When the General Assembly appropriated a special Clean Water Revolving Loan and Grant Fund award to Burke County for a joint water-system upgrade with the City of Morganton, can the upgraded water facilities lawfully be owned by Morganton rather than by Burke County, and does the project serve a public purpose given that a private industry, a private rural water cooperative, and a small town all benefit?

Plain-English summary

The City Attorney for Morganton asked the AG to clear two hurdles at once. The General Assembly had appropriated money from the Clean Water Revolving Loan and Grant Fund to Burke County for a joint project to improve Morganton's water system. The first phase included an elevated storage tank, pump-station improvements, and a 12-inch water line. The improvements would let Morganton give fire protection to a new industrial plant and would let the city give better service to the Town of Glen Alpine and to the Brentwood Water Corporation, a nonprofit rural water cooperative serving about 1,500 members in Burke County. No private money was going into the first phase; all facilities would remain public.

But two pieces of statutory architecture were in the way.

First, the public-purpose hurdle. N.C. Const. art. V, § 2(1) confines state taxation and (per case law) state appropriations to "public purposes only." Could a state-funded water project that visibly benefits a private industry, a private water co-op, and a small town really be called a public-purpose expenditure?

Second, the ownership-restriction hurdle. Section 161.3 of Chapter 1086 of the 1987 Session Laws (as amended by Section 37 of Chapter 1100) attached strings to Clean Water grants. Property purchased with the funds was supposed to remain the property of "the local government" that received the appropriation. Burke County was the named recipient. The Appalachian Regional Commission, however, would not match Morganton's share unless Morganton owned the improvements. So which local government legally owned the new infrastructure?

The 1990 AG cleared both hurdles in Morganton's favor.

On public purpose. The AG worked through the modern North Carolina public-purpose doctrine. Mitchell v. Industrial Development Financing Authority (1968) is the touchstone: "for a use to be public its benefits must be in common and not for particular persons, interests, or estates; the ultimate net gain or advantage must be the public's as contradistinguished from that of an individual or private entity." The framework is fact-sensitive and has expanded over time as governmental and private interests have intermingled in modern economic life.

Applied to the Morganton project, the AG identified the dominant purpose as improving a municipal water utility, which is "a service traditionally within the purview of local government." The industrial customer would receive fire-protection service from Morganton (paying for water like any other customer). Brentwood Water Corporation, although a private nonprofit, served areas of Burke County that no governmental entity served directly; its benefit was shared with current and future members. Glen Alpine, a municipality, got expanded service.

The contrast cases (Stratford v. City of Greensboro (1899) (no eminent domain to extend lines to one property owner); Foster v. Medical Care Commission (1973) (public funds cannot build a private nonprofit hospital); Stanley v. DCD (1973) (no tax-exempt bonds for industrial pollution control)) all involved primary subsidization of a particular private actor. Martin v. Housing Corp. (1970) (low-income housing financing) is the closer model: a project whose primary purpose served a broad public interest, with only indirect benefit to a private industry. The Morganton project sat closer to Martin than to Mitchell.

On ownership. The session-law restriction says property "shall remain the property of the local government." Read literally, Burke County (the appropriation recipient) had to own the new tank, pumps, and line. Begley v. Employment Security Commission (1981) provides the strict plain-meaning rule the AG cited.

But the same session law (Section 37(b) of Chapter 1100) gave the Attorney General a release valve: "The limitations set out in Section 161.3 of Chapter 1086 of the 1987 Session Laws, as amended by subsection (a) of this section, do not apply if the Attorney General finds that, absent such limitations, the use of the funds would be lawful." The AG used that release valve. The intent of the ownership limitation was to prevent grant-funded property from being handed off to private industry. Here, the facilities would remain public and would serve the project's public-purpose objectives. The General Assembly had specifically earmarked the appropriation for this project. The AG found that Morganton's ownership of the upgraded facilities would not subvert the General Assembly's intent and that the use was lawful.

The bottom line. The General Assembly's earmarked Clean Water grant to Burke County could fund a joint water-system project owned by the City of Morganton. The combination of (i) a genuine public purpose, (ii) public ownership throughout (just by a different local government than the named recipient), and (iii) the AG's statutory waiver authority under § 37(b) made it work.

Currency note

This opinion was issued in 1990. 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 public-purpose doctrine has continued to evolve in North Carolina courts since 1990. The Clean Water Revolving Loan and Grant Fund has gone through multiple iterations and is now part of a broader federal-state SRF (State Revolving Fund) framework with its own conditions. Anyone working with a current grant should consult current session laws, current funding-program guidance, and current public-purpose case law.

Historical context: what the AG concluded

The opinion is a good example of state grant-fund administration in the late 1980s. The General Assembly was making direct, project-specific appropriations from the Clean Water Fund to local governments, with attached conditions to keep the funds from being captured by private interests. The conditions made sense in the abstract but did not always align with how local governments structured intergovernmental projects, especially where another funding source (here, ARC) required ownership by a specific entity.

The General Assembly anticipated some of this friction by writing the AG-waiver into the session law itself. The AG-waiver is a useful tool: it allows project-specific flexibility without requiring case-by-case legislation. It also concentrates the public-purpose vetting in one office.

The substantive public-purpose analysis is conventional but tidy. The AG identifies the dominant purpose, distinguishes between primary and incidental beneficiaries, and grounds the conclusion in the modern Mitchell/Martin framework. The reasoning would carry across to any similar joint water/sewer project where the legal recipient and the owning entity differ but the overall public character of the project is clear.

For local government attorneys in 1990 the practical lesson was twofold. First, structure intergovernmental water/sewer projects so that public ownership is preserved at every step, regardless of which local government holds title. Second, when the session-law conditions on a specific grant don't fit the project's structure, ask the AG for a finding under § 37(b) (or any analogous waiver clause) before closing on the funding.

Common questions

What is the public-purpose doctrine in North Carolina?

A constitutional rule (N.C. Const. art. V, § 2(1)) that state taxation and, by extension, state appropriations must serve a public purpose. Mitchell v. Industrial Development Financing Authority, 273 N.C. 137 (1968), is the leading case: the public's net gain must dominate over individual or private gain.

Does a water system project automatically qualify as public-purpose?

Largely yes, because water service is a traditional governmental function. The AG specifically noted this in the opinion. But specific projects can still fail if they primarily benefit a single private actor. Each project is fact-sensitive.

Why did the General Assembly attach an ownership condition to Clean Water grants?

To prevent grant funds from being used to acquire property that later gets transferred to private industry (a common concern in industry-attraction subsidy programs).

Can the Attorney General waive the ownership condition?

Yes, under Section 37(b) of Chapter 1100 of the 1987 Session Laws, where the AG finds that the use of the funds is otherwise lawful. The 1990 AG used that waiver authority in this opinion.

Does this opinion let any city own property bought with a grant to another local government?

No. The opinion is fact-specific. It rests on (i) a genuine public-purpose finding for this project, (ii) facilities remaining public throughout, and (iii) an express AG finding under § 37(b). Other projects need their own analysis.

What happens to private contributions in later project phases?

The opinion notes that phase two would mix public and private money (ARC grants, county funds, Brentwood Water Corporation private funds). The 1990 opinion does not address phase two; it addresses only the first-phase grant and ownership questions.

Background and statutory framework

Constitutional anchor. N.C. Const. art. V, § 2 (taxation power for public purposes only); art. V, § 2(1) (specific language).

Session-law limits. Sess. L. 1987, c. 1086, § 161.3 (Clean Water grant limitations: public purpose; property remains local-government property; no supplanting of local funds given to private for-profit corporations; reduction of allocation if property given to industry pre-funding; repayment if given post-funding).

Session-law waiver. Sess. L. 1987, c. 1100, § 37(b) (limitations do not apply if AG finds the use lawful).

Public-purpose cases. Mitchell v. Industrial Development Financing Authority, 273 N.C. 137 (1968) (test articulated); Stratford v. City of Greensboro, 124 N.C. 110 (1899) (no extension of public infrastructure for single private benefit); Foster v. Medical Care Commission, 283 N.C. 110 (1973) (no public funds for private nonprofit hospital); Stanley v. DCD, 284 N.C. 15 (1973) (no tax-exempt bonds for industrial pollution control); Martin v. Housing Corp., 277 N.C. 29 (1970) (low-income housing satisfies test even with indirect industry benefit).

Statutory construction. Begley v. Employment Security Commission, 50 N.C. App. 432 (1981) (plain meaning controls clear statutory text).

Citations

• N.C. Const. art. V, § 2, art. V, § 2(1)
• Sess. L. 1987, c. 1086, § 161.3
• Sess. L. 1987, c. 1100, § 37
• Mitchell v. Industrial Development Financing Authority, 273 N.C. 137, 159 S.E.2d 745 (1968)
• Stratford v. City of Greensboro, 124 N.C. 110, 32 S.E. 393 (1899)
• Foster v. Medical Care Commission, 283 N.C. 110, 195 S.E.2d 517 (1973)
• Stanley v. Department of Conservation and Development, 284 N.C. 15, 199 S.E.2d 641 (1973)
• Martin v. Housing Corp., 277 N.C. 29, 175 S.E.2d 665 (1970)
• Begley v. Employment Security Commission, 50 N.C. App. 432, 274 S.E.2d 370 (1981)

Source

• Landing page: https://ncdoj.gov/opinions/public-funds-expenditure-public-purpose-clean-water-revolving-loan-and-grant-fund/

Original opinion text

Requested By: Steve B. Settlemeyer, City Attorney, City of Morganton

Questions:

• Is the appropriation for the proposed water considered an expenditure for a public purpose?
• May property purchased with a special appropriation from the Clean Water Revolving Loan and Grant Fund to Burke County be retained by the City of Morganton under the limitations of Section 161.3, Chapter 1086, 1987 Session Laws?

Conclusion:

• Yes.
• Yes.

The City of Morganton and Burke County have undertaken a joint project to improve Morganton's water system. The city system currently provides water to its residents and to areas in Burke County outside the municipal limits. Water is provided to the Town of Glen Alpine and to the Brentwood Water Corporation, a private, nonprofit rural water service corporation which provides water to approximately 1500 members in Burke County.

The first phase of the project would be funded from several sources, including city funds, an Appalachian Region Commission grant to the City of Morganton, county funds and a special appropriation by the General Assembly from the Clean Water Revolving Loan and Grant Fund to Burke County for this project. No private funds will be used and all facilities will remain public property. This phase of the project includes the construction of an elevated storage tank, pump station improvements and installation of a 12 inch water line. The improvements will enable the City of Morganton to provide water for fire protection to the new industrial plant and allow the city to provide better water service to the Town of Glen Alpine and to the Brentwood Water Corporation.

A second phase of the project will be completed jointly by Burke County and Brentwood Water Corporation with funds from another Appalachian Region Commission grant, private funds from Brentwood Water Corporation and/or county funds.

The City of Morganton seeks the opinion of this office concerning the appropriation from the Clean Water Revolving Loan and Grant Fund which is subject to special limitations. The General Assembly, while making direct grants to local governments from the fund, also placed certain restrictions on such grants and left the final determination of a lawful use of funds to the Attorney General. Section 161.3, Chapter 1086, 1987 Session Laws, as amended by Section 37, Chapter 1100, 1987 Session Laws, reads as follows:

Chapter 1100, 1987 Session Laws

Limitation on Use of Water and Sewer Grant Funds

Sec. 37. (a) Section 161.3 of Chapter 1086 of the 1987 Session Laws reads as rewritten:

"Sec. 161.3. Funds allocated to local governments by the General Assembly from the funds appropriated for the 1988-89 fiscal year to the Office of State Budget and Management for Sewer and Water Grants shall be subject to the following limitations:

(1) These funds shall be spent for a public purpose;

(2) Any real or personal property purchased with the funds shall remain the property of the local government; provided, however, the local government may grant utility easements;

(3) These funds may not supplant local funds that have been or will be used for real or personal property purchased for or given to a private, for profit corporation;

(4) If the local government has given real property to an industry before receiving funds allocated to it, the amount of the allocation shall be reduced by an amount equal to the cost of the real property to the local government; and

(5) If a local government gives real property to an industry after receiving funds allocated to it, the local government shall repay to the State an amount equal to the cost of the real property to the local government, up to the amount of the allocation"

(b) The limitations set out in Section 161.3 of Chapter 1086 of the 1987 Session Laws, as amended by subsection (a) of this section, do not apply if the Attorney General finds that, absent such limitations, the use of the funds would be lawful.

Burke County contends that improvements made under the first phase of the water project must be owned by Burke County because it was the entity receiving the appropriation and because of the limitation in subsection (a)(2) that property be retained by "the local government." On the other hand, the Appalachian Region Commission will not grant funds to Morganton unless the city will own the improvements. Therefore, this office is asked to interpret whether subdivision (a)(2) requires Burke County to retain improvements or whether retention of property by Morganton would be lawful under subsection (b) of the session law.

Before reaching that question, this office must address whether the appropriation will be spent for a public purpose in compliance with the limitation of (a)(1), quoted above, and more importantly with Article V, § 2 of the North Carolina Constitution. As presented, phase one of the water project will provide a private industry with fire protection and a private water supplier and the Town of Glen Alpine with increased water service. The limitation of (a)(1) requires that an appropriation shall be spent for a public purpose. Further, Article V, § 2 (1) of the North Carolina Constitution reads:

(1) Power of taxation. The power of taxation shall be exercised in a just and equitable manner, for public purposes only, and shall never be surrendered, suspended, or contracted away.

The North Carolina Supreme Court has stated clearly that the power to appropriate money is no greater than the power to levy tax. Both powers are subject to the constitutional proscription against state revenues being used for private individuals or corporations. 1. Mitchell v. Industrial Development Financing Authority, 273 N.C. 137, 159 S.E.2d 745 (1968). The court's analysis for determining whether an expenditure is for a public purpose has evolved through the years. As early as 1899, the court held that the power of eminent domain cannot be used to extend municipal water and sewer lines to an individual property owner, as there is no public purpose. Stratford v. City of Greensboro, 124 N.C. 110, 32 S.E. 393 (1899). Since that time, however, the court's analysis has been expanded to require an examination of several factors, as illustrated by the following language at page 144 of its 1968 decision in Mitchell:

A slide rule definition to determine public purpose for all time cannot be formulated; the concept expands with the population, economy, scientific knowledge, and changing conditions. As people are brought closer together in congested areas, the public welfare requires governmental operation of facilities which were once considered exclusively private enterprises, and necessitates the expenditure of tax funds for purposes which, in an earlier day, were not classified as public. Often public and private interests are so co-mingled that it is difficult to determine which predominates. It is clear, however, that for a use to be public its benefits must be in common and not for particular persons, interests, or estates; the ultimate net gain or advantage must be the public's as contradistinguished from that of an individual or private entity. [citations omitted.]

In Mitchell the use of revenue bonds to provide sites and facilities to attract private industry was held to be unconstitutional as it primarily benefited individual companies. The increased employment and economic benefit to the community was found to be insufficient to constitute a public purpose. Significantly, the court apparently followed Mitchell in holding that public funds could not be used to build a facility for a private non-profit hospital, Foster v. Medical Care Commission, 283 N.C. 110, 195 S.E.2d 517 (1973), and that tax free bonds could not be used to finance pollution abatement and control for industrial facilities, Stanley et al v. Department of Conservation and Development, 284 N.C. 15, 199 S.E.2d 641 (1973).

Conversely, the court has held that tax-exempt bonds could be used to fund construction of low income housing and was an expenditure for a public purpose. Martin v. Housing Corp., 277 N.C. 29, 175 S.E.2d 665 (1970). The court distinguished the Mitchell scheme as an expenditure which primarily subsidized particular private industries in competition with non-subsidized industries; whereas, in Martin the primary purpose was to insure adequate housing for the citizens of the state, with only indirect benefit to the construction industry.

The appropriation to Burke County for the first phase of the water project requires an examination of co-mingled public and private interests. However, like Martin, the appropriation in question is consistent with both the limitations of (a)(1), quoted above, and Article V, § 2 of the North Carolina Constitution. The sole purpose of the appropriation is not to benefit or endow a particular individual or company with property or other tangible assets, like a factory site or a hospital building. Here, the new industry receives fire protection from Morganton and water from Brentwood Water Corporation. Presumably it is one of many customers to receive and pay for these services. The project improves a municipal utility which benefits the local government, enabling it to provide increased water service, a service traditionally within the purview of local government. Brentwood Water Corporation's sole purpose is to provide water to areas of Burke County which are not provided water directly by a governmental entity. Brentwood may derive some benefit in being able to provide expanded service but that benefit is also shared by current and future members who receive water service. The municipality of Glen Alpine will also benefit from the proposed project with increased water service and consumption. Therefore it is the conclusion of this office that the appropriation is for a public purpose.

The second question is whether the City of Morganton may own the improvements paid for by an appropriation to Burke County under the limitation of (a)(2). Where the language of a statute is clear and unambiguous there is no room for judicial construction and no different language will be interpolated or superimposed. See, Begley v. Employment Security Commission, 50 N.C. App. 432, 274 S.E. 2d 370 (1981). The session law in question applies to "funds allocated to local governments" and requires property purchased with the funds to remain "the property of the local government." [emphasis added.] On its face the funds are awarded to a local government for a public purpose and the law clearly contemplates that the local government receiving funds will retain any property purchased.

However, the session law also provides that the limitations do not apply if the Attorney General finds the use of funds lawful. The apparent intent of the limitations is to ensure that the special appropriations will be used solely for a public purpose and that property purchased will be retained as public property. Further, that funds are to be reduced or repaid to the extent real property is given to an industry under subdivisions (a) (4) and (5) of the amended session law manifests clearly the General Assembly's intent that a grant should be expended for public interests. The water facilities improved or purchased during the first phase of the Burke County/Morganton project will remain public property and will benefit the community by improved water service. In addition, according to representations by the Morganton City Attorney, the General Assembly made an appropriation specifically for the proposed project. Therefore, this office finds that the intent of the General Assembly will not be subverted if the water improvements are owned by the City of Morganton. The Attorney General further finds the use of funds is for a public purpose and is lawful.

Lacy H. Thornburg, Attorney General

Sarah C. Young, Assistant Attorney General