a municipality’s historic area or central business district, the project is sponsored in whole or in part by the local government, the local government has determined the development would have no significant adverse effect on the environment, and the development is consistent with local plans and regulations. Of course, such projects remain subject to federal permitting requirements, which may limit the practical application of this relaxation of state standards.

Other Environmental Laws. In addition to the legislature’s major water quality initiatives noted above, the Fisheries Reform Act, S.L. 1997-400 (H 1097), added G.S. 143B-279.8 to require the preparation of coastal habitat protection plans for coastal fisheries. These plans will be prepared and adopted by the Coastal Resources, Environmental Management, and Marine Fisheries commissions and will include recommended actions to protect and restore critical habitats.

Studies. Finally, a number of studies were authorized by the comprehensive studies bill, S.L. 1997-483 (S 32), that could result in legislative proposals in 1998 or 1999. Possible topics include an examination of storm hazard mitigation measures on barrier islands, beach nourishment, additional review of brownfield issues, the transfer of surface water between river basins, and the preliminary evaluation of sites in the septic tank permitting process. The budget act, S.L. 1997-443 (S 352), also appropriated $150,000 for an evaluation of septic tanks in the Neuse River Basin, including a review of the number and condition of tanks, their impact on water quality, the cost of repair or replacement of failing systems, and the viability of alternatives to septic tanks.

The aftermath of Hurricane Fran and Hurricane Bertha caused North Carolina’s state and local governments to review their ability to cope with disasters and to mobilize resources to respond to emergencies. S.L. 1997-152 (H 410) adds a new Article 4 to G.S. Chapter 166A, to adopt an interstate emergency assistance compact between North Carolina and other participating states. Mutual assistance obligations are triggered if a governor of an affected state declares an emergency or disaster arising from a natural disaster, technological hazard, man-made disaster, civil emergency arising from resource shortages, community disorders, insurgency, or enemy attack. “Building inspection” and “planning and information assistance” are specifically listed as emergency service functions for which assistance from another state may be sought under the compact.

Several other provisions of the compact may be of interest to building code-enforcement officials. Any out-of-state person that holds a license or certificate evidencing professional skills is deemed to be licensed or certified in the state requesting assistance. Also, an official or employee from a state rendering aid will be considered to be an agent of the requesting state for purposes of tort liability and immunity. However, no person who renders aid in another state may be held liable for any act or omission occurring as a result of a good-faith attempt to render aid. “Good faith”behavior does not include willful misconduct, gross negligence, or recklessness.

As is past sessions, the General Assembly enacted several local bills affecting municipal planning jurisdiction.

• S.L. 1997-106 (S 130) allows Davidson, Cornelius, and Huntersville to exercise extraterritorial jurisdiction within previously set “spheres of influence”for future annexation.

• S.L. 1997-185 (H 604) allows Morehead City and Newport to each extend their extraterritorial jurisdiction up to two miles from the city limits.

• S.L. 1997-219 (H 698) removes the authority given to Mooresville in 1991to exercise extraterritorial jurisdiction adjacent to satellite areas of the city.

• S.L. 1997-281 (H 545) allows Williamston to extend its extraterritorial jurisdiction up to two miles from the city limits.

• S.L. 1997-363 (H 63) restores some extraterritorial jurisdiction to River Bend.

Bills to amend the extraterritorial jurisdictions of Kings Mountain and Belville were introduced but not adopted by either house of the legislature.

H 93, which would require each city exercising extraterritorial jurisdiction to appoint at least two extraterritorial members to its planning board, was not adopted, but was included in the topics that may be studied by the Legislative Research Commission before the 1998 session.

In 1995 the General Assembly enacted legislation authorizing the Durham city council to allow developers to pay facilities fees (impact fees) in installments. S.L. 1997-445 (S 683) amends this authority to allow the council to delegate this authority to the city manager or the manager’s designee. It also provides that installments bear interest from the date the city approves the payment of fees in installments. (An identical provision is also included in Section 6 of S.L. 1997-452 (H 786).)

As a general rule, local government impact fees, facilities fees, utility tap fees, and building or zoning permit fees apply to developers of public projects as well as private ones. S.L. 1997-450 (H 566) sets an important precedent by exempting Wake County’s public school system and private schools in the county from any development charges imposed by Wake County or its municipal governments. The exemption applies to charges imposed when buildings or other structures (including mobile classrooms) are constructed, located, renovated, or repaired. The list of charges from which schools are exempt is lengthy. It includes impact, facilities, and development fees, water and sewer acreage fees, utility tap fees, plan review fees, and building permit fees. The exemptions do not apply to those projects for which abuilding permit was issued before August 28, 1997.

In 1995 the General Assembly adopted legislation (codified as G.S. Chapter 47E) providing for the use of disclosure statements in the sale of certain residential properties. A recent survey of realtors revealed that most of their clients found the disclosure form, enacted as part of the legislation, to be confusing. As a result, many sellers of property chose not to disclose the condition of their property by checking the “no representation” box on the disclosure form. S.L. 1997-472 (H 899) modifies and clarifies the 1995 law. It deletes the text of the form from G.S. 47E-4 and delegates the authority to draft a disclosure form to the North Carolina Real Estate Commission. The new form must address many of the same property characteristics and conditions as the old disclosure form, but the Real Estate Commission is authorized to expand the form to include additional characteristics and conditions. The “no representation” option will remain. The Real Estate Commission must develop the modified form by October 1, 1998, and the most important features of the act do not become effective until that date.

Occasionally a judicial decision will spark the adoption of legislation. In the case of Tower Development Partners v. Zell, 120 N.C. App. 136, 461S.E.2d 17 (1995), the North Carolina Court of Appeals invalidated several driveway easements that a development company intended to establish. The court’s decision apparently was based on the theory that a property owner may not have an easement in his or her own land. The decision caused astir among real estate attorneys and the development community because easements and deed restrictions routinely are established and recorded by subdividers before they sell parcels of land. The decision apparently would have invalidated most townhouse declarations, residential subdivision deed restrictions, and commercial shopping center covenants. S.L. 1997-333(S 251) adds a new G.S. 39-6.4 authorizing the holder of legal or equitable title in real property to establish easements, deed restrictions, and covenants that benefit or burden the real property interest that is held. The act was effective October 1, 1997, and applies to easements, restrictions, and covenants established both before and after that date. However, the act does not apply to instruments involved in litigation that was pending or completed before that date.

S.L. 1997-139 (S 323) attracted relatively little attention during the legislative session but should substantially encourage historic preservation. The measure will increase the tax credit available for those who renovate historic structures as income-producing properties and offer a new credit when buildings that do not generate income (such as owner-occupied residences) are renovated. Effective January 1, 1998, the state will allow a state income tax credit equal to 20 percent of the qualifying expenditures for rehabilitation of certain historic properties. Until now, a state tax credit for rehabilitation of historic properties was one-fourth of the allowable federal income tax credit, which is 20 percent of qualifying rehabilitation expenditures. The new law thus will allow a taxpayer to claim a state income tax credit that is equal to the federal tax credit.

In addition, S.L. 1997-139 introduces a new state income tax credit for the renovation of buildings, such as owner-occupied residences, that do not produce income. The credit is 30 percent of the qualifying expenditures. No comparable federal income tax credit exists for the rehabilitation of buildings that are not income-producing.

In order to qualify for this tax treatment, a structure must (1) be listed in the National Register of Historic Places, or (2) be certified by the state as contributing to the historic significance of a National Register Historic District or a locally-designated historic district certified by the U.S. Department of the Interior. In the case of income-producing properties, expenditures within a twenty-four month period must exceed $25,000. Qualifying expenditures do not include the cost of acquiring the property, the cost attributable to the enlargement of an existing building, the cost of expenditures for site work, or the cost of personal property.

The entire credit may not be taken for the tax year in which the expenditures are made. Instead, the credit must be taken in five equal installments beginning with the tax year in which the expenditures are made. Unused portions of the credit may be carried forward for the next four years. Eligible projects must meet federal rehabilitation standards. Applications for income-producing structures are subject to review and approval by the State Historic Preservation Office and the National Park Service. Work on property that is not income-producing must be certified in advance by the Historic Preservation Office. The North Carolina Historical Commission is authorized to adopt rules necessary to administer the certification.

No significant state-wide annexation or incorporation legislation was adopted in 1997. This result, however, masks the fact that a considerable amount of legislative activity and discussion was devoted to these matters.

In 1995 the Legislative Research Commission (LRC) appointed a committee to study property issues. A subcommittee devoted to annexation issues, and later the LRC Committee on Property Issues as a whole, proposed a number of substantial changes to the involuntary annexation statutes. Bills based on these recommendations, which generally would have made annexation more difficult or limited the scope of involuntary annexations, were introduced in the 1996 session, and were adopted by the House but died in the Senate.

After the end of the 1996 session, the LRC Committee on Property Issues continued to meet and recommended similar legislation to the 1997 General Assembly. H 94 and S 63 would have required more urban services to be provided to the annexed territory, would have redefined urban development, and would have required an annexing city to furnish more explanation and notice of the proposed annexation to those affected. H 92 and S 61 simply would have required more urban services to be provided. H 124 and S 736 would have made annexation by the standards and services method subject to a voter referendum. (These last two bills were not recommended by the LRC Committee on Property Issues to the 1997 General Assembly, but were considered by the committee during the spring of 1996. )

None of these six bills was debated on the floor of the House or Senate or passed by either chamber. But the hopes of those who wanted to make annexation more difficult increased during the last week of the session before being dashed. S 424, a local bill concerning satellite annexations in Wake County, was amended on the floor of the House to incorporate most of the provisions of H 94. The next day, however, the bill was amended again to “water down” the more restrictive annexation provisions and add provisions favored by most municipalities. When S 424 was returned to the Senate for concurrence with these changes affecting the state-wide annexation law, the Senate refused to concur. The conference committee that was appointed to resolve the differences between the House and Senate with respect to the bill adopted a report that completely stripped the state-wide annexation changes from the bill and retained only the satellite annexation provisions affecting Wake County. Although the Senate adopted this conference report, the House failed to vote on the report before it adjourned.

Despite (or perhaps because of) the energy spent on studying the state’s annexation laws during the past several years, annexation and incorporation issues may be studied again during the coming year. Section 2.1(12) of S.L. 1997-483 (S 32) authorizes the Legislative Research Commission to study annexation and incorporation issues, including the issues raised by H 93 (a bill which would require at least two representatives from a city’s extraterritorial planning jurisdiction to be appointed to both a city’s planning agency and its zoning board of adjustment) and S 903 (a bill which proposes the study of the relationship among annexation, incorporation, and land-use planning).

Several local acts changed the boundaries of cities and towns.

• S.L. 1997-100 (H 65) removes certain described property from the corporate limits of the town of Canton.

• S.L. 1997-252 (H 695) adds areas described in the act to the corporate limits of the town of Aberdeen.

• S.L. 1997-249 (H 67) reconfigures the corporate limits of the town of Summerfield.

• S.L. 1997-220 (H 748) removes certain property from the corporate limits of the town of Matthews and adds it to the city of Charlotte.

Other local acts authorize cities to enter into agreements with private property owners affecting when, how, and whether the cities will annex those properties.

• S.L. 1997-266 (S 262) allows the town of Huntersville to enter into an agreement to refrain from annexing involuntarily the McGuire Nuclear Station until December 31, 2027, and to receive payments in lieu of the taxes that would have been paid if the property was annexed.

• S.L. 1997-105 (H 643) allows the city of Belmont to agree to refrain from annexing involuntarily a certain plant owned by Duke Power before December 30, 2009, and to receive payments in lieu of taxes that will be phasedi n according to a schedule set forth in the act.

• S.L. 1997-188 (S 198) allows the city of Hendersonville and the town of Laurel Park to enter into agreements to refrain from annexing certain industrial property and to receive payments in lieu of taxes that would have been paid if the property was annexed.

• S.L. 1997-323 (H 722) authorizes the city of Washington to enter into an agreement with a property owner not to annex the property by the standards and services method before December 30, 2006. The property owner, in turn, must agree to create and fill a certain number of jobs at the owner’s plant with employees with low or moderate incomes.

Some local acts address the manner by which neighboring municipalities may annex areas that lie between them.

• S.L. 1997-185 (H 604) allows the towns of Morehead City and Newport to exercise extraterritorial planning jurisdiction in areas up to two miles beyond their corporate limits and describes the dividing line between jurisdictions in areas where there the jurisdictional areas overlap. A later act, S.L.1997-219 (H 698), prohibits either of the towns from annexing a satellite area that is closer to the other’s town corporate limits than to the annexing town’s own primary limits unless the town is exercising extraterritorial planning jurisdiction in the area. Another act, S.L. 1997-363 (H 63) prohibits Morehead City and Newport from exercising extraterritorial planning jurisdiction or annexing property within the extraterritorial planning jurisdiction of the town of River Bend.

• S.L. 1997-363 (H 63) establishes extraterritorial planning jurisdiction for the town of River Bend over an area described in the act and conditions River Bend’s use of the standards and services method of annexation. If, before adjournment of the public hearing regarding annexation, the town receives a protest petition signed by at least 25 percent of the registered voters who own property in the area proposed to be annexed, a voter referendum must be held and the annexation ordinance becomes effective only if approved by the voters.

Remarkably enough, most of the rest of the local acts affect the power of cities to annex satellite areas. (Satellite annexations involve the annexation of an area that is not contiguous to the primary corporate limits of a municipality. G.S. 160A-58.1 allows satellite annexations if certain standards are met.)

• S.L. 1997-2 (H 34) allows the town of Catawba to annex satellite areas without being subject to the requirement of G.S. 160A-58.1(b)(5). That provision requires that areas within the satellite area, when added to the area within all other existing satellite areas, may not exceed 10 percent of the area within the town’s primary corporate limit.

• S.L. 1997-219 (H 698) grants similar authority to the town of Mooresville and repeals an earlier local act that had allowed Mooresville to annex satellite areas as long as the area of all the satellite areas did not exceed 20 percent of the area within the primary town limits.

• S.L. 1997-151 (S 529) allows the town of Hope Mills to annex a satellite area if the total land area of satellite areas after the annexation does not exceed 20 percent of the area within the primary corporate limits. It also allows the town of Weaverville to do so if the land area of satellites does not exceed 23 percent of the area within the primary corporate limits.

• S.L. 1997-251 (H 655) adds a satellite area described in the act to the corporate limits of the town of Madison. It also exempts the area from the requirement of G.S. 160A-58.1(b)(2) that no portion of a satellite area may be closer to the primary corporate limits of another city than to the primary corporate limits of the annexing city.

• S.L. 1997-432 (H 568) allows the town of Wake Forest to annex a satellite area that includes an area that is closer to another municipality than it is to Wake Forest if the other city has agreed not to annex the area under an annexation agreement with Wake Forest. The act also allows the town of Beaufort to annex the Harry Taylor Farms property as a satellite even though the area within the satellite, when added to the area within all other satellites, exceeds 10 percent of the area within the corporate limits of the town.

• S.L. 1997-255 (H 810) authorizes the city of Rocky Mount to annex as a satellite an area near an Interstate 95 interchange area known as Gold Rock, if the city does so before July 1, 1998.

• Section 5 of S.L. 1997-452 (H 786) amends the Durham charter to provide that any judicial action to contest the validity of a satellite annexation or of a petition annexation of contiguous land must be filed within thirty days after the ordinance’s adoption.

The General Assembly also enacted other legislation affecting annexation by particular municipalities.

• S.L. 1997-283 (H 867) clarifies the annexation authority of the town of Matthews with respect to parcels of land subject to prior local acts.

• S.L. 1997-267 (S 390) allows the town of Huntersville to annex certain areas described in the act according to an annexation staging schedule, with certain areas being annexed this year and other areas in each of the following three years.

• S.L. 1997-343 (S 356) permits the city of Reidsville to delay the effective dates of annexations of a tract of land described in the act. It also exempts a 1995 annexation of two city lakes from the requirement of G.S. 160A-58.1(b)(5) that the land area of satellite annexation areas not exceed 10 percent of the area within the primary town limits. However, S.L. 1997-360 (H 844) prohibits Reidsville from annexing any territory west of a line described in the act.

One of the most significant actions affecting incorporation did not involve legislation. Instead it involved a rule that adopted by the Senate that will apparently make incorporation more difficult. The Joint Legislative Commission on Municipal Incorporations was established in 1986 to advise the General Assembly whether to adopt specific proposed incorporations. However, the commission has rarely been used. Most incorporation bills have been introduced without the benefit of the commission’s counsel. Inits 1997 rules, however, the Senate provided that it would not consider any incorporation bill that had not been first presented to the commission for its recommendation. The rule change caught incorporation proponents by surprise, since it was too late for the commission to review proposals in time for them to be considered during the 1997 legislative session. As a result, the Senate voted to suspend the rule in order to allow a number of incorporation bills to be considered in 1997 without commission review. The rule was suspended to allow the following incorporations: Wentworth (S.L. 1997-322, H 653, Rockingham County), Swepsonville (S.L. 1997-448, H 39, Alamance County), Pleasant Garden (S.L. 1997-344, S 534, Guilford County), Trinity (S.L. 1997-44, H 236, Randolph County), Sedalia (S.L. 1997-444, S 624, Guilford County), Cedar Rock (S.L. 1997-317, H 843, Caldwell County), Forest Hills (S.L. 1997-345, H 750, Jackson County), and Grantsboro (S.L. 1997-446, S 711, Pamlico County). All of these incorporations except that of Sedalia are subject to the approval of the community’s voters. The local acts affecting the incorportion of Wentworth, Swepsonville, Pleasant Garden, and Sedalia all place limits on the ability of the incorporated city to annex territory in its vicinity, apparently in reaction to the opposition of existing nearby municipalities.

S.L. 1997-13 (S 289) provides greater limits on the total value of bonds that the North Carolina Housing Finance Agency may issue at any one time, while restricting the U.S. government obligations in which the agency may invest its funds. The act amends G.S. 122A-8 to delete the $1.5 billion limit on the total value of bonds. It amends G.S. 122A-11 to allow the agency to invest its funds only in repurchase agreements with institutions rated in, or guaranteed by another institution rated in, one of the two highest rating categories by a nationally recognized securities rating agency.

Eviction of Tenants. Public housing authorities often are concerned about resident safety, particularly in multifamily projects. S.L. 1997-473 (H 1064) extends to these housing authorities the provisions of Article 7 of Chapter 42 of the General Statutes, which allow expedited eviction of drug traffickers and other criminals. This law makes available to public housing authorities the same procedure made available in 1995 to landlords with non-publicly-assisted housing.

Appointment of Commissioners. Mayors presently have the authority to appoint and remove housing authority commissioners. The General Assembly considered but did not pass legislation (S 563) that would have transferred that authority to city councils.

Efforts to obtain an appropriation earmarked for building the capacity of community-based nonprofit low-income housing providers (H 641, S 567) were unsuccessful. These funds would have been used to support the development of housing for persons whose incomes do not exceed 80% of area median family income.

S.L. 1997-26 (H 95) will have important implications for the way the State Building Code will be amended in the future. This legislation reflects concern over a process that has resulted in almost constant amendment of the various volumes of the code and the difficulty inspectors and contractors alike have in keeping up with the changes.

Perhaps the most prominent change made by the new legislation concerns the frequency with which code amendments become effective. Until the new legislation was adopted, the State Building Code provided that code amendments became effective on a one-year cycle. Code revisions adopted between the July 1 of one year and July 1 of the next year became effective on January 1 of the following year. For example, code revisions adopted between July 1, 1995, and July 1, 1996, became effective January 1, 1997. The new law gradually moves code changes to a three-year cycle. Code amendments adopted by the Building Code Council after September 1, 1997, but before July 1,1998, become effective January 1, 1999. Thereafter, amendments adopted during each three-year period after July 1, 1998, become effective on January 1 of the year that begins six months after the end of the period. For example, changes adopted between July 1, 1998, and July 1, 2001, will not become effective until January 1, 2002. Despite the new three-year cycle, the Code Council is authorized to make an amendment effective at an earlier date if it is necessary to address an imminent threat to the public’s health, safety, and welfare.

A related matter concerns the use of alternative methods and materials. Under the current State Building Code, a contractor has the option of meeting the standards of the current code or the standards of an adopted code amendment that has a delayed effective date. This feature of the code remains intact and unaffected by the new legislation.

Another feature of the new law will restrict the number of code amendments. S.L. 1997-26 (H 95) repeals the authority of the Code Council to approve local modifications to volumes of the State Building Code other than the fire prevention code. In the past the council rarely approved local amendments to the code, and presently there are no approved local amendments to the code that remain effective. The new law, however, does continue to allow local amendments to supplement volume V, the fire prevention code, and the Code Council must continue to approve them if the proposed local regulations are more stringent than the provisions of that volume.

In order to encourage familiarity with code changes of all types, S.L.1997-26 requires that the Department of Insurance provide handbooks that include explanatory material on code revisions no later than January 1,2000, and these must be updated at least as frequently as each triennial revision of the code. The department may charge a reasonable fee for the handbooks.

S.L. 1997-26 also directs the chair of the Building Code Council to establish ad hoc code revisions committees to consider and prepare revisions and amendments to various code volumes. Each ad hoc committee will consist of council members, licensed contractors, the design professionals most affected by the volume, and members of the public. Building inspectors are conspicuously absent from the list of eligible members.

S.L. 1997-26 (H 95) also addresses the training of building inspectors. It adds new G.S. 143-138.1 to require the Building Code Council and the Department of Insurance to provide classes of instruction concerning the nature of and need for code changes. This instruction must be presented before the effective date of the code changes. The classes may be conducted by, on behalf of, or in cooperation with, the licensing boards, trade associations, and professional societies. In an important breakthrough, the act allows the Department of Insurance to charge fees that are sufficient to reimburse the department for the costs it incurs in providing the classes.

S.L. 1997-26 (H 95) makes two other changes that should be noted. First, the act rewrites G.S. 143-138(c) to clarify that the Code Council may refer to national codes and professional standards adopted by national trade associations for guidance in adopting suitable requirements for the State Building Code. However, the Council is not restricted to using only the standards from these sources. A second and potentially significant change directs the council and local code-enforcement officials to construe code requirements “reasonably.” Previously, state law called for regulations to be interpreted “liberally.” Liberal construction is the accepted rule of statutory construction for civil laws that promote public safety.

Local governments often find their enforcement of minimum housing standards ordinances impeded by elusive property owners. S.L. 1997-201 (H 833) amends G.S. 160A-445 to provide all cities and counties with two additional options for providing notice of housing code violations in those instances when the owner seeks to avoid being served with the notice. First, when complaints or orders are served by registered or certified mail, a copy also may be sent by first class mail. If the registered or certified mail is refused or unclaimed, but the regular mail notice is not returned within ten days, the notice is deemed served. If regular mail is the form of notice used, the notice of violation also must be conspicuously posted on the affected site. (Local legislation in recent years had granted similar authority to Lumberton, Greensboro, Asheville, and Durham.) Second, if the housing officer certifies that the owner is known and has refused to accept service by registered or certified mail, notice of the complaint or order may be made by publication in a newspaper of general circulation. When service is made by publication, notice of the pending proceeding must be conspicuously posted on the affected premises. (Before the enactment of S.L. 1997-201,the General Assembly enacted several local bills containing substantially similar provisions on service of notice of housing code violations. The published notice option was extended by S.L. 1997-93 (H 806) to Conover, by S.L. 1997-126 (S 464) to Winston-Salem and Forsyth County, by S.L. 1997-89to Greensboro, and by S.L. 1997-160 (S 524) to Conover and Sanford. The General Statutes previously restricted this option to municipalities with populations greater than 300,000 at the last census.)

Another local act, S.L. 1997-296 (H 675), allows Rocky Mount to use an expedited process to deal with extremely dilapidated houses. This act allows the housing office to set a date (not less than thirty days after notice) for repairs or demolition to be undertaken and if there is no appeal within the specified time, the city itself may proceed with demolition. (This same authority was granted to Asheville in 1995.)

S.L. 1997-378 (H 668) adds Cumberland County to the jurisdictions that may require nonresident owners of rental property to designate a county resident to serve as agent for receipt of notice of housing code or health violations. (Previous local legislation in recent years granted similar authority to Winston-Salem, Gastonia, Durham, Asheville, and Fayetteville.)

The Legislative Research Commission’s Committee on Downtown Revitalization recommended a number of bills that were introduced in the 1997 session. Although most of these bills did not pass, they are named as the subjects of further study. Section 2.1(2) of S.L. 1997-483 (S 32) authorizes the Legislative Study Commission to consider issues relating to the State Building Code, state construction, downtown revitalization, and Housing Trust Fund allocations to downtown areas. Code-enforcement officials should note that the reference to State Building Code issues is based on H 47 and S 820.Those bills call for a study of the initial certification of code-enforcementofficials, recertification requirements, penalties for officials “who fail to correctly apply the Code” penalties for builders and others who violate the code, and the coordination between the Building Code Council and the Code Officials Qualification Board. In addition, the reference to downtown revitalization is based on H 50 and S 823. These bills provide for the study of the regulation of abandoned buildings.

DOT Infrastructure Bank. For many years most federal and state highway assistance has taken the form of grants-in-aid, often matching funds based on formulae. But recent emphasis on public transportation, privately-financed toll roads, and budgetary limitations have caused those interested in transportation to consider new financial arrangements. The Intermodal Transportation Efficiency Act of 1991, as amended, and the National Highway System Designation Act of 1995, as amended, make federal funds available for distribution through state infrastructure banks that will provide revolving loans to local governments and transportation authorities.

S.L. 1997-428 (S 884) authorizes the North Carolina Department of Transportation (NCDOT) to establish such a bank. The act allows the state to comply with all federal requirements necessary to establish and fund an infrastructure bank and to utilize available federal and state money in doing so. The bank is authorized to provide loans or other financial assistance to cities and other governmental units (including toll authorities) to finance the costs of transportation projects authorized by federal legislation. Funds credited to the infrastructure banking program (jointly established with the State Treasurer) will not revert. NCDOT is authorized to establish rules and policies needed to establish and administer the program. Governmental units are authorized to apply for loans from the bank and to execute appropriate debt instruments. The Local Government Commission must review and approve proposed loans to applicants. Loans from the infrastructure bank are considered an outstanding debt incurred by local government. The 1997 General Assembly appropriated no money for the bank, relying instead upon federal start-upfunds.

Unpaved Roads. Section 15.1(4) of S.L. 1997-483 (S 32) authorizes the Joint Legislative Transportation Oversight Committee to study the status of unpaved secondary roads in the state, including subjects included in S 431. The committee is authorized to study the history, the current paving and maintenance programs, and any plans for the future paving and maintenance of North Carolina’s secondary roads, including both those roads on the state system and those that are not.

Highway Maintenance Report. The concern about the state’s existing roads is also reflected in more formalized procedures for establishing the state’s road maintenance requirements. Section 32.19 of S.L. 1997-443 (S 352) rewrites G.S. 136-44.3 to require NCDOT to survey, in each even-numbered year, the condition of the state highway system. The survey report must provide qualitative and quantitative descriptions of the condition of the system and provide estimates of the annual cost of routine maintenance of the system. It must also estimate any maintenance backlog, the annual cost of resurfacing based on a twelve-year cycle for the primary system and a fifteen-year cycle for other highways, and the cost of eliminating any resurfacing backlog. The study will serve as the basis for an annual state-wide maintenance program, which must be approved by the Board of Transportation.

Lincoln County Roads. North Carolina counties are authorized to play a limited but important role in helping to upgrade roads in unincorporated areas so that they are eligible for acceptance onto the state secondary road system. G.S. 153A-205 allows counties to levy special assessments to finance the entire cost of the construction or improvement of roads intended to be accepted onto the state secondary road system for the first time. To take such a step a county must receive a petition signed by owners of 75 percent of the lineal frontage of the affected road. However, even though counties may finance and then specially assess the entire local costs of such project, counties are not authorized to advertise for or accept bids, or to enter into contracts for the work to be done. As a result, many of the start-up and contracting costs for such projects are incurred by developers and property owners. S.L. 1997-169 (H 804) allows Lincoln County to fill the governmental void left in the state-wide statutes. It specifically allows the county to manage the bidding and construction of the project as well as to finance the improvement costs and to recover their expenses through special assessments. The act also allows Lincoln County to choose from a menu of possible assessment bases, but directs the Lincoln County board of commissioners to develop guidelines and criteria for selecting the projects to be pursued under the new legislation.

Several of the primary legislative initiatives affecting public transportation that were adopted in 1997 grow out recommendations of the governor’s Transit 2001 Commission. The commission’s 120-page report, presented in February, argued that additional attention to and funding of transit was necessary to keep urban North Carolina from turning into “Los Angeles with seasons.”

Section 32.17 of S.L. 1997-443 (S 352) directs NCDOT to prepare a plan for the expansion funds ($26 million in 1997–98 and $12.6 million in 1998-99) that were appropriated for the improvement of public transportation and passenger rail service. The plan must set out the specific purposes for which the funds will be used and set specific, quantitative goals to be met with the money. In addition, the plan must address seven specific topics: (1) travel time, cost recovery, and business ridership of passenger rail service between Raleigh and Charlotte; (2) extension of rail service to Asheville; (3) assessment of the feasibility and costs of extending passenger rail service in eastern North Carolina; (4) increases in the number of routes served by rural, urban, and regional public transportation systems;(5) increases in ridership for rural, urban, and regional public transportation systems; (6) public transportation service to Work First clients; and (7) cost savings achieved by rural, urban, and regional public transportation systems through the use of new technologies. The act directs NCDOT to present the plan to the Joint Legislative Transportation Oversight Committee by October 1, 1997, and to report to the 1999 session of the General Assembly by evaluating the department’s performance in meeting these goals.

S.L. 1997-393 (H 993) authorizes the creation of a regional transportation authority for the Piedmont Triad area. The authority may be created upon the adoption of an appropriate resolution by each of the four largest cities within the area. Once organized, the authority’s territorial jurisdiction and service area initially consists of the areas included within the metropolitan transportation planning organization but may be expanded to include an area of up to twelve contiguous counties, with the consent of the boards of commissioners of the added counties. The jurisdiction of the authority may include all local public passenger transportation systems operating within its territorial area, but the authority may not take over the operation of any existing public transportation without the consent of the owner. The regional transportation authority may engage in transportation planning, operate public transportation systems, acquire property and exercise the power of eminent domain, receive appropriations from federal, state, and local governments, and issue bonds.

S.L. 1997-393 subsequently was amended by Section 32.27 of S.L. 1997-443(S 352) and Section 56.5 of S.L. 1997-456 (H 115) to give some specific responsibility to the authority when it is created. The regional transportation authority is directed to administer a Major Investment Study (MIS) with funds appropriated to the North Carolina Department of Transportation (NCDOT). The study will consider the feasibility of proposals to provide passenger rail service between Asheville and Raleigh through Winston-Salem, generally following the Interstate 40 corridor, and to provide commuter rail service between Winston-Salem, Greensboro, High Point, and outlying communities. The study is to be conducted with the approval of NCDOT and in consultation with the MPOs of Forsyth County, Greensboro, and High Point.

Perhaps the most important bill affecting public transportation authorizes a new mix of taxing arrangements that local and regional transportation providers may use in funding public transportation. S.L. 1997-417 (H 1231) authorizes new taxes for local governments and for public transportation authorities, regional public transportation authorities, and regional transportation authorities.

The act authorizes transportation authorities to levy several taxes. The first tax is an annual motor vehicle license tax of $5 per vehicle. The transportation authority registration tax may be levied by a public transportation authority that includes two or more counties, a regional transportation authority (i.e., the type of authority that was authorized this year by S.L. 1997-393, H 993, for the Piedmont Triad region), or a regional public transportation authority (i.e., the type of authority that is already active in the Triangle area, specifically the Triangle Transit Authority). An authority may use the proceeds for any purpose that the authority is authorized to use funds. However, the funds may not be used to supplant or replace existing funds for public transportation. This tax may not be levied by the board of trustees of a transportation authority until the board holds a public hearing on the matter and the board of commissioners of each county in the authority has adopted a resolution approving the tax (or any increase in an existing tax). If a special tax board has been established by the authority, it too must approve the tax.

It should be noted that legislation adopted in 1993 authorized a $5registration tax for the Triangle Transit Authority. S.L. 1997-417 (H 1231) reorganizes that enabling authority, continues it, and extends the power to levy the license tax to the other types of transportation authorities named above.

A second new source of funds for transportation authorities made possible by the act will come by way of a new vehicle rental tax. The tax may be levied by a regional public transportation authority (i.e., the Triangle Transit Authority) or a regional transportation authority (i.e., the type of authority that has been authorized for the Piedmont Triad region by S.L. 1997- 393, H 993). These transportation authorities may levy a privilege tax on any retailer that is in the business of leasing or renting private passenger vehicles within their respective jurisdictions. The tax must be based on a percentage of the gross receipts derived from the rental and may not exceed 5 percent. Estimates are that the tax could yield the Triangle Transit Authority up to $6.3 million a year. Like the registration (license) tax, the vehicle rental tax may not be levied without a public hearing and the approval of the board of commissioners of each county in the authority and any special tax board that has been established.

The act also authorizes a special sales tax earmarked for public transportation in Mecklenburg County. The county may levy a one-half percent (1/2%) sales and use tax, earmarked for public transportation, if the tax is approved at a voter referendum . The tax, if approved, may be levied in addition to the 2 percent local sales and use tax already imposed by the county. The proceeds of the tax must be distributed on a per-capita basis among the units of local government in the county that operate a public transportation system. The proceeds may be used only for financing, constructing, operating, or maintaining local public transportation systems. The county must allocate its portion of the proceeds in accordance with a financing plan that identifies local public transportation system needs in the county, county-wide human service transportation systems, and expansion of public transportation service to unserved areas in the county.

Under G.S. 20-97 a city may levy a general municipal vehicle registration tax of not more than $5 per year on any vehicle that resides in the city. Local legislation permits some cities to levy a higher tax. The proceeds of these registration taxes may be used for any lawful purpose. S.L. 1997-417 (H 1231) expands the authority to levy this type of tax by authorizing an additional supplemental municipal vehicle tax for public transportation of up to $5 per year. Any city that operates a public transportation system (with the exception of Durham and the cities of Gaston County, which are expressly excluded from this legislation) is eligible to levy the supplemental tax. In no case, however, may the combined amount of general registration tax and the supplemental registration tax levied under either state-wide legislation or local legislation exceed $30 per year. Unlike the proceeds of the general municipal vehicle-registration tax, the proceeds from the supplemental tax are earmarked. They must be used for local public transportation systems and may not be used to supplant or replace existing funds.

One important step in the development of public transportation in North Carolina is the General Assembly’s decision to purchase those outstanding shares of the North Carolina Railroad Company that are not already owned by the state. This purchase, however, may proceed only if shareholders first approve the merger of the company with the Beaufort and Morehead Railroad Company. Section 32.30 of S.L. 1997-443 (S 352) directs that $61million from the General Fund balance be placed in a reserve account for purchase of the railroad. If the purchase is made, the act directs the new railroad company to submit a business plan to the Joint Legislative Transportation Oversight Committee by November 20, 1998. The plan must include a mission statement, a plan for the areas and types of services to be provided, pro form a financial statements for a five-year period beginning January 1, 1999, and an analysis of alternative forms of organization.

Some of the major public transportation issues are likely to be subject to further study. Section 2.8 of S.L. 1997-483 (S 32) authorizes the Legislative Research Commission to study public transit in the state. The study, if undertaken, will (1) review present and future public transit funding needs; (2) evaluate the economic impact of public transit in the state and its various regions; (3) evaluate the appropriate roles of local, regional, state, and federal governments in funding public transit; and (4) consider short- and long-range funding solutions. Section 2.1(19) of S.L. 1997-483authorizes the Legislative Research Commission to study rail service to the state ports.

One of the faster growing programs to promote economic development in North Carolina is the New and Expanding Industry Training Program offered by the North Carolina Department of Community Colleges. The program offers customized training in local community colleges for entry-level jobs in new or expanding industries. Training plans are developed jointly by a community college and the affected industries, but the training is furnished at no cost to the benefiting companies. S.L. 1997-38 (S 286) appropriates $4.7 million for the 1996–97 fiscal year to cover a shortfall in the program that developed during the spring of 1997. This money supplements the $10.8million appropriated in 1996 for 1996–97.

The 1997–99 state budget, S.L. 1997-443 (S 352), allocates $1 million in nonrecurring funding to the state’s Industrial Recruitment Competitiveness Fund. The fund is intended to provide money to businesses and industries deemed by the governor to be vital to a healthy State economy. Section 16.4 of the act provides that the money may be used for (1) installation or purchase of equipment; (2) structural repairs, improvements, or renovations of existing buildings to be expanded; and (3) construction of or improvements to new or existing water, sewer, gas, or electric utility distribution lines, or equipment for either existing buildings or new or proposed industrial buildings used for manufacturing and industrial operations. That sectional so directs the governor to adopt guidelines and procedures for committing the money. In addition, it directs the Department of Commerce to report by October 1, 1997 (and quarterly thereafter) to the Joint Legislative Commission on Governmental Operations on the commitment, allocation, and use of money from the Industrial Recruitment Competitiveness Fund.

S.L. 1997-443 (S 352) also appropriates $3 million to the Industrial Development Fund. Section 16.9 of the act allocates $2 million of this money to the Utility Account (established under G.S. 143B-437A(b1)), but allocates the remainder for a grant for a water and sewer project in Martin County. It directs the Department of Commerce to report annually to the General Assembly concerning payments made from the Utility Account and the impact of the payments on job creation in the state. It also directs the department to report quarterly to the Joint Legislative Commission on Governmental Operations and the Fiscal Research Division on the use of the money in the Utility Account, and to provide information concerning who received the payments, how much the payments were, and how they were used.

Section 16.8 of S.L. 1997-443 (S 352) concerns an existing requirement that applies to local governments that receive industrial development funds. Some local governments have requested that they be exempted from the local matching requirements that are placed on the receipt of the funds. Section 16.8 provides that any local government that wishes to qualify for such an exemption must demonstrate to the Department of Commerce that it would be an economic hardship for the local unit to match state assistance with local funds. The department is directed to develop guidelines for determining“hardship.”

In 1996 the North Carolina General Assembly adopted the William S. Lee Quality Jobs and Business Expansion Act, codified as Article 3A of Chapter 105 of the North Carolina General Statutes. (The legislation was named after the former chairman of Duke Power, now Duke Energy.) The law introduced a number of income-tax and franchise-tax incentives for new or expanding businesses that were recommended by the Governor’s Economic Development Board. The law expanded the jobs tax credit, and established new tax credits for worker training expenses, for increases in research activities, and for investments in machinery and equipment. This year the legislature revisited the act and enacted S.L. 1997-277 (S 316) to make a number of additions and modifications to the act.

To be eligible for the tax credits, the 1996 act required that a taxpayer engage in manufacturing or processing, warehousing or distributing, or data processing. S.L. 1997-277 expands those eligible to include firms engaged in air courier services as well as firms with a central administrative office that creates at least forty new jobs.

The 1996 legislation introduced the concept of dividing North Carolina counties into five “enterprise tiers.” The ten poorest counties are assigned to Tier 1; the richest twenty-five counties are in Tier 5. This year’s amendments require the calculation of each county’s ranking on the basis of its condition during the preceding three years rather than just the preceding year. In addition, the law prevents the redesignation of a Tier 1 county until it has been classified above Tier 1 for two consecutive years.

A taxpayer is eligible for the tax credit for creating jobs or for job training only if the jobs for which the credit is claimed meet certain wage standards. The new law establishes a wage standard for counties in Tier 1 that is 11 percent lower than in other counties. It also provides that the applicable average weekly wage standard is computed as the lowest of the following figures: (1) the average wage for all insured private employers in the county; (2) the average wage for all insured private employers in the state; or (3) the average wage for all insured private employers in the county multiplied by a county income and wage adjustment factor that lowers the wage standard in counties with lower average per-capitaincomes.

Several other provisions of S.L. 1997-277 are of general interest. First, the 7 percent credit for investing in machinery and equipment has been extended to leased, as well as purchased, property. In addition, the changes in the law establish a special credit for investing in real property that is used to establish central administrative office that will offer at least forty new jobs. The credit equals 7 percent of the eligible investment amount up to a cap of $500,000 and includes property that is either owned or leased. Also, the new act provides a special benefit to taxpayers who commit to placing eligible machinery and equipment in service in a county whose enterprise tier designation changes after the commitment is made.

The 1997 amendments to the William S. Lee Quality Jobs and Business Expansion Act also direct the state Department of Commerce to study a series of tax incentive and economic development issues, including the equity of the formulae used in establishing these tax credits, whether out-of-statebusinesses relocating to North Carolina receive more benefits than expanding in-state businesses, economic recruitment patterns before and after the William S. Lee Act, the costs and benefits of tax incentives, and the use of incentives by other states. The results of the department’s study results must be reported to the 1999 General Assembly by April 1, 1999.

Two bills were adopted to update and expand the state’s industrial facilities and pollution control financing legislation. That legislation (G.S. Chapter 159C) authorizes counties to issue tax-exempt revenue bonds to finance the construction costs of certain industrial projects.

The first act adopted this year, S.L. 1997-111 (H 474), both restricts and expands the kinds of expenditures that are eligible. First, the act prohibits bond proceeds from being used to refinance a project. Generally speaking, proposed project costs now are ineligible if the expenditures are paid more than sixty days before the authority acts to approve them for financing or reimbursement from bond proceeds. Similarly, expenditures for acquiring the property or preparing the site are ineligible. However, expenditures made for the costs of architectural services, engineering, surveying, soil testing, the issuance of bonds, and other similar costs, before the acquisition, construction, or rehabilitation of the property, may be financed with the bonds. These expenditures are eligible regardless of whether the costs were incurred more than sixty days before the authority’s approval action. In any event, any expenditure paid before the authority approves the project may be financed or reimbursed from bond proceeds only if the authority finds that reimbursing those costs will promote the economic development purposes of the program.

The second act, S.L. 1997-463 (S 730), makes a series of procedural changes in the legislation. In the past the state’s commerce secretary was authorized to request the county industrial facilities and pollution control authority to hold a public hearing on the application before the state approved it. Now the commerce secretary may not approve any proposed project until the board of county commissioners has conducted a duly-advertisedpublic hearing on its application for state approval. Similarly, the law prevents the commerce secretary from approving the project until the Department of Environment and Natural Resources certifies, in one of several ways, that the proposed project will not have an adverse effect on the environment. Under the new law, the department must provide the required certification to the secretary of commerce within seven days after the applicant has demonstrated that all project permits, including environmental permits, have been obtained. Other changes provide for the maturity of refunding bonds and allow the finance authority for a single county to issue bonds for a multi-county project.

In 1993 the General Assembly established seven regional economic development commissions that encompass all 100 counties. The commissions include the Western North Carolina Regional Economic Development Commission; the Research Triangle Regional Commission; the Southeastern North Carolina Regional Economic Development Commission; the Piedmont Triad Partnership; the Northeastern North Carolina Regional Economic Development Commission; the Global TransPark Development Commission; and the Carolinas Partnership. The 1997–98 state budget, S.L. 1997-443 (S 352), appropriates funds to the Department of Commerce for these regional economic development commissions and establishes the formula for allocation of these funds. Section 16.11 of S.L. 1997-443 provides that each commission’s allocation is determined by summing the allocations to each county that is a member of the commission. Each county’s allocation is based on the county’s enterprise factor as calculated in G.S. 105-129.3. However, the share of the Global TransPark Development Commission is reduced by $276,923, which represents the interest on $7.5million appropriated to the Global TransPark Development Zone in 1993 that remains unspent. Section 16.10 of S.L. 1997-443 also requires each regional economic development commission receiving aid to report in January of 1998and 1999 to the Joint Legislative Commission on Governmental Operations, the Fiscal Research Division, and the Department of Commerce concerning past and expected future program activities and expenditures. In addition, each quarter a commission must report information to the Department of Commerce. It must include the amount of investment and number of jobs created both directly and indirectly by the commission and the commission’s major accomplishments.

One more subtle programmatic change to enhance the state’s economic development is accomplished by S.L. 1997-148 (S 869). This act transfers several state agencies involved in information technology from the Office of State Controller to the state Department of Commerce. The transferred agencies include the Information Resource Management Commission, the State Information Processing Services, the Information Highway Grants Advisory Council, and the State Telecommunications Services. The legislative authority for these technology-related functions is reorganized as Part 16 of Article 10 of G.S. Chapter 143B (Information Technology Related State Government Functions).

North Carolina’s Open Meetings Law has for years allowed a public body to discuss certain matters in closed session. One exception to the Open Meetings Law, first adopted in 1979, allows the discussion of matters relating to the location or expansion of industries or other businesses in closed session. S.L. 1997-290 (S 844) elaborates this exception by specifically exempting from the open meetings requirement the agreement on a tentative list of economic development incentives that may be offered in negotiations by the public body involved. However, the act provides that any action approving the signing of an economic development contract or commitment or any action authorizing the payment of economic development expenditures must be taken in an open session.

S.L. 1997-233 (H 597) broadens the authority of municipalities and hospital authorities to lease hospital lands to for-profit or nonprofit organizations and to participate as owners, joint venturers, or as equity participants in the development and operation of medical office buildings and various other health care or hospital facilities.

There is a good likelihood that at least one legislative commissionor study committee will study an economic development topic in the next two years. S.L. 1997-483 (S 32) authorizes several studies related to economic development issues. Section 2.1(28) allows the Legislative Research Commission to study small business development and issues raised by H 1117. Section 2.1(29) authorizes the commission to study venture capital, business financing, and those related topics mentioned in S 956.

Section 14.1 of S.L. 1997-483 establishes the Revenue Laws Study Committee, a sixteen-member committee (eight members appointed by the president pro tempore of the Senate and eight by the House speaker). Commission members may be legislators or persons who are not members of the General Assembly. The new committee is directed to study several topics, one of which is whether tax credits and other forms of economic development incentives achieve the desired effects and reflect the state’s priorities.

In 1985 the city of Asheville was successful in obtaining local legislation authorizing the city to engage in various kinds of downtown development projects. Two years later the General Assembly adopted legislation, codified as G.S. 160A-458.3, providing much the same authority to all cities except those in Buncombe County. The exception was based on the notion that Asheville already had the needed power. S.L. 1997-86 (H 51) repeals Asheville’s local authority and the exception that applied to G.S. 160A-458.3. The act thus gives municipalities in Buncombe County the same powers with respect to downtown development projects that any other municipality enjoys.

One bill that is likely to receive major attention in the 1998 session of the General Assembly is H 1027. This bill reflects Governor Hunt’s plan to help fledgling companies by investing state funds in venture capital firms. These firms in turn would invest money in start-up companies with high growth potential. The bill authorizes the state treasurer to invest money from the state General Fund and Highway Fund that is not required to meet the current needs, plus an additional $100 million of funds held in special state funds (other than pension or retirement accounts). The goal is to form a partnership whose primary purpose is to invest in venture capital or corporate buyout transactions. (Current law (G.S. 147-69.2) authorizes the state treasurer to invest up to $30 million of state pension, retirement, and other special funds for this purpose.) Questions concerning which state official should invest the money and whether the money should go exclusively to North Carolina venture capital firms remain. H 1027 has passed the House and awaits further legislative action by the Senate.

S 819, recommended by the Legislative Research Commission’s Committee on Downtown Revitalization, would require the state Department of Commerce to maintain a computerized database of downtown properties available for industrial recruitment and to make such information in the database available to the public. It has passed the Senate and is eligible for consideration in the 1998 short session.

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©1997

Institute of Government. The University of North Carolina at Chapel Hill

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1. See Bonnie A. Mollenbrock, “North Carolina’s Conservation Tax-Credit Program,” Popular Government (Summer 1997).

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