Can the NC State Ports Authority finance an industrial facility that will be owned by the Authority and leased to a private company, even if the facility is not located right next to the state ports?
Plain-English summary
The Secretary of Commerce asked whether the State Ports Authority could finance a private industrial facility that would not be physically next to either of NC's two state ports (Wilmington and Morehead City) but would use the ports for imports and exports. The state would not be on the hook for the debt.
The AG said yes, subject to two limits derived from the NC Constitution and § 143B-456.1.
The constitutional grant. Article V § 13 of the NC Constitution gives the General Assembly broad power to authorize state agencies to do anything "useful in connection with the development of new and existing seaports." That includes acquiring, building, owning, and financing industrial and manufacturing facilities, and other improvements "which relate to, develop or further waterborne commerce and cargo." The grant has one express limit: any such financing may not create a debt secured by a pledge of the faith and credit of the state or any state agency.
The implementing statute. § 143B-456.1 carries that grant into operating law. It authorizes the Ports Authority to issue bonds and notes for "special user projects," defined to include land, offices, and industrial and manufacturing facilities primarily for the use of private parties. The bonds must be "special limited obligations" of the Ports Authority, not general state debt.
The location question. The Constitution does not require the financed facility to be physically located at the ports. What it requires is that the project "relate to, develop or further" waterborne commerce. A binding contract obligating the private company to use the state ports at a substantial level satisfies that constitutional purpose, regardless of where the building sits.
The AG closed with a careful disclaimer: bond counsel makes the ultimate call on whether a specific bond issue meets the legal requirements. AG opinions are persuasive but not binding on bond counsel, the trustee, the underwriter, or the buyers. The AG is giving green light at the conceptual level; the legal opinions in the actual bond documents have to do the lift.
This opinion is a textbook example of the state's mid-1990s effort to expand economic development tools while respecting the NC Constitution's anti-debt provisions. The Ports Authority became a vehicle for project finance because Article V § 13 carved out a specific exemption from the otherwise strict limits on state debt.
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.
§ 143B-456.1 has been amended multiple times since 1997. Article V § 13 of the NC Constitution remains in place. Anyone advising on a current Ports Authority special-user project must pull current statutes and any later AG opinions, and structure the bond documents to satisfy the no-faith-and-credit and port-use requirements as currently interpreted.
Common questions
Q: What is a "special user project"?
A: A bond-finance term of art for facilities financed by a public authority but primarily used by, or operated for, a single private user. The Ports Authority can issue bonds in its own name to finance such a facility, lease it to the private user, and use the lease payments to service the debt. The private user is effectively the credit behind the bonds, not the state.
Q: How does "substantial level of utilization" of the ports get measured?
A: That is contract-drafting work. Typical mechanisms include: minimum tonnage commitments through the state ports; minimum percentage-of-throughput commitments; commitments to use NC ports exclusively for certain product lines; penalty payments or accelerated lease costs if the user shifts traffic away. The AG did not prescribe a single test; what matters is that the contract creates a binding port-use obligation strong enough to support the constitutional finding that the project develops waterborne commerce.
Q: Why is the no-faith-and-credit limit so important?
A: NC's constitution makes general-obligation debt (debt backed by the state's full faith and credit) require voter approval. Bypassing that voter check would let the legislature commit the state to repayment without electoral consent. The constitutional carve-out in Art. V § 13 permits the Ports Authority to finance projects through special limited obligations only, structurally similar to revenue bonds: the bondholders look to the project's revenues, not to the state, for repayment. If the bonds slipped into general-obligation territory, the entire structure would fail.
Q: Could a project be located outside NC and still qualify?
A: The opinion talks about a facility "owned by the Authority and leased to a private company" within an NC port-utilization framework. NC public-purpose limits and the practical reach of the Ports Authority would make an out-of-state location very difficult to defend. The opinion does not address that scenario directly.
Q: Is bond counsel really free to disagree with the AG?
A: Yes. Bond counsel must give an independent legal opinion to the bond purchasers. The AG opinion is persuasive but not binding on counsel. In practice, bond counsel typically uses an AG opinion as a starting point and adds its own analysis of the specific bond structure, the project documents, and the indenture. If bond counsel disagrees, the bonds cannot be issued.
Background and statutory framework
The NC State Ports Authority operates the state-owned deep-water ports at Wilmington and Morehead City, plus inland terminals. It was created in the 1940s to develop NC's maritime commerce capacity. Article V § 13 of the NC Constitution was added (in modern form) to allow the state to finance private port-related facilities without running afoul of the general debt restrictions, recognizing that traditional general-obligation borrowing would not work for industrial facility financing tied to specific private users.
The "special user project" structure is common in state and local finance for things like industrial development bonds, hospital revenue bonds, and similar limited-purpose borrowing. The NC Ports Authority version is constitutionally grounded in Art. V § 13, which gives it a wider operating scope than typical municipal industrial revenue bond statutes.
Citations
- N.C. Const. Art. V, § 13 (state agency power to finance seaport facilities and related industrial improvements; no faith-and-credit pledge)
- N.C. Gen. Stat. § 143B-456.1 (State Ports Authority special-user project bond authority)
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