Can the NC State Ports Authority issue bonds to finance an industrial facility that the Authority will own and lease to a private company, when the facility itself sits somewhere other than next to the ports, but the private company will use the ports for its imports and exports?

Plain-English summary

Norris Tolson, Secretary of the NC Department of Commerce, asked the AG whether the State Ports Authority could legally finance an industrial facility that the Authority would own and lease to a private company. Two facts were stipulated: the facility would not be located adjacent to either of NC's two state ports, but the company would use the ports for import/export of materials and products; and the State would have no contingent liability if the project's debt service went unpaid.

Chief Deputy AG Andrew A. Vanore, Jr. and Chief Counsel John R. McArthur said yes, with two conditions tied to the constitutional and statutory framework.

Constitutional source. Article V, § 13 of the NC Constitution lets the General Assembly grant state agencies "all powers useful in connection with the development of new and existing seaports . . . ." That same section authorizes the legislature to allow 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. There is one express constitutional limit: any such financing cannot create a debt secured by the faith and credit of the state or any state agency.

Statutory implementation. Acting under that constitutional grant, the General Assembly enacted N.C.G.S. § 143B-456.1, which gives the State Ports Authority the power to issue bonds and notes to finance "special user projects." That category is defined to include land, offices, and industrial and manufacturing facilities primarily for the use of private parties. The bonds or notes have to be special limited obligations of the State Ports Authority (no general state pledge).

Two conditions for legality.

1. Binding port-utilization requirement. The opinion's key construction is that the constitutional phrase "relate to, develop or further waterborne commerce" does not mandate physical proximity. A facility located miles inland can still satisfy the constitutional purpose if the private user is contractually bound to use the ports at a substantial level. So the financing documents must contain a binding obligation on the private company to make substantial use of the state ports. Without that contractual hook, the constitutional test is not met and the Authority lacks power to finance.

2. No state-secured debt. The Constitution flatly prohibits debt secured by a pledge of the state's faith and credit. § 143B-456.1 echoes this by characterizing the bonds as special limited obligations. The financing for the project, therefore, must be structured to put the credit risk on the private user (and bondholders), not on NC taxpayers.

The opinion closes with a procedural reminder: while the AG's view is that the Authority may legally finance this facility, the ultimate decision rests with private bond counsel, who is not bound by the AG's opinion. That is the standard caveat for bond-counsel-driven public finance work.

The opinion is structurally important for NC industrial-development practice. It clarifies that the State Ports Authority can be a financing vehicle for inland facilities tied by contract to port usage, expanding the economic-development tools available without crossing the Article V debt-limit line.

Currency note

This opinion was issued in 1997. 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.

N.C.G.S. § 143B-456.1 may have been amended since 1997. Article V, § 13's structure has remained stable but its precise terms and the case law interpreting it should be confirmed against the current Constitution and case law. NC public-finance practice has been refined by many later AG opinions and bond-validation rulings. Anyone structuring a Ports Authority special-user project today should obtain current advice from bond counsel and check current authority.

Common questions

Q: What is a "special user project" under N.C.G.S. § 143B-456.1?
A: A project (land, offices, industrial or manufacturing facility) financed by the Ports Authority primarily for the use of a specific private party. The category is statutory: the Authority's power to issue bonds for these projects derives from § 143B-456.1, which sits inside the broader constitutional grant in Article V, § 13.

Q: Does the project have to be next to a port?
A: No, the opinion holds that the facility itself need not be adjacent to a port. What matters is the contractual obligation tying the private user to substantial port usage. Without that contractual hook, the constitutional "waterborne commerce" purpose is missing.

Q: What does "substantial level of utilization" mean?
A: The opinion does not quantify it. That gets resolved through the specific lease and financing documents, with bond counsel evaluating whether the contractual port-usage commitment is genuine and substantial enough to satisfy the constitutional purpose. A nominal or token usage requirement would not pass.

Q: Who is on the hook if the private user defaults?
A: Bondholders bear the credit risk, subject to whatever security is pledged in the bond documents (the project's revenues, the leased facility, the user's guarantee). The State Ports Authority issues the bonds as "special limited obligations," not general obligations, so the state and its taxpayers are not behind the debt.

Q: Could the legislature change the statute to allow general-obligation financing?
A: No. The constitutional bar on faith-and-credit debt for these projects is in Article V, § 13 itself, not just in the statute. Amending § 143B-456.1 to allow GO debt would conflict with the Constitution. Changing the Constitution requires a separate amendment process.

Q: Does private bond counsel really get to override the AG?
A: Not quite override. Bond counsel writes the opinion on which the bond market relies. If bond counsel cannot give a "clean" opinion (saying the bonds are validly issued and constitutional), the bonds typically cannot close. Bond counsel may take a more conservative view than the AG, in which case the deal does not get done even though the AG would say it is legal. The AG's opinion does not bind bond counsel because bond counsel's job is independent professional judgment on which the market relies. In practice, the AG's view often aligns with bond counsel's view; the caveat in the opinion just acknowledges the procedural reality.

Background and statutory framework

NC has a long-standing constitutional concern about public debt. Article V tightly cabins the state's ability to issue general-obligation debt and historically requires voter approval for most general-fund-backed borrowing. The constitutional framers added § 13 specifically to give the legislature flexibility for seaport-related economic development, while preserving the no-faith-and-credit limit.

The State Ports Authority operates the ports of Wilmington and Morehead City. It also serves as an economic development tool, financing improvements that support port-related commerce. The Authority can do this without triggering state general-obligation debt because the Constitution expressly carves out a category of seaport-related debt as a special-limited-obligation matter, not a general-obligation matter.

The 1997 opinion clarifies the constitutional logic. The "seaport" purpose is satisfied not by physical adjacency but by the functional relationship between the financed facility and port usage. A manufacturing facility that does not sit on the port still serves seaport development if its outputs (or inputs) move through the port. The binding contractual obligation is what locks that functional relationship in place at the moment of financing.

The opinion is part of a broader pattern of NC AG guidance on the boundaries of public-private financing partnerships. Compare with later opinions on the Maready v. City of Winston-Salem line, on economic development incentives, and on various special-purpose-authority financings. The common thread: the Constitution puts hard limits on state credit risk; statutes can authorize creative financings; AG opinions help map the line between what is permitted and what is not.

Citations

• Article V, § 13 of the NC Constitution (General Assembly may grant agencies powers useful for seaport development, including ownership and financing for private parties of facilities relating to waterborne commerce and cargo; no faith-and-credit pledge)
• N.C.G.S. § 143B-456.1 (State Ports Authority power to issue bonds for "special user projects," including industrial and manufacturing facilities for private parties, as special limited obligations)

Source

• Landing page: https://ncdoj.gov/opinions/power-state-ports-authoirty-to-finance-an-industrial-facility/

Original opinion text

March 11, 1997

The Honorable Norris Tolson
Secretary
North Carolina Department of Commerce
301 N. Wilmington Street
Education Building
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 Tolson:

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