If a North Carolina county can't pay its share of Medicaid because the legislature suddenly raised the county percentage, can the county borrow money from the State Public Assistance Contingency Fund without holding a referendum?
Plain-English summary
The 1978 General Assembly raised the county share of non-federal Medicaid costs from 15 percent to 35 percent. Several North Carolina counties told the state Department of Human Resources they could not cover their newly enlarged share. The Department asked the Attorney General two related questions about a possible bailout route.
First: could a county borrow from the State Public Assistance Contingency Fund (G.S. 108-54.1) without holding a referendum? Article V, Section 4 of the North Carolina Constitution generally requires a majority vote of qualified voters before a county may contract debt secured by its faith and credit. There are five enumerated exceptions in subsection (2): (a) funding or refunding existing debt; (b) supplying an unforeseen revenue deficiency; (c) borrowing in anticipation of current-year taxes up to 50 percent; (d) suppressing riots or insurrections; (e) meeting emergencies immediately threatening public health or safety, as conclusively determined in writing by the Governor. Subsection (2)(f) carved out a sixth path for debt authorized by general law uniformly applicable throughout the state, capped at two-thirds of the previous year's debt reduction.
The AG worked through each exception and concluded that the only realistic fit for a Medicaid-share shortfall was subsection (2)(e). The Governor would have to determine in writing that the inability of the county to pay its Medicaid share constituted an emergency immediately threatening public health or safety. Without that determination, the loan would need voter approval. The AG did not say whether any particular county's situation rose to the level of such an emergency, that was a Governor's call on the facts.
Second: would a loan made under exception (a) through (e) be subject to the two-thirds cap in (f)? The AG said no. Subsection (f) applied to debt "for purposes authorized by general laws uniformly applicable throughout the State." Reading Article XIV, Section 3 of the Constitution, the AG concluded that "general laws uniformly applicable" referred to statutes passed by the General Assembly, not to debt authorized directly by other parts of the Constitution itself. The (f) cap and the (a)-(e) exceptions ran on different tracks: (f) authorized General Assembly debt-creating statutes within a two-thirds limit, while (a)-(e) authorized specific narrow categories without any percentage cap.
The result was that a Governor's emergency declaration under (e), if appropriately made, opened the door to a county loan from the State Public Assistance Contingency Fund without any referendum and without any two-thirds cap on the amount.
Currency note
This opinion was issued in 1980. 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 State Public Assistance Contingency Fund framework was reorganized when North Carolina restructured social services administration in the 1980s and 1990s, and Title XIX Medicaid match-rate rules have changed many times. North Carolina county Medicaid share rates have also shifted across decades. Article V, Section 4 of the Constitution remains in force in essentially the same structure described here, but anyone considering a Governor's-emergency-declaration debt path should consult current Local Government Commission guidance, current general statutes implementing Article V, Section 4, and the most recent legislative appropriations affecting county social services obligations.
Background and statutory framework
North Carolina counties run on a tight statutory leash when it comes to borrowing. The pre-1971 Constitution and the 1971 rewrite both built voter approval into the basic authority to incur debt secured by the county's faith and credit. The drafters did not want county commissioners to leverage future taxpayers without future taxpayer consent. Article V, Section 4 reflects that policy.
The exceptions in subsection (2) are narrow and exist for specific kinds of situations. Subsections (a) through (d) cover refinancing existing debt, plugging a hole in the current budget caused by revenue shortfall, short-term tax-anticipation borrowing, and putting down riots. Subsection (e) is the emergency safety valve: the Governor of North Carolina can certify, in writing, that a particular situation is an emergency immediately threatening public health or safety, and that certification unlocks debt authority without a referendum. Subsection (f) is a structural mechanism: it lets the General Assembly pass general statutes authorizing certain kinds of county debt (water/sewer revenue bonds for example) so long as the total stays within a moving cap tied to recent debt reduction.
The 1978 Medicaid-percentage increase put county budgets under unusual stress. Counties had built their fiscal 1978-79 budgets assuming a 15 percent share. The legislative change to 35 percent landed late enough in the budget cycle that the difference could not be raised through normal appropriations or property-tax adjustments. The State Public Assistance Contingency Fund existed exactly to bridge such gaps, but using it meant the county was taking on debt that, formally, fell within Article V, Section 4's voter-approval rule.
The AG's structural reading of (e) was important. The Governor's determination was not a political endorsement; it was a written, conclusive finding that the county's inability to meet its Medicaid share threatened public health or safety. That framing carried weight. The Governor would presumably have to articulate, in the determination, why the shortfall threatened health or safety, the disruption of Medicaid services, the consequences for low-income patients, the cascading effects on county hospitals.
The AG's parsing of (f) versus (a)-(e) was also important. A reader could have read (f) as setting a ceiling on all non-voter-approved debt, with (a)-(e) as the specific cases that could fit under it. The AG rejected that reading. Subsections (a) through (e) were stand-alone constitutional authorizations, not General Assembly authorizations. Article XIV, Section 3 of the Constitution defined "general laws" as legislation, and (f)'s reference to "general laws uniformly applicable" used the same word in the same sense. So (f)'s two-thirds cap operated on legislation, not on constitutional exceptions.
The opinion did not weigh in on whether the Public Assistance Contingency Fund itself was a "general law" under (f). It did not have to, because (e) was the operative path.
Common questions
Did the Governor ever actually make an emergency declaration for this purpose?
The opinion did not say, and the question presented assumed the determination would be made in the future. The AG was answering a planning question, not validating a specific declaration.
Was this a one-time situation tied to the 1978 Medicaid rate change?
No. The 1980 opinion's analysis applies to any future scenario where a county faces a public-assistance-program shortfall that the Governor could determine was an emergency threatening public health or safety. The framework is structural.
Did this rule give the Governor unilateral power to authorize county debt?
In practice, yes, within the narrow channel of (e). The Governor's determination was "conclusive" by the text of the Constitution. The General Assembly could not override it, though it could legislate around the underlying problem (for example, by changing the county share back to a manageable level).
Could a county refuse the loan or the emergency framing?
The constitutional exception authorized the debt without voter approval, but it did not compel the county to incur the debt. A board of county commissioners would still have to vote to accept the loan and obligate the county. That commission vote was a separate political accountability mechanism even though no referendum was needed.
Source
Citations
- N.C. Const. Art. V, Sec. 4 (county debt voter approval and exceptions)
- N.C. Const. Art. XIV, Sec. 3 (general laws)
- N.C.G.S. 108-54.1 (State Public Assistance Contingency Fund)
Original opinion text
Requested By: Dr. Sarah T. Morrow, Secretary Department of Human Resources
Questions: May a county, under the circumstances set forth in the opinion, procure a loan from the State Public Assistance Contingency Fund (N.C.G.S. 108-54.1) without securing approval on the qualified voters of the county, as provided in Article V, Section 4 of the North Carolina Constitution?
Is a debt incurred pursuant to Article V, Section 4(2)(a)-(e) subject to the two-thirds limitation imposed by Article V, Section 4(2)(f)?
Conclusions: A county may procure a loan under such circumstances: (a) if such loan will not violate the provisions of Article V, Section 4(2)(f); or (b) if the Governor determines the existence of an emergency under the provisions of Article V, Section 4(2)(e) of the Constitution.
No.
The letter requesting this opinion states that several counties are unable to pay the county share of Medicaid (Ch. 108, Art. 2, Part 5, N.C.G.S) because the 1978 Session of the North Carolina General Assembly increased the percentage that counties must pay from fifteen (15%) percent to thirty-five (35%) percent of the non-federal share. Inquiry is made whether, in view of the provisions of Article V, Section 4 of the North Carolina Constitution, loans can be made to such counties without such loans being approved by the qualified voters of the respective counties.
The provisions of Subsection (2) of Article V, Section 4 of the Constitution, which are particularly applicable here, read as follows:
"Authorized purposes; two-thirds limitation. The General Assembly shall have no power to authorize any county, city or town, special district, or other unit of local government to contract debts secured by a pledge of its faith and credit unless approved by a majority of the qualified voters of the unit who vote thereon, except for the following purposes:
a. to fund or refund a valid existing debt;
b. to supply an unforeseen deficiency in the revenue;
c. to borrow in anticipation of the collection of taxes due and payable within the current fiscal year to an amount not to exceed 50 per cent of such taxes;
d. to suppress riots or insurrections;
e. to meet emergencies immediately threatening the public health or safety, as conclusively determined in writing by the Governor;
f. for purposes authorized by general laws uniformly applicable throughout the State, to the extent of two-thirds of the amount by which the unit's outstanding indebtedness shall have been reduced during the next preceding fiscal year."
Since the inquiry, as made, does not contemplate a loan within the provisions of Article V, Section 4(2)(f) (which permits authorization of debt without voter approval if the local unit's indebtedness does not exceed two-thirds of the amount by which the unit's outstanding indebtedness was reduced during the next preceding fiscal year), it is assumed that the counties involved would not qualify under such provision. The question, then, is whether the loan could be made under one or more of the other five exceptions appearing in Section 4(2).
It is our opinion that Section 4(2)(e) is the only exception, if applicable, that meets the circumstances of the inquiry. Section 4(2)(e) is an exception designed "to meet emergencies immediately threatening the public health or safety, as conclusively determined in writing by the Governor."
A further inquiry is whether a loan made pursuant to any exception appearing in Section 4(2)(a)-(e) will be unconstitutional if it exceeds the limitation imposed by Section 4(2)(f). We conclude that the two-thirds limitation set forth in Section 4(2)(f) does not apply to a loan made pursuant to Section 4(2)(a)-(e). Section 4(2)(f) exempts from voter approval debt incurred "for purposes authorized by general laws uniformly applicable throughout the State" so long as such debt does not exceed the two-thirds limitation. As is clear from Article XIV, Section 3 of the Constitution, "general laws uniformly applicable" are laws enacted by the General Assembly, not constitutional provisions. Thus, Section 4(2)(f) applies to debts authorized by laws enacted by the General Assembly, and not to debts specifically authorized by the Constitution.
We conclude, therefore, that upon determination in writing by the Governor, in an appropriate situation, of an emergency immediately threatening the public health or safety, a loan may be made to a county or counties from the State Public Assistance Contingency Fund without approval by the voters of the county or counties and that such loan would not be subject to the two-thirds limitation imposed by Article V, Section 4(2)(f) of the Constitution.
Rufus L. Edmisten
Attorney General
Henry T. Rosser
Assistant Attorney General