Three configurations: (1) Can public assistance pay for care in a rest home owned by an employee of a State Alcoholic Rehabilitation Center? (2) Same, but the home is owned by a corporation where the employee is officer or shareholder? (3) The home is rented from an employee of an area mental health, mental retardation and substance abuse authority?

Plain-English summary

W. W. Speight, Pitt County Attorney, asked three precise variants of a conflict-of-interest question about who can receive state public assistance payments when a state employee has an ownership interest in the residential facility.

The 1979 AG concluded that G.S. 108-65.2 (as amended by 1979 Session Laws, Chapter 702, effective May 30, 1979) bars public assistance payment for the care of a person in a domiciliary facility that is owned or operated, in whole or in part, by certain categories of officials and employees. The statute lists three categories of barred owners: members of the Social Services Commission, county social services boards, or county boards of commissioners; officials and employees of DHR or any county DSS; and spouses of persons in the first two categories.

Applied to the three variants:

Variant 1: Rest home owned directly by an employee of a State Alcoholic Rehabilitation Center. Public assistance is barred. The State Alcoholic Rehabilitation Centers operate under DHR per G.S. 122-7.1 and are integral parts of that department. The center's clinical director (and by extension other employees) are DHR employees and fall squarely within the statute.

Variant 2: Home owned by a corporation where the State Alcoholic Rehab Center employee is officer or shareholder. Public assistance is barred. The AG applied the same logic the office had used in interpreting G.S. 14-234 (the conflict-of-interest statute for public contracts) where an employee's ownership of a corporate stake had been treated as owning or operating the underlying business.

Variant 3: Home rented from an employee of an area mental health, mental retardation and substance abuse authority. Public assistance is NOT barred. Area mental health authorities are local political subdivisions of the State under G.S. 122-35.36(1). An employee of an area MH/MR/SA authority is not an employee of the State or a county. The statute's reach to "officials and employees of the Department of Human Resources or of any county department of social services" does not extend to area authority employees, who occupy a separate legal-employer status.

Currency note

This opinion was issued in 1979. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Department of Human Resources is now the Department of Health and Human Services. Adult care home funding, conflict-of-interest restrictions, and area authority structures have all been reorganized multiple times. Modern rest home and adult care home questions should be addressed under current Chapter 131D, Chapter 108A, and Chapter 122C law.

Historical context: what the AG concluded

The opinion is a precise textual application of G.S. 108-65.2's three-part list of barred owners, paired with a careful analysis of where the State Alcoholic Rehabilitation Centers fit in the agency structure and where area mental health authorities sit.

The first variant is easy. State Alcoholic Rehabilitation Centers were created by G.S. 122-7.1 as part of DHR. The clinical director and staff are DHR employees. G.S. 108-65.2(2) bars payment to a home owned or operated by an employee of DHR. The direct application is straightforward.

The second variant goes through corporate ownership. The AG cited the office's prior interpretation of G.S. 14-234 (the public-contracts conflict-of-interest statute) for the proposition that an employee's officer or shareholder status in a corporation is equivalent to the employee owning or operating the corporate business. The AG cited a string of prior opinions (44 N.C.A.G. 128 (1974), 42 N.C.A.G. 180 (1973), N.C.A.G. 9 (1972), 40 N.C.A.G. 565 (1970), 40 N.C.A.C. 561 (1969)) where this corporate-piercing logic had been applied. The AG saw no reason to apply a different rule in the rest home context.

The third variant turns on the legal status of area mental health authorities. G.S. 122-35.36(1) defines area authorities as "local political subdivisions of the State." That status makes them legally distinct from both the State (DHR) and the counties (DSS). Their employees are neither State employees nor county employees. The statute's list of barred owners does not include "employees of local political subdivisions of the State," so it does not reach area authority employees.

The AG cited prior opinions consistent with the area authority's separate-entity status: 47 N.C.A.G. 8 (1977) and 45 N.C.A.G. 70 (1975). Both established that area MH/MR/SA authority employees are not State or county employees, and G.S. 122-35.45(b) underscored the distinction.

The opinion's broader principle: conflict-of-interest restrictions for public assistance funding turn on the specific employer category, not on a general "government-connected person" concept. The legislature drew the lines at DHR and county DSS, and the statute does not stretch to other government-adjacent entities.

Background and statutory framework

G.S. 108-65.2 ("Limitations on payments") was a conflict-of-interest restriction tied to public assistance payments for adult domiciliary care. The statute targeted a specific risk: that a person responsible for making public assistance eligibility decisions or related decisions might have a financial interest in the homes that receive those payments. The 1979 amendment (Chapter 702, effective May 30, 1979) refined the list of barred categories.

The list was narrowly drawn. It covered Social Services Commission members, county social services board members, and county commissioners (the decision-makers in the public assistance system); DHR and county DSS officials and employees (the people who administer the system); and spouses of the first two categories (to prevent obvious end-runs).

State Alcoholic Rehabilitation Centers operated under G.S. 122-7.1 as part of DHR. They provided inpatient and residential treatment for alcoholism. Their staff (clinical and administrative) were DHR employees.

Area mental health, mental retardation and substance abuse authorities were created under Article 2A of Chapter 122 (later reorganized into Chapter 122C). They were a then-novel structure designed to deliver community mental health, intellectual disability, and substance abuse services through local entities rather than directly through DHR. The legislature explicitly defined them as local political subdivisions of the State, similar to school districts in structure (a State function delegated to a local legal entity).

The corporate-veil reasoning the AG drew from G.S. 14-234 analysis was a well-established interpretive pattern. North Carolina conflict-of-interest doctrine had consistently treated an official's corporate officer or shareholder status as equivalent to the official's direct ownership. The principle prevented officials from sidestepping the conflict prohibition through a corporate intermediary.

Common questions

What if the State Alcoholic Rehabilitation Center employee owned a non-controlling minority of the corporation?

The opinion does not draw a quantitative line. The cited prior opinions on G.S. 14-234 treated officer or shareholder status as triggering, without minimum share requirements. The AG implicitly applied the same standard here. A practical reading: any officer position or any shareholder status triggers the bar, regardless of percentage.

Does the rent-versus-ownership distinction matter?

The opinion's third variant involved renting from an area authority employee (not owning). The AG did not say renting from a DHR employee would be permissible. The statute's text ("owned or operated") might or might not cover a lease arrangement, depending on how "operated" is read. The AG's answer for variant three turned on the area authority's separate status, not on the rent-versus-own distinction.

Could DHR adopt a rule extending the bar to area authority employees?

The opinion does not address rulemaking. The statute's text is what it is, and an agency rule cannot expand statutory prohibitions beyond their text. Extending the bar to area authority employees would require legislative amendment.

Why was Pitt County's question so detailed?

Pitt County presumably had a specific situation where these distinctions mattered. The county attorney needed to know whether to authorize or deny specific public assistance payments. Asking the AG produced a written answer the county could rely on.

Did the legislature later expand the list of barred categories?

G.S. 108-65.2 was renumbered and amended several times in the decades after this opinion. Anyone applying the modern statute should consult current Chapter 108A and the relevant DHHS rules rather than relying on the 1979 text.

Source

• Landing page: https://ncdoj.gov/opinions/conflict-of-interest-payment-of-public-assistance-to-persons-in-rest-homes/

Citations

• G.S. 108-65.2
• G.S. 122-7.1
• G.S. 14-234
• G.S. 122-35.36(1)
• G.S. 122-35.45(b)
• 1979 Session Laws, Chapter 702

Original opinion text

Requested By: W. W. Speight County Attorney for Pitt County

Questions: May payment of public assistance be made for the care of a person in a home for the aged, family care home, or other domiciliary facility which is owned or operated in whole or in part by an employee of a State Alcoholic Rehabilitation Center?

• May payment of public assistance be made for the care of a person in a home for the aged, family care home, or other domiciliary facility which is owned or operated in whole or in part by a corporation of which an employee of a State Alcoholic Rehabilitation Center is an officer or a shareholder?
• May payment of public assistance be made for the care of a person in a home for the aged, family care home, or other domiciliary facility which is rented from an employee of an area mental health, mental retardation and substance abuse authority?

Conclusion: No.

• No.
• Yes.

G.S. 108-65.2, as amended by 1979 Session Laws, Chapter 702, effective May 30, 1979, provides as follows:

"108-65.2. Limitations on payments. — No payment of public assistance under this Part shall be made for the care of any person in a home for the aged, family care home, or other domiciliary facility which is owned or operated in whole or in part by any of the following:

• a member of the Social Services Commission, of any county board of social services, or of any board of county commissioners;
• an official or employee of the Department of Human Resources or of any county department of social services;
• a spouse of a person designated in subdivisions (1) and (2)."

The State Alcoholic Rehabilitation Centers are set up by the Department of Human Resources and are an integral part of that department. See G.S. 122-7.1. Since the clinical director is an employee of the Department of Human Resources, the proscriptions of G.S. 108-65.2 apply to any home of the type described therein which is owned by that employee. Similarly, these prohibitions would also seem to apply to situations wherein an employee of an Alcoholic Rehabilitation Center is an officer or a shareholder of a corporation which owns or operates, in whole or in part, one of these types of homes. That conclusion has been reached with regard to the interpretation of the language of G.S. 14-234 and no distinction can logically be made here. For prior opinions of this Office in comparable situations, see 44 N.C.A.G. 128 1974), 42 N.C.A.G., 180 (1973); N.C.A.G. 9 (1972); 40 N.C.A.G. 565 (1970); 40 N.C.A.C. 561 (1969).

On the other hand, an area mental health, mental retardation and substance abuse authority is a local political subdivision of the State. See G.S. 122-35.36(1)). As a result an employee of an area mental health, mental retardation and substance abuse authority is not an employee or an official of the State or of any county. See G.S. 122-35.45(b); 47 N.C.A.G. 8 (1977); 45 N.C.A.G. 70 (1975). Thus the provisions of G.S. 180.65.2 would be inapplicable to such an employee.

Rufus L. Edmisten
Attorney General

William F. O'Connell
Special Deputy Attorney General