Can a county commissioner who owns a real estate firm sell a house to a buyer using federal HOME program assistance funds, when the commissioner serves on the local HOME consortium board, without violating NC's conflict-of-interest law?
Plain-English summary
Gail Brock at the Division of Community Assistance asked AG Michael Easley to confirm her own internal conclusion about two HOME grant conflict-of-interest scenarios in Statesville. The Iredell HOME Consortium was administering a federal HOME Investment Partnerships Act grant. Two scenarios came up:
Case 1. A county commissioner who also served on the Consortium board owned a real estate firm. The city asked whether the commissioner (or an agent at his firm) could sell a home, listed through his agency, to a buyer using HOME funds to assist with the purchase.
Case 2. A construction contractor was the son of a city council member. The city asked whether the contractor could bid on and contract to build or repair homes funded with HOME funds.
The AG concurred with Brock's internal memo: both scenarios were conflicts of interest under the HOME funding agreement (paragraph 3(t)) and under 24 C.F.R. § 92.356 (HUD's HOME conflict-of-interest regulation). Both restrictions reach members of the consortium board and their immediate family members. Both the commissioner (Case 1) and the council member's son (Case 2) would benefit financially from HOME funds, so both would be prohibited under the federal funding rules.
The interesting move comes next. Under NC's conflict of interest statute, G.S. § 14-234(a), a county commissioner generally cannot have a financial interest in a contract their board is involved with. But subsection (b) carves out an exception for programs of "direct public assistance to needy persons": a commissioner is not barred from accepting payment for services furnished directly to needy individuals under such a program. The HOME program qualifies as direct public assistance to needy persons (HOME is HUD's main rental and homebuyer assistance program targeted at low-income households).
So the state statute, standing alone, would let the commissioner earn the commission in Case 1. The federal rules do not. Federal grant-agreement language and 24 C.F.R. § 92.356 control, because the funds are federal and the conflict-of-interest rule is a condition of receiving them. As the AG put it: the commissioner has a conflict under the federal funding agreement and 24 C.F.R. § 92.356, regardless of what state law would allow.
The takeaway for local officials administering federal grant funds is that the federal conflict rules can be stricter than the state ones. When the rules disagree, the stricter rule wins, because violating the federal rule risks loss of the grant. NC officials cannot rely on the G.S. 14-234(b) "direct public assistance" exception to clear them on federal grants when the federal rule is broader.
Currency note
This opinion was issued in 1993. 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. NC's conflict-of-interest statute G.S. 14-234 was substantially rewritten by 2001 N.C. Sess. Laws 409 and has been amended several times since, with the "direct public assistance" exception relocated and modified. The federal HOME conflict-of-interest regulation at 24 C.F.R. § 92.356 has also been amended (including significant revisions in 2013). Anyone facing a current HOME or other federal-grant conflict-of-interest question should pull both the current G.S. 14-234 (and any other applicable NC ethics statutes) and the current applicable HUD regulation, plus their grant agreement language.
Background and statutory framework
The federal HOME program was created by the Cranston-Gonzalez National Affordable Housing Act of 1990 and administered by HUD. HOME funds flow to "participating jurisdictions," which can be a single city, a county, or a "consortium" of smaller units of local government that band together to meet the size threshold for direct HUD funding. The Iredell HOME Consortium in this opinion was a consortium of jurisdictions in and around Statesville.
HOME funds support several types of activity: rental housing development, homeowner rehabilitation, new homeowner construction, tenant-based rental assistance, and downpayment assistance for first-time homebuyers. The downpayment assistance is what Case 1 involved (a HOME-funded buyer purchasing a house listed by a Consortium-board commissioner's real estate firm). The construction/rehab funding is what Case 2 involved (the council member's son contracting to build or repair HOME-funded units).
HUD's conflict-of-interest regulation, 24 C.F.R. § 92.356, prohibits a long list of officials (and their immediate family members) from "obtaining a financial interest or benefit from a HOME-assisted activity" if they are "in a position to participate in a decision-making process or gain inside information with regard to such activities." The list explicitly includes members of any board, commission, or committee of the participating jurisdiction or consortium. A consortium-board commissioner is squarely within the list. A council member is, too. And "immediate family" reaches the council member's son.
The federal regulation does have a waiver mechanism, but the waiver is granted by HUD on a case-by-case basis, with a series of factors HUD considers (whether the affected person opted out of the decision, whether public funds were used appropriately, whether the conflict could erode public confidence, whether the assistance furthers the HOME program's purpose, etc.). The waiver is not automatic, and the burden is on the participating jurisdiction to demonstrate the conflict can be safely waived.
The HOME funding agreement, paragraph 3(t), is the contractual hook. By accepting HOME funds, the participating jurisdiction (here, the Consortium and its constituent units) agree to comply with the conflict regulation and a series of related restrictions. Violation of paragraph 3(t) is a breach of the funding agreement, which gives HUD the right to demand repayment of misused funds, terminate the grant, and impose other remedies.
NC's conflict statute, G.S. § 14-234, operates separately. Subsection (a) is the general rule: a public officer cannot have a financial interest in a contract that the officer's board enters or approves. Subsection (b), as it stood in 1993, contained an express exception for programs of direct public assistance to needy persons: a commissioner could accept payment "for services furnished directly to needy individuals" under such a program, subject to expressly stated conditions and procedures. The exception existed because rural NC counties often had few service providers, and rigid application of the conflict rule would have left needy beneficiaries unable to receive services from the only nearby provider, who might happen to be a commissioner.
The legal posture in this opinion is the interaction of those two regimes. State law (14-234(b)) said the conflict was OK for the commissioner because HOME is direct public assistance. Federal law (24 C.F.R. § 92.356) said the conflict was not OK, period (absent a HUD waiver). When state and federal grant conditions disagree, the grant conditions control for grant-funded activity. The federal rule is enforced through the grant agreement, and the federal funder can rescind or recapture funds if its rule is violated. So for HOME-funded transactions, federal law set the applicable rule.
The AG was careful to confirm Brock's analysis on the federal side, and to flag the gap with state law on the commissioner's situation. The opinion left no doubt: in Case 1, the commissioner's conflict was federal, even though state law alone would not have created one. In Case 2, the conflict was both federal (under the regulation reaching immediate family of an official) and state (G.S. 14-234 generally bars contracts in which a board member's near relatives have a financial interest, with limited exceptions). Both transactions were prohibited unless HUD granted a waiver.
The opinion is short, but it is one of the clearer NC examples of the principle that local officials administering federal grants must follow whichever conflict rule is stricter. Relying solely on state-law exemptions when federal grant conditions impose broader prohibitions is a path to a HUD finding, a clawback, and (in extreme cases) personal liability for the unauthorized commitment.
Common questions
Could the commissioner simply recuse himself from Consortium decisions about this particular sale?
Recusal alone usually does not cure a federal HOME conflict. The federal regulation prohibits a covered official from "obtaining a financial interest or benefit from a HOME-assisted activity," whether or not the official participated in the decision. The waiver process exists for unusual cases (such as one where the official is the only available provider), but the waiver has to be granted by HUD, not merely declared by the local board.
What is the "direct public assistance to needy persons" exception in G.S. 14-234(b)?
A NC carve-out that allowed a commissioner to be paid for services directly furnished to needy individuals under a public-assistance program, subject to specific conditions. The exception was designed for situations where, for example, the only available physician, pharmacist, or service provider in a rural county was also an elected commissioner, and rigid application of the conflict rule would have left needy beneficiaries with no access to the service. The HOME program fit the "direct public assistance" definition because it provides housing assistance to low-income households.
Why does federal law override state law here?
The federal conflict rule is a condition of receiving the federal grant. By accepting HOME funds, the participating jurisdiction agrees to comply with the federal conflict regulation. Violation of the federal rule risks grant termination, recapture of misused funds, and possibly debarment from future federal grants. Even if state law would allow the transaction, the local government cannot use HOME funds for a transaction the federal rule bars.
Was there any way for the council member's son in Case 2 to bid on HOME-funded work?
Only through a HUD waiver. The federal regulation reaches "immediate family" of a covered official, so the son's status as the son of a council member triggered the conflict, regardless of whether the council member directly participated in the contracting decision. The waiver process requires HUD review of factors like whether the son was the lowest qualified bidder, whether other contractors were available, whether the council member opted out of the decision, and whether the transaction would erode public confidence. The local government would have to apply and get a written waiver before proceeding.
Does this opinion still control HOME conflict questions today?
The general framework still holds: federal HOME conflict-of-interest rules apply to HOME-funded activities, and stricter federal rules override more permissive state-law exemptions. But both G.S. 14-234 and 24 C.F.R. § 92.356 have been amended since 1993. The 2001 NC ethics overhaul reorganized 14-234. The HOME regulation was revised in 2013 with new family definitions and waiver procedures. Anyone facing a current HOME conflict question should consult both the current state and federal rules.
Source
Original opinion text
April 6, 1993
Ms. Gail Brock
Chief, Grants Management Section
1307 Glenwood Avenue, Suite 250
Raleigh, NC 27605
Re: Advisory Opinion: Chief, Grants Management Section, Division of Community Assistance, Department of Commerce; Statesville Conflict of Interest; N.C.G.S. § 14-234
Dear Ms. Brock:
The following is submitted in response to the request for an opinion contained in your memorandum dated March 25, 1993 regarding the existence of a conflict of interest arising from a HOME grant to be administered by the Iredell HOME Consortium.
This office concurs in the conclusions set out in your memorandum to the effect that conflicts of interest exit in Case #1 and in Case #2 under the provisions of both paragraph 3(t) of the funding agreement and 24CFR92.356. As set out in your memorandum, the facts of Case #1 and Case #2 are as follows:
Case #1: A member of the Iredell County Board of Commissioners who also serves on the board of the consortium, is a real estate broker who owns a real estate firm. The city has inquired as to whether the commissioner or an employee of his firm selling a home listed through his agency to a person receiving HOME funds to assist with the purchase constitutes a conflict of interest.
Case #2: The city has requested an opinion on whether a contractor, who is the son of a member of the city council, may contract to build or repair homes that are funded with HOME funds.
Paragraph 3(t) of the funding agreement prohibits certain officials and their relatives from having any financial interest in any contract in connection with the grant. The provisions of 24CFR92.356 also prohibit certain officials and their relatives from having any financial interest in a project assisted by the HOME grant funds. Both the commissioner and the some of the councilman would very clearly benefit financially from the HOME program funds and, therefore, would have a conflict of interest under the provisions of paragraph 3(t) of the funding agreement and under the provisions of 24 CFR92.356.
The provisions of N.C.G.S. §14-234(b) create an exception to the conflict of interest provisions of N.C.G.S. §14-234(a) for programs that directly assist needy individuals. N.C.G.S. §14-234(b) provides generally that under certain expressly stated circumstances and conditions, it is not unlawful for a commissioner to accept payment for services furnished directly to needy individuals in connection with a program of direct public assistance to needy persons. The HOME program can be considered to be a program of direct public assistance to needy persons and, therefore, in Case #1 a conflict of interest does not arise under N.C.G.S. §14-234(a).
Ann Reed
Senior Deputy Attorney General
Charles J. Murray
Special Deputy Attorney General