Can the NC State Ports Authority issue bonds to finance an industrial facility that the Authority owns and leases to a private company, even when the facility is not located right next to the ports?

Plain-English summary

Secretary of Commerce S. Davis Phillips asked the AG whether the NC State Ports Authority could legally finance an industrial facility that the Authority would own and lease to a private company. The wrinkle was location: the facility would not be next to the state's two ports (Wilmington and Morehead City). The Authority's justification was that the tenant company would use the ports for the import and export of materials and products. The Secretary noted that the State would not have any contingent liability from the financing.

Chief Deputy AG Andrew A. Vanore, Jr., and Chief Counsel John R. McArthur said the financing was lawful subject to two conditions.

The constitutional foundation is Article V, § 13 of the NC Constitution. That section authorizes the General Assembly to grant to state agencies "all powers useful in connection with the development of new and existing seaports," including the power to acquire, construct, own, and finance for private parties "seaport facilities and improvements which relate to, develop or further waterborne . . . commerce and cargo," explicitly extending to industrial and manufacturing facilities. The section also prohibits any pledge of the faith and credit of the State or any state agency.

The General Assembly used that constitutional grant to enact G.S. 143B-456.1, which gives the State Ports Authority the power to issue bonds and notes for "special user projects" defined to include land, offices, and industrial and manufacturing facilities primarily used by private parties. Bonds or notes under the statute must be special limited obligations of the Authority, not pledges of the State's full faith and credit.

The AG read Article V, § 13 not to require facilities to be located at or near the ports. The constitutional anchor is that the financed improvement must "relate to, develop or further waterborne commerce." A binding contractual obligation in the lease, requiring the tenant to actually use the state ports at a substantial level for its import and export needs, would satisfy that requirement. The off-port location was permissible so long as the port-utilization tie was real and binding.

The opinion closed with a standard limitation: although the AG opined the financing was legal, the ultimate decision on any specific bond issue rests with private bond counsel, who is not bound by the AG's opinion. Bond counsel typically does its own independent constitutional and statutory analysis on each issue before delivering a clean opinion to bondholders.

Currency note

This opinion was issued in 1996. 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.

G.S. 143B-456.1 and the surrounding State Ports Authority statutes have been amended since 1996. Article V, § 13 has been the subject of additional implementing legislation and judicial interpretation. Any current Ports Authority financing should be reviewed against the current Chapter 143B, the current Article V framework, and current bond counsel practice.

Common questions

Q: What is a "special user project"?
A: Under G.S. 143B-456.1, a project whose facilities are primarily used by private parties. The category includes land, offices, and industrial and manufacturing facilities. The statute exists to let the Ports Authority help finance facilities that support waterborne commerce without requiring the State to take on the risk of private business operations.

Q: What does "substantial level of utilization" mean?
A: The opinion does not define a specific percentage. It says the lease must impose a "binding obligation on the private company requiring a substantial level of utilization of the state ports." In practice, that has typically meant a contractual minimum tonnage commitment, a minimum number of container moves, or a similar measurable port-utilization metric, backed by financial penalties for non-performance. Bond counsel typically tightens the language to make sure the constitutional connection is real.

Q: Why does the constitution prohibit a faith-and-credit pledge?
A: Because Article V, § 13 specifically prohibits debt secured by the faith and credit of the State or any state agency. The purpose is to keep the General Assembly's general taxing power from being committed to private-purpose projects through the back door of state-authority financing. Special user projects must be financed by special limited obligations, with the tenant's payments and the project assets as the security, not the State's tax base.

Q: Could the Ports Authority finance any private project as long as the tenant promises to use the ports?
A: No. The constitutional anchor is real. The improvement has to genuinely relate to, develop, or further waterborne commerce. A tenant whose business has no actual port-shipping component cannot be made eligible by writing in a fig-leaf utilization commitment. The AG's reliance on a "binding" "substantial" commitment was deliberate.

Background and statutory framework

The North Carolina State Ports Authority operates the state's two deep-water ports at Wilmington and Morehead City. It is a state agency created to develop and operate port facilities and to promote waterborne commerce in the state. Article V, § 13 of the NC Constitution was added to give the General Assembly explicit constitutional authority to authorize the Ports Authority and other state agencies to engage in port development financing, including financing for related private facilities.

G.S. 143B-456.1 is the operative implementing statute. The "special user project" framework lets the Authority finance industrial and manufacturing facilities that serve port-related commerce. The financing is structured as special limited obligations, paid from lease revenues and project assets, with no general state credit at risk. The 1996 opinion clarified that the location flexibility (off-port versus on-port) is acceptable as long as the constitutional utilization tie holds.

Citations

• N.C.G.S. § 143B-456.1 (State Ports Authority special user project bonds)
• N.C. Const. Art. V, § 13 (seaport development financing authority)

Source

• Landing page: https://ncdoj.gov/opinions/power-of-the-north-carolina-state-ports-authority-to-finance-an-industrial-facility/

Original opinion text

January 18, 1996

The Honorable S. Davis Phillips
Secretary
North Carolina Department of Commerce
801 North Wilmington Street
P. O. Box 29571
Raleigh, North Carolina 27626-0571

RE: Advisory Opinion; Power of the North Carolina State Ports Authority to Finance an Industrial Facility; N.C.G.S. §143B-456.1; Article V, §13 of the North Carolina Constitution

Dear Secretary Phillips:

You request our opinion whether it would be legal for the North Carolina State Ports Authority to finance an industrial facility which would be owned by the Authority and leased to a private company. You state that the project in question would not be located immediately adjacent to our two state ports, but that the company would utilize the ports for import and export of materials and products. You also note that the State of North Carolina would have no contingent liability as the result of financing the project.

For reasons which follow, it is our opinion that the State Ports Authority may legally finance this facility so long as there is a binding obligation on the private company requiring a substantial level of utilization of the state ports and so long as no debt for the project is secured by the faith and credit of the state or any state agency.

Article V, §13 of the North Carolina Constitution provides that the General Assembly may enact laws to grant to state agencies "all powers useful in connection with the development of new and existing seaports . . . ." This section of our Constitution further empowers the General Assembly to authorize state agencies to acquire, construct, own, and finance for private parties seaport facilities and "improvements which relate to, develop or further waterborne . . . commerce and cargo . . ." including industrial and manufacturing facilities. Any such financing may not create a debt secured by a pledge of the faith and credit of the state or any state agency.

With this grant of power from the Constitution, the General Assembly enacted N.C.G.S. §143B-456.1, which specifically grants to the State Ports Authority the power to issue bonds and notes to finance "special user projects." As defined in the statute, special user projects include land, offices, and industrial and manufacturing facilities primarily for the use of private parties. This statute also provides that the bonds or notes must be special limited obligations of the State Ports Authority.

In our opinion, the Constitution does not require facilities financed by the Ports Authority to be located at or near the State's ports. We believe binding contract provisions requiring a substantial level of utilization of the state ports satisfies the Constitutional requirement that any improvements financed by the Ports Authority relate to, develop or further waterborne commerce. The Constitution does prohibit the Ports Authority from creating a debt secured by a pledge of the faith and credit of the State. The financing for the project, therefore, cannot violate this express constitutional prohibition.

In closing, although it is our opinion that the Ports Authority may legally finance this facility, the ultimate decision rests with private bond counsel, who is not bound by our opinion.

Andrew A. Vanore, Jr.
Chief Deputy Attorney General

John R. McArthur
Chief Counsel