Can North Carolina pass a local act letting a city promise not to annex a manufacturer's property for years in exchange for payments in lieu of taxes, or does that violate the state constitution?

Plain-English summary

The General Assembly passed a 1993 local act (Chapter 418 of the Session Laws) tailored to the City of Eden and a Miller Brewing Company facility. The act let Eden enter a contract with Miller (or others) under which described property would not be annexed by the city under the regular Chapter 160A annexation procedures until December 30, 2003. In exchange, the city could accept "payments in lieu of taxes" computed against the Rockingham County tax valuation of the property, on a formula spelled out in each contract. The General Assembly preserved its own power to annex the property by a later specific local act.

The AG was asked three questions: does the act violate any provision of the North Carolina Constitution, is it a valid enactment, and would the AG render an opinion on whether a specific Eden-Miller contract complies with the act. The AG answered yes to validity, no to constitutional contravention on the face of the act, and declined to opine on any specific contract.

The starting point is Article VII, Section 1 of the state constitution, which gives the General Assembly the express power to "provide for the organization and government and the fixing of boundaries of counties, cities and towns." Setting boundaries and the methods of changing them is a legislative function. The AG quoted at length from In re Annexation Ordinances, 253 N.C. 637 (1960), which traces the rule back through Lutterloh v. Fayetteville and Highlands v. Hickory: in the absence of constitutional restriction, the legislature has complete control over municipal boundaries and may delegate that authority to local governments on terms of its choosing. Telling a city to delay annexation in exchange for a contract is squarely within that authority. The AG also cited Thrash v. City of Asheville, which approved preannexation agreements in principle, and pointed to N.C.G.S. § 160A-58.2 (Part 6 of Article 4A of Chapter 160A), which expressly authorizes 20-year no-annexation agreements in some circumstances.

The AG then walked through the specific clauses someone might cite to challenge the act:

• Article II, Section 24(j) prohibits local acts regulating trade. Chapter 418 doesn't regulate trade; it controls annexation timing. Cheape v. Town of Chapel Hill applied that clause to a true trade-regulation local act, which Chapter 418 is not.
• Article V, Section 2 governs taxation and appropriations. Chapter 418 does not impose a tax (the payments are contractual consideration, not taxes) and does not appropriate state money. It also does not run into the Machinery Act's exclusivity provisions in N.C.G.S. § 105-272 for the same reason.
• Article I, Section 32 is the exclusive-emoluments clause: no person is entitled to exclusive privileges except in consideration of public services. Town of Emerald Isle v. State of N.C. set the standard: an exemption from a duty imposed on the public is acceptable if its purpose is to promote the general welfare and there is a reasonable basis for the legislature to conclude the exemption is in the public interest. The AG noted the presumption of constitutionality, and that any judicial challenge to a specific contract would test whether there was a reasonable basis to find that contract enhances the general welfare. Without a complete record of what was presented to the Eden city council, the AG could not assess that fact-bound question, so it declined to opine on the specific contract.

The bottom line: Chapter 418 is structurally fine. Whether the actual Eden-Miller contract holds up under judicial review depends on the local record, which is outside the AG's role.

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.

North Carolina annexation law was substantially rewritten in 2011 and 2012, eliminating most involuntary annexations and adding voter-petition requirements. The structural rule the AG identified (the General Assembly has plenary power over municipal boundaries and may delegate or restrict that power as it chooses) remains, but the specific Chapter 160A annexation procedures and the role of preannexation agreements look very different today. Anyone evaluating a current preannexation deal should look at the current Chapter 160A framework and the most recent Supreme Court guidance.

Common questions

Q: Why did the General Assembly use a local act instead of a general statute?
A: The act was tailored to a specific industrial site and a specific negotiated incentive package. Local acts let the legislature address one-off situations without amending the general municipal annexation laws. Preannexation agreements under general law were already authorized in Part 6 of Article 4A, but with different terms and length caps. The local act adjusted those terms to fit the deal.

Q: Does this give Miller Brewing a "tax break"?
A: Not exactly. The property remains outside city limits during the contract term, so it would not pay city property tax anyway. The payments in lieu of taxes are contractual consideration for the city's promise not to annex. The size of the payment compared to what city taxes would have been is the point of negotiation.

Q: What is the "exclusive emoluments" clause and why does it come up here?
A: Article I, Section 32 of the North Carolina Constitution prohibits granting "exclusive or separate emoluments or privileges" to a person or set of persons except in consideration of public services. Town of Emerald Isle read the clause to allow exemptions that promote the general welfare. A no-annexation contract benefits one company on its face, so a court reviewing a challenge would look at whether the city council had a reasonable basis to conclude the deal serves the public interest (jobs, investment, tax base growth).

Q: Why did the AG not say whether the actual Eden-Miller contract was valid?
A: The opinion explains that judging the validity of a specific contract requires reviewing the record before the city council to see whether there is a reasonable basis for the public-purpose finding. That kind of factual review is a judicial function, and the AG declined to substitute its review for a court's.

Background and statutory framework

The structural constitutional framework starts with Article VII, Section 1, which gives the General Assembly the power to fix municipal boundaries and to grant powers to local governments. The North Carolina Supreme Court has interpreted this provision as giving the legislature broad discretion: cities are creatures of the legislative will, and absent a separate constitutional restriction, the legislature can dictate when and how annexation happens.

Three constitutional checks come into play in preannexation cases:

• Article II, Section 24(j) bars local acts regulating trade. The AG read Chapter 418 as not regulating trade. It controls a sovereign power (annexation) tied to one parcel.
• Article V, Section 2 governs revenue and taxation. Because Chapter 418 does not levy a tax or appropriate money, it does not trigger Section 2. The payments in lieu of taxes are contractual consideration, distinct from the property tax mechanism in the Machinery Act (N.C.G.S. § 105-272).
• Article I, Section 32 is the exclusive-emoluments clause. The Emerald Isle test focuses on whether there is a reasonable basis to conclude the privilege promotes the general welfare. That test is satisfied if a court can conceive of a reasonable basis, even if the legislature did not formally make findings.

The AG also placed Chapter 418 alongside Part 6 of Article 4A of Chapter 160A, which already authorized cities to enter 20-year no-annexation agreements in some circumstances. That general statute showed the AG that preannexation agreements were a recognized tool, not a novel maneuver, and that the legislature's exercise of the power in Chapter 418 was a familiar variant rather than a departure.

Two additional doctrinal points are worth noting:

• The presumption of constitutionality is strong. Martin v. North Carolina Housing Corp., 277 N.C. 29 (1970), and earlier cases set the framework: courts presume the legislature acted within its power and resolve doubts in favor of the act.
• The judicial role on public-purpose review is limited but real. Mitchell v. North Carolina Indus. Dev. Fin. Auth., 273 N.C. 137 (1968), holds that the legislature's findings about public purpose carry weight, but courts retain authority to strike down enactments that are in fact for private benefit.

Citations

• N.C. Const. art. I, § 32 (exclusive-emoluments clause)
• N.C. Const. art. II, § 24(j) (prohibition on local acts regulating trade)
• N.C. Const. art. V, § 2 (taxation and appropriations)
• N.C. Const. art. VII, § 1 (legislature's plenary power over local government boundaries)
• N.C.G.S. § 105-272 (Machinery Act exclusivity)
• N.C.G.S. § 160A-58.2 et seq. (Part 6 of Article 4A; 20-year no-annexation agreements)
• Chapter 418, 1993 Session Laws (Eden preannexation local act)
• Lutterloh v. Fayetteville, 149 N.C. 65, 62 S.E. 758
• In re Annexation Ordinances, 253 N.C. 637, 117 S.E.2d 795 (1960)
• Highlands v. Hickory, 202 N.C. 167, 162 S.E. 471
• Thrash v. City of Asheville, 95 N.C. App. 457, 383 S.E.2d 657 (1989)
• Cheape v. Town of Chapel Hill, 320 N.C. 549, 359 S.E.2d 792 (1987)
• Town of Emerald Isle v. State of N.C., 320 N.C. 640, 360 S.E.2d 756 (1987)
• State v. Warren, 252 N.C. 690, 114 S.E.2d 660 (1960)
• Mitchell v. North Carolina Indus. Dev. Fin. Auth., 273 N.C. 137, 159 S.E.2d 745 (1968)
• Martin v. North Carolina Housing Corp., 277 N.C. 29, 175 S.E.2d 665 (1970)

Source

• Landing page: https://ncdoj.gov/opinions/local-act-city-of-eden-preannexation-agreement/

Original opinion text

[The reproduced opinion text follows. The opinion responds to three questions about Chapter 418 of the 1993 Session Laws, the relevant portions of which are quoted in the AG's text.]

The questions presented were:

(1) If, in your opinion, the Act contravenes any provision of the North Carolina Constitution; and
(2) If, in your opinion, the Act is a valid enactment of the North Carolina General Assembly; and
(3) Will you render an opinion as to whether or not the agreement between the City of Eden and Miller Brewing Company complies with the Act if the contract is submitted to you?

The relevant portions of Chapter 418 are:

Section 1. The City of Eden may, by contract, provide that certain property described in the contract may not be annexed by the City under Parts 2 or 3 of Article 4A of Chapter 160A of the General Statutes prior to December 30, 2003. Nothing in this act impairs the right of the General Assembly to annex any such property by specific local act. Sec. 2. The City of Eden may accept, as consideration for such contract, "Payments in lieu of taxes". Sec. 3. Payments in lieu of taxes under this act shall be annually computed based upon the tax valuations of the properties subject to contracts under Section 1 of this act as determined by the Rockingham County Tax Department, with the formula for making the computation being stated in each contract.

It is the opinion of this office that Chapter 418 does not, on its face, contravene any provision of the North Carolina Constitution and is, therefore, a valid enactment of the General Assembly. A starting point in the discussion should be the constitutional authority of the General Assembly in regard to local government boundaries, which is located in Article VII, Section 1 of the Constitution and reads as follows:

The General Assembly shall provide for the organization and government and the fixing of boundaries of counties, cities and towns, and other governmental subdivisions, and, except as otherwise prohibited by this Constitution, may give such powers and duties to counties, cities and towns, and other governmental subdivisions, as it may deem advisable.

Therefore, unless Chapter 418 is "otherwise prohibited by this Constitution", the Act would appear to be a valid exercise of the authority expressly granted to the General Assembly by the Constitution. The establishment of local governmental unit boundaries and the methods by which they are to be changed is under the control of the legislature. The North Carolina Supreme Court in the case of In re. Annexation Ordinances, 253 N.C. 637, 117 S.E.2d 795 (1960) has discussed the issue at length as follows.

In Lutterloh v. Fayetteville, 149 N.C. 65, 62 S.E. 758, this Court said: "We have held in common with all the courts of this country, that municipal corporations, in the absence of constitutional restrictions, are the creatures of the legislative will, and are subject to its control; the sole object being the common good, and that rests in legislative discretion, Dorsey v. Henderson, 148 N.C. 423, and Perry v. Comrs., ibid., 521; Manly v. Raleigh, 57 N.C. 370.

"Consequently, it follows that the enlargement of the municipal boundaries by the annexation of new territory, and the consequent extension of their corporate jurisdiction, including that of levying taxes, are legitimate subjects of legislation. In the absence of constitutional restriction, the extent to which such legislation shall be enacted, both with respect to the terms and circumstances under which the annexation may be had, and the manner in which it may be made, rests entirely in the discretion of the Legislature. With its wisdom, propriety or justice we have naught to do.

"It has, therefore, been held that an act of annexation is valid which authorized the annexation of territory, without the consent of its inhabitants, to a municipal corporation, having a large unprovided for indebtedness, for the payment of which property included within the territory annexed became subject to taxation." Matthews v. Blowing Rock, 207 N.C. 450, 177 S.E. 429; Dunn v. Tew, 219 N.C. 286, 13 S.E.2d 536.

In Highlands v. Hickory, 202 N.C. 167, 162 S.E. 471, the General Assembly had enacted Chapter 41, Private Laws 1931, an act entitled, "An act for the extension of the corporate limits of the city of Hickory, for an election in furtherance thereof, for the repeal of the charters of other towns within the extended limits, and for other purposes." The validity of the act was challenged on the ground that the General Assembly was without power, because of constitutional limitations, to enact the same. On appeal, this Court said, "This challenge cannot be sustained. There are no limitations in the Constitution of this State or of the United States upon the power of the General Assembly to provide by statute for the extension of the corporate limits of a municipal corporation organized and existing under the laws of this State, or for the repeal of a statute under which a municipal corporation in this State was organized." Chimney Rock Co. v. Lake Lure, 200 N.C. 171, 156 S.E. 542.

It is said in 37 Am. Jur., Municipal Corporations, section 24, page 640, "A municipal corporation or its corporate authorities have no power to extend its boundaries otherwise than provided for by legislative enactment or constitutional provision. Such power may be validly delegated to municipal corporations by the legislature, and when so conferred must be exercised in strict accord with the statute conferring it. The legislature may also prescribe and fix the terms and conditions on which such a law may come into operation. The determination of the requisite facts or expediences, or of acceptance or assent to the annexation, may be given by the legislature to the municipal council or to county commissioners, boards of supervisors, or other public body . . . without violating constitutional provisions against delegation of legislative functions . . . ." 253 N.C. at 647-49, (Emphasis in original).

Chapter 418 delegates to the city part of the General Assembly's plenary power regarding the establishment of municipal boundaries and the ability of the General Assembly to so delegate is clear, Id. In light of the broad powers of the General Assembly concerning municipal boundaries, there is nothing inherently evil in a legislatively authorized agreement between a city and a private or public entity in regard to the delay of its exercise of its annexation powers. Thrash v. City of Asheville, 95 N.C. App. 457, 383 S.E.2d 657 (1989); McQuillin, Municipal Corporations, § 7.13.50 – Preannexation agreement. See also Lawrence, Popular Government, Summer 1990, pp. 10, 11. Indeed, Part 6 of Article 4A of Chapter 160A (N.C.G.S. § 160A-58.2 et seq.) expressly authorizes cities to enter into agreements not to annex particular areas for periods of up to 20 years.

Because Chapter 418 does not in any manner attempt to regulate trade, it does not violate the prohibition against local acts regulating trade set out in Article II, Sec. 24(j) of the Constitution, Cheape v. Town of Chapel Hill, 320 N.C. 549, 359 S.E.2d 792 (1987). Similarly, because the Act does not attempt to impose taxes, or attempt to appropriate public money, the Act does not implicate Article V, Sec. 2 of the Constitution or the exclusivity provisions of the Machinery Act, N.C.G.S. 105-272. There is, however, a necessity to discuss whether the Act creates "exclusive or separate emoluments or privileges," on behalf of the property owners.

Article I Section 32 of the N.C. Constitution states that "[n]o person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services." In Town of Emerald Isle v. State of N.C., 320 N.C. 640, 360 S.E.2d 756, 764 (1987), the Supreme Court makes the following statement regarding Article I, Section 32:

As this Court has repeatedly stated, the limitation on the classification of particular groups of persons intended by the exclusive emolument provision contained in Article I, section 32 of our constitution does not apply to an exemption from a duty imposed upon citizens generally if the purpose of the exemption is the promotion of the general welfare, as distinguished from the benefit of the individual, and if there is a reasonable basis for the Legislature to conclude that the granting of the exemption would be in the public interest. Here, as in questions arising under the exercise of the police power pursuant to the requirement of due process of law, the principle to be applied is that declared by Moore, J., for the Court, in State v. Warren, 252 N.C. 690, 114 S.E.2d 660 [1960], where it said: "The presumption is that an act passed by the Legislature is constitutional, and it must be so held by the courts unless it appears to be in conflict with some constitutional provision. [Citations omitted.] The legislative department is the judge, within reasonable limits, of what the public welfare requires, and the wisdom of its enactments is not the concern of the courts. As to whether an act is good or bad law, wise or unwise, is a question for the Legislature and not for the courts–it is a political question. The mere expediency of legislation is a matter for the Legislature, when it is acting entirely within constitutional limitations, but whether it is so acting is a matter for the courts. [Citations omitted.]" Lowe v. Tarble, 312 N.C. at 470-71, 323 S.E.2d at 21. See also Lamb v. Wedgewood South Corp., 308 N.C. 419, 438-39, 302 S.E.2d 868, 879; State v. Knight, 269 N.C. 100, 108, 152 S.E.2d 179, 184. 320 N.C. at 653, 360 S.E.2d at 764.

Therefore, the issue becomes: is there a reasonable basis for concluding that the provisions of Chapter 418, which authorize a contract to exempt described real property from annexation, promote the general welfare. There is a strong presumption in favor of the constitutionality of the enactments of the General Assembly and that such acts are for a public purpose.

In Mitchell and Martin, this Court reviewed in detail the applicable principles to be used in determining whether particular legislation serves a public purpose. We note the salient, relevant principles to be applied on review: The presumption is in favor of the constitutionality of an act, State v. Furmage 250 N.C. 616, 621, 109 S.E.2d 563, 567 (1959). All doubts must be resolved in favor of the Act., Wells v. Hous. Auth. of Wilmington, 213 N.C. 744, 749, 197 S.E. 693, 696 (1938). The Constitution is a restriction of powers and those powers not surrendered are reserved to the people to be exercised through their representatives in the General Assembly, id.; therefore, so long as an act is not forbidden, the wisdom and expediency of the enactment is a legislative, not a judicial, decision, McIntyre v. Clarkson, 254 N.C. 510, 515, 119 S.E.2d 888, 891-92 (1961). "The General Assembly, exercising the police power of the State, may legislate for the protection of the public health, safety, morals and general welfare of the people," Martin v. North Carolina Hous. Corp., 277 N.C. at 45, 175 S.E.2d at 674. "The General Assembly has the right to experiment with new modes of dealing with old evils, except as prevented by the Constitution," Redev. Comm'n of Greensboro v. Sec. Nat'l Bank of Greensboro, 252 N.C. 595, 612, 114 S.E.2d 688, 700 (1960). In re. Housing Bonds, 307 N.C. 52, 57, 296 S.E.2d 281, ___ (1982).

Even though Chapter 418 does not require that the City of Eden make express findings supporting a conclusion that the contract will enhance the general welfare, if such a contract is judicially challenged, a determination that the general welfare is enhanced must be made in order to sustain the validity of the contract.

"If the constitutionality of a statute . . . depends on the existence or nonexistence of certain facts and circumstances, the existence of such facts and circumstances will generally be presumed for the purpose of giving validity to the statute, . . . if such a state of facts can reasonably be presumed to exist, and if any such facts may be reasonably conceived in the mind of the court. This rule does not apply if the evidence is to the contrary, or if facts judicially known or proved, compel otherwise." 16 C.J.S. Constitutional Law § 100b, pp. 454-455. Accord: 16 Am.Jur.2d Constitutional Law § 143. Martin v. Housing Corp. 277 N.C. 29, 44, 175 S.E.2d 665, ___ (1970).

The initial responsibility for determining what is and what is not a public purpose rests with the legislature, and its findings with reference thereto are entitled to great weight. If, however, an enactment is in fact for a private purpose, and therefore unconstitutional, it cannot be saved by legislative declarations to the contrary. When a constitutional question is properly presented, it is the duty of the court to ascertain and declare the intent of the framers of the Constitution and to reject any legislative act which is in conflict therewith. State v. Felton, 239 N.C. 575, 80 S.E.2d 625; Nash v. Town of Tarboro, 227 N.C. 283, 42 S.E.2d 209; 1 Strong, N.C. Index, Constitutional Law § 10 (1957). Mitchell v. North Carolina Indus. Dev. Fin. Auth., 273 N.C. 137, 144, 159 S.E.2d 745, 750 (1968).

The preceding quote from Mitchell shows that ultimately, if a contract is entered into and is challenged, only a judicial determination that there is a reasonable basis for the Legislature to conclude that the contract enhances the general welfare will save it. Therefore, the issuance of an opinion on whether a contract executed between the company and the city complies with the literal terms of Chapter 418 would be of little value. The underlying question of the validity of such a contract is in essence a judicial determination of the sufficiency of the evidence before the city council to support a conclusion that the contract promotes the general welfare. Such a judicial determination could only be made based upon a thorough review of a complete record of the matters placed before the city council and is outside of the scope of the role of the Attorney General's Office in regard to local government.

Ann Reed
Senior Deputy Attorney General

Charles J. Murray
Special Deputy Attorney General