Public Hearings for Economic Development Incentives: An Unwritten Rule?

North Carolina local governments frequently use cash grants as an economic development incentive to lure businesses into their respective jurisdictions. The grants are authorized under the Local Development Act, G.S. 158-7.1 et seq., but a quick read of the statutes won’t inform you of the need for a public hearing prior to approving such incentives. To understand the source of this invisible requirement, you have to take a look at the case law.

Folks familiar with the Local Development Act are aware of the stringent notice and public hearing requirements for economic development incentives authorized by paragraph (b) of G.S. 158-7.1, such as constructing and conveying shell buildings, extending utility lines to a facility, and engaging in site preparation. For those enumerated incentives, the hearing requirements are clearly spelled out in G.S. 158-7.1(c) and (d). But cash grants are not listed nor authorized by the specific provisions of paragraph (b); rather, the authority to offer cash incentives is likely derived from the general grant of authority described in a neighboring paragraph, G.S. 158-7.1(a). A quick read of paragraph (a) reveals no obvious public hearing imperative. So why do we advise local governments to hold public hearings anyway? To uncover the answer, one must look closely at North Carolina’s seminal economic development case, Maready v. City of Winston-Salem, 342 N.C. 708 (1996). In Maready, the North Carolina Supreme Court established that local government incentives offered to a private business serve a public purpose even when the private business obtains some benefit. In the opinion, the court’s majority insisted that significant public benefits accruing from economic development—such as better-paying jobs and a higher tax base—justify the incentives. What about borderline cases where the private benefit is great and the public benefit is less clear? The court has an answer: the “strict procedural requirements [of G.S. 158-7.1]… provide safeguards that should suffice to prevent abuse.” For our purposes, this statement is significant, because it appears to establish a presumption of public benefit so long as the “strict procedural requirements” of the statute are followed. The quandary: cash grants are not found anywhere in G.S. 158-7.1, so where is the “strict procedural requirement” for a public hearing in that instance? This brings us to the final piece of the puzzle. In Maready, the local governments in question had approved all sorts of different incentives – even a few that weren’t specifically enumerated under G.S. 158-7.1(b), such as “relocation assistance” for spouses (if anyone connected to the case knows exactly what that particular incentive involved, please enlighten me). Those “outside-the-box” (or “outside-the-G.S. 158-7.1(b)-box”) incentives must have been approved pursuant to the general authority of G.S. 158-7.1(a), since they cannot be found among the enumerated incentives in paragraph (b). And even though they were “outside-the-G.S. 158-7.1(b)-box,” what do you think the governing boards did prior to approving those outside-the box incentives? You guessed it: they held public hearings anyway. So, to the extent that the N.C. Supreme Court sanctioned “outside-the-box” incentives as serving a public purpose, they did so subject to the condition that “strict procedural requirements” are followed. The lesson, then, is that in order to gain that favorable “public purpose” presumption for your incentives, you’d be advised to hold a public hearing prior to approving them.