Can North Carolina community colleges enter into lease-purchase and installment purchase contracts to acquire equipment, or do they need explicit legislation like K-12 schools and local governments already have?

Plain-English summary

NC community colleges (the 58-campus system that handles workforce training, transfer programs, and continuing education) routinely acquire equipment: computers, lab gear, vehicles, photocopiers. For decades they had financed some of these purchases through lease-purchase contracts (where the lease payments amount to financed purchase of the asset) or installment purchase contracts.

In October 1997, the AG's office sent an advisory letter to Clay Hines stating that community colleges did not have authority to enter into these contracts. The community college system asked for a second look.

The 1998 opinion reverses the October 1997 advisory letter. The AG concluded that two statutes, read together, authorize the practice:

1. N.C.G.S. § 115D-58.5(b) governs accounting at community colleges. It says each institution "shall be governed in its purchasing of all supplies, equipment, and materials by contracts made by or with the approval of the Purchase and Contract Division of the Department of Administration."

2. N.C.G.S. § 143-49(1) is the statewide purchasing statute. Subsection (1) authorizes the Secretary of Administration "to purchase or to contract for the purchase, lease and lease purchase of all supplies, materials, equipment and other tangible personal property required by the State government, or any of its departments, institutions or agencies."

Together: § 143-49(1) gives the Department of Administration's Purchase and Contract Division the power to lease-purchase on behalf of state agencies. § 115D-58.5(b) routes community college purchasing through that same Division. So community colleges, through Purchase and Contract, can do lease-purchase.

The opinion acknowledges that this conclusion is contestable. The plain language of § 115D-58.5(b) talks about "purchasing of supplies, equipment, and materials," not lease-purchase financing. The cleaner statutory pattern for K-12 schools (§ 115C-528) and local governments (§ 160A-20) explicitly authorizes lease-purchase. Community colleges sit awkwardly in between.

The opinion's bottom-line recommendation: yes, you can keep doing what you've been doing, but ask the General Assembly to pass an explicit statute parallel to § 115C-528 and § 160A-20 so that no future challenge can disturb the practice.

Currency note

This opinion was issued in 1998. 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.

The General Assembly has since amended Chapter 115D several times. Anyone advising a community college on lease-purchase authority today should pull current § 115D-58.5 and check whether the explicit clarifying legislation the AG urged was ever enacted. Even if the implicit authority still rests on the same reading, the Purchase and Contract Division procedures have evolved.

Common questions

Q: Why did the original 1997 advisory letter say no?
A: A textual read of § 115D-58.5(b) talks only about "purchasing" of supplies and equipment, not lease financing. If you stop there, community colleges have no express authority for lease-purchase. The 1998 opinion gets to "yes" by routing through § 143-49(1), which does authorize lease-purchase at the statewide Purchase and Contract level.

Q: What is the practical difference between a lease-purchase and a regular purchase?
A: A regular purchase consumes the institution's cash up front. A lease-purchase spreads payments over time and is functionally installment financing. For capital-tight institutions, it's a way to acquire equipment they could not afford to buy outright. Some lease-purchase structures avoid triggering the constitutional debt limit because each year's payment can be cancelled if not appropriated; that subject is separate from the question this opinion answers.

Q: Did the General Assembly ever pass the clarifying legislation the AG recommended?
A: This opinion does not say, and the AG was urging future action. A reader who needs to know whether explicit authority now exists should look at the current text of Chapter 115D in the NC General Statutes.

Q: Could a vendor be safe relying on this AG opinion?
A: AG opinions are persuasive but not binding. A vendor signing a lease-purchase with a community college in 1998 would have had reasonable assurance under this opinion plus the Purchase and Contract Division's long custom of approving such contracts. A challenge would have to overcome both.

Q: Does this opinion cover real estate lease-purchase or only equipment?
A: It cites "supplies, materials, equipment and other tangible personal property." Real estate financing for community colleges runs through a different statutory track (capital improvement bonds, county appropriations, system-office allocation) and is not addressed here.

Background and statutory framework

NC's community colleges were created in 1957 and consolidated into a single system in 1963. Funding flows from state appropriations, county appropriations, and tuition. The colleges have always been treated as state agencies for purchasing purposes, which is why their purchasing flows through Purchase and Contract.

The local government statute § 160A-20 expressly authorizes counties and municipalities to enter "contracts to finance the purchase of real or personal property by installment contracts that create in some or all of the property purchased a security interest to secure payment of the purchase price." § 115C-528 does the analog for local school boards (K-12). The 1998 opinion notes that no parallel statute exists for community colleges and urges the General Assembly to fix that gap.

Citations

• N.C. Gen. Stat. § 115D-58.5(b) (community college purchases through Purchase and Contract Division)
• N.C. Gen. Stat. § 143-49(1) (Department of Administration Secretary's purchase, lease, and lease-purchase authority)
• N.C. Gen. Stat. § 160A-20 (local government lease-purchase authority)
• N.C. Gen. Stat. § 115C-528 (local school board lease-purchase authority)

Source

• Landing page: https://ncdoj.gov/opinions/community-colleges-authority-to-enter-into-lease-purchase-and-installment-purchase-contracts/

Original opinion text

January 20, 1998

H. Martin Lancaster, President
N.C. Community College System
200 West Jones Street
Raleigh, NC 27603-1379

RE: Advisory Opinion; Community Colleges; Authority to enter into Lease Purchase and Installment Purchase Contracts; N.C.G.S. §§ 115D-58.5 and 143-49

Dear President Lancaster:

This is a follow up to our recent telephone conversations concerning the authority of community colleges to enter into lease purchase and installment contracts. As you know, in October of last year our office advised Clay Hines by advisory letter that community colleges did not have such authority. Although the advisory letter presents a responsible argument to support its conclusion, it is the opinion of the Attorney General that N.C.G.S. §§ 115D-58.5(b) and 143-49(1) authorize community colleges to enter into lease purchase and installment contracts so long as these contracts are made by or with the approval of the Purchase and Contract Division of the North Carolina Department of Administration. However, because there is a very plausible argument to the contrary, we strongly suggest that your Department ask the General Assembly at its very next session to enact legislation that clearly and specifically gives to community colleges this authority, as the legislature has already done for units of local government and elementary and secondary public schools. See, respectively, N.C.G.S. §§ 160A-20 and 115C-528.

N.C.G.S. § 115D-58.5, which deals generally with the accounting systems for community colleges, provides in pertinent part as follows: "Each institution shall be governed in its purchasing of all supplies, equipment, and materials by contracts made by or with the approval of the Purchase and Contract Division of the Department of Administration."

The powers and duties of the Secretary of the Department of Administration are set forth in N.C.G.S. § 143-49. Subsection (1) of that statute authorizes the Secretary of the Department of Administration: "To canvass sources of supply, including sources of supply of materials and supplies with recycled content, and to purchase or to contract for the purchase, lease and lease purchase of all supplies, materials, equipment and other tangible personal property required by the State government, or any of its departments, institutions or agencies under competitive bidding or otherwise as here and after provided." (Emphasis added). Over the past many years, by custom and practice, the Purchase and Contract Division of the Department of Administration has authorized and approved numerous lease purchase and installment purchase contracts entered into by community colleges, relying upon the authority of N.C.G.S. §§ 115D-58.5 and 143-49(1). We believe this reliance upon these statutes by the Purchase and Contract Division was reasonable and responsible. However, as we have already noted, so that there is absolutely no question that community colleges have this authority, we reiterate our suggestion that specific legislation to that effect be enacted by the General Assembly.

Should you have any questions, please feel free to contact me.

signed by:

Andrew A. Vanore, Jr.
Chief Deputy Attorney General