When a North Carolina state commission spins off a private nonprofit corporation that takes over the same economic development work using state money, is that nonprofit subject to the Public Records Act, or does its private-corporate form let it keep records confidential?

Plain-English summary

In 1993, the General Assembly created the Northeastern North Carolina Regional Economic Development Commission (a state agency administratively located in the Department of Commerce) to foster economic and tourism development in the state's northeastern counties. In 1994, the Commission tried to spin off into a private nonprofit corporation called North Carolina's Northeast Partnership. On July 27, 1994 the Commission voted that "as of August 1, 1994, it would no longer be affiliated with the Department of Commerce." Articles of incorporation for the Partnership were filed in September 1994. The Partnership absorbed the Commission's duties and functions; its board members were the same people as the Commission's members; and it kept receiving about $1 million per fiscal year from the Department of Commerce for public-purpose work.

Years later, the Partnership's Fiscal Manager Melanie Thompson asked the AG whether the Partnership was subject to the NC Public Records Act. The Partnership's argument (implicit in the framing) was that as a private nonprofit corporation, it was not an "agency" under § 132-1(a). The opinion rejected that view on two independent grounds.

Ground 1: The Commission had no authority to spin itself off. A statutorily created agency has only the powers the legislature gave it. In re Appeal from Civil Penalty, 324 N.C. 373 (1989). The General Assembly placed the Commission administratively in the Department of Commerce by N.C.G.S. § 158-8.2 and has reaffirmed that placement through multiple amendments. The Commission's vote to disassociate was beyond its authority. Ramsey v. North Carolina Veterans' Commission, 261 N.C. 645 (1964). Nor could the Commission abdicate its statutory powers and duties to a private nonprofit; nothing in § 158-8.2 grants that authority, and it cannot be implied. So legally, the Partnership is essentially the Commission operating under a new name.

Ground 2: Even if the spinoff was valid, the Partnership is still an 'agency' under § 132-1(a). This is the Wake County Hospital System rule. In News and Observer Publishing Co. v. Wake County Hospital System, 55 N.C. App. 1 (1981), a private nonprofit that took over Wake County hospital operations was held to be an "agency" because (a) it had been incorporated from an underlying government entity, (b) it continued to perform public functions with public funds, and (c) it remained subject to significant governmental oversight and control. The court said the relationship "has undergone little more than a change in name through incorporation." The same factors were present for the Partnership: it grew out of a state commission, identical membership, $1 million/year in state appropriations, subject to state audits and quarterly/annual reporting to the Fiscal Research Division of the General Assembly and to the Office of the State Controller.

The conclusion: the Partnership is an "agency of North Carolina government or its subdivisions" under § 132-1(a) and fully subject to the Public Records Act.

Senior Deputy Attorney General Reginald L. Watkins and Assistant Attorney General Jane T. Friedensen also offered practical guidance. Each request must be evaluated on its own merits; the Partnership should consult local counsel for responses to specific requests; and "as a general matter, the Partnership should presume that every item received or generated in the course of its ordinary business is a public record, and must be disclosed upon request unless a specific exception . . . applies."

Currency note

This opinion was issued in 1999. 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's regional economic development structure was significantly reorganized after 1999, with several regional commissions and partnerships consolidated, restructured, or wound down. N.C.G.S. § 158-8.2 has been amended. The Wake County Hospital System framework for analyzing public-records coverage of nonprofit entities remains foundational, and the NC Supreme Court has refined the test in later cases, including News & Observer Publishing Co. v. Easley, 182 N.C. App. 559 (2007), and other government-transparency decisions.

Background and statutory framework

North Carolina's Public Records Act takes a broad view of what counts as a public record and what counts as an agency. § 132-1(a) defines public records as anything "made or received pursuant to law or ordinance in connection with the transaction of public business by any agency of North Carolina government or its subdivisions." The definition of "agency" then sweeps in "every public office, public officer or official (State or local, elected or appointed), institution, board, commission, bureau, council, department, authority or other unit of government of the State or of any county, unit, special district or other political subdivision of government."

The hard question is when a nominally private entity counts as an agency. Many state activities are carried out through quasi-public entities: nonprofit corporations created by state law, public-private partnerships, regional commissions, special districts. The Public Records Act's reach into these entities depends on a functional analysis, not a label.

Wake County Hospital System is the foundational NC case on the functional test. The Wake County Hospital Authority was reincorporated as a private nonprofit corporation. The Court of Appeals held that the reincorporation did not strip the entity of public-records obligations, because the entity (a) had been constituted as a county agency, (b) continued to perform public functions, (c) used public funds, and (d) remained subject to significant governmental oversight. The Court summarized: "the relationship between the county and its hospitals has undergone little more than a change in name through incorporation."

The 1999 AG opinion applied this test to North Carolina's Northeast Partnership. The factual pattern was very similar: a state agency reorganized as a private nonprofit with substantially the same membership, the same functions, public funding, and ongoing state oversight. The result was the same: the entity remained an "agency" for Public Records Act purposes.

The opinion's first ground (lack of statutory authority to disassociate) is independent and probably stronger. A statutory commission cannot vote itself out of existence as a state agency. The legislature placed it administratively in a department; only the legislature can remove it. The 1994 Commission vote was legally ineffective, and the subsequent "private nonprofit" structure was a corporate fiction layered on top of a continuing state agency. Even if the Wake County Hospital System functional test had pointed the other way, the no-authority ground would still have produced the same answer.

Common questions

What kinds of records would have to be disclosed?

Essentially everything the Partnership generated or received in the course of its work, unless a specific statutory exception applied. Examples of likely exceptions: personnel files (limited disclosure under § 126-22 framework), trade secrets and confidential business information of third parties (§ 132-1.2), confidential settlement negotiations in certain contexts, and pending economic development discussions where statutory confidentiality applies (e.g., § 132-1.11 for incentive negotiations was added later).

Was the Commission still "the Commission" after the 1994 vote, or did it dissolve?

The opinion suggested the Commission "apparently still exists, it is unclear what functions or duties, if any, it performs." The vote did not legally dissolve the Commission (only the legislature could do that), but operationally the Commission had stopped acting. The Partnership absorbed the working functions. This was an awkward legal posture but not unprecedented in NC quasi-public entity reorganizations.

Could the General Assembly have authorized the spinoff if it wanted to?

Yes. The legislature has plenary authority to restructure state agencies. It could have passed legislation authorizing the Commission to transfer its powers to a private nonprofit, or to dissolve the Commission and create the Partnership directly. It did not. The 1994 reorganization was therefore legally infirm at its base.

Did the AG's opinion settle the matter, or did the Partnership challenge it?

AG opinions are persuasive, not binding. A private entity disputing the conclusion would need to litigate. The opinion gave public-records requesters clear authority to pursue records and gave the Partnership clear notice that it should comply. The functional test from Wake County Hospital System remained the controlling case law.

Source

• Landing page: https://ncdoj.gov/opinions/applicability-of-public-records-act-to-north-carolinas-northeast-partnership/

Citations

• N.C.G.S. § 132-1(a)
• N.C.G.S. § 158-8.2
• N.C.G.S. § 143B-6(10), § 143B-428 to § 143B-430
• N.C. Const. art. II, § 1
• News and Observer Publishing Co. v. Wake County Hospital System, 55 N.C. App. 1, 284 S.E.2d 542 (1981)
• In re Appeal from Civil Penalty, 324 N.C. 373, 379 S.E.2d 30 (1989)
• In re Incorporation of Indian Hills, 280 N.C. 659, 186 S.E.2d 909 (1972)
• Ramsey v. North Carolina Veterans' Commission, 261 N.C. 645, 135 S.E.2d 659 (1964)

Original opinion text

Reply to: JANE T. FRIEDENSEN INSURANCE SECTION

(919) 716-6610 Fax:(919) 716-6757

March 9, 1999

Melanie Thompson, Fiscal Manager
North Carolina's Northeast Partnership
Post Office Box 29
Edenton, North Carolina 27932

Re: Advisory Opinion; Applicability of Public Records Act to North Carolina's Northeast Partnership; N.C.G.S. § 132-1(a); N.C.G.S. § 158-8.2

Dear Ms. Thompson:

We write in response to your 5 February 1999 memorandum to Special Deputy Attorney General Lorinzo Joyner seeking guidance as to the extent to which North Carolina's Northeast Partnership ("the Partnership") is subject to North Carolina's Public Records Act, N.C.G.S. §§ 132-1 et seq. A copy of your letter is attached for convenience. Based upon this letter, our research, and the additional information you provided on 9 February 1999, we conclude that the Partnership is an "agency" within the meaning of N.C.G.S. § 132-1(a), and accordingly is fully subject to the Public Records Act.

N.C.G.S. § 132-1(a) provides as follows:

"Public record" or "public records" shall mean all documents, papers, letters, maps, books, photographs, films, sound recordings, magnetic or other tapes, electronic data-processing records, artifacts or other documentary material, regardless of physical form or characteristics, made or received pursuant to law or ordinance in connection with the transaction of public business by any agency of North Carolina government or its subdivisions. Agency of North Carolina government or its subdivisions shall mean and include every public office, public officer or official (State or local, elected or appointed), institution, board, commission, bureau, council, department, authority or other unit of government of the State or of any county, unit, special district or other political subdivision of government (emphasis added).

In order to answer your inquiry it is necessary to determine whether or not the Partnership is an "agency of North Carolina government or its subdivisions" within the meaning of § 132-1(a). This determination in turn requires an examination of the origins of the Partnership and the nature of the functions it performs.

In 1993, the North Carolina General Assembly created the Northeastern North Carolina Regional Economic Development Commission ("the Commission") by adding a new § 158-8.2 to Chapter 158 of the North Carolina General Statutes. See 1993 Sess. Laws, Ch. 321, Sec. 309.1; 1993 (Reg. Sess. 1994) Sess. Laws, Ch. 769, Sec. 28.7(k). The Commission is unquestionably an agency of North Carolina government. The Commission is located administratively in the North Carolina Department of Commerce ("the Department"), one of the principal departments of the executive branch of State government, although it is required to exercise its statutory powers and duties independently of the Department. See N.C.G.S. §§ 143B-6(10), 158-8.2(a). The Commission is vested with statutory powers and duties to foster economic and tourism development in the state's northeastern counties. See N.C.G.S. §§ 158-8.2(a), 158-8.2(f). The Commission's statutory powers and duties replicate, on a geographically smaller scale, many of the primary statutory powers and duties of the Department of Commerce, which is responsible for implementing North Carolina's legislatively declared public policy of actively encouraging economic development and the growth of the travel and tourist industries. Compare N.C.G.S. §§ 158-8.2(a), -158-8.2(f) with N.C.G.S. §§ 143B-428 to -430.

On 27 July 1994, the Commission held a special meeting at which it declared that "as of August 1, 1994, it would no longer be affiliated with the Department of Commerce, State of North Carolina, but would, as of that date, begin operating on it's [sic] own." Minutes, July 27, 1994 Special Meeting, Northeastern North Carolina Regional Economic Development Commission, p. 1 (hereinafter referred to as July 27, 1994 Minutes). The Commission subsequently deferred the commencement of independent operations to September 1, 1994. See July 27, 1994 Minutes, p. 2; Minutes, August 17, 1994 Meeting, Northeastern North Carolina Regional Economic Development Commission, pp. 5-6.

Articles of incorporation for a nonprofit corporation known as Northeastern North Carolina Regional Economic Development Partnership, Inc. were filed in the Office of the Secretary of State on 16 September 1994. (This entity evidently is the same as the "North Carolina's Northeast Partnership," although the documents furnished do not clearly indicate that the corporation is doing business under the latter name. The name "North Carolina's Northeast Partnership," however, appears on the letterhead of the request for this opinion. Both entities are herein referred to interchangeably as "the Partnership.") The Partnership's articles of incorporation and bylaws indicate that it assumed the duties and functions of the Commission associated with economic and tourism development, and that members of the Commission automatically became members of the Board of Directors of the Partnership by virtue of their appointment to the Commission. The Partnership receives approximately $1,000,000 in funding from the Department each fiscal year, and must use these funds for public purposes. The Partnership is subject to state audits, and must submit audited financial statements to the Office of the State Controller at the end of each fiscal year. The Partnership also must submit quarterly and annual financial and activity information to the Fiscal Research Division of the General Assembly. See February 5, 1999 memorandum from Melanie Thompson to Lorinzo Joyner. Although the Commission apparently still exists, it is unclear what functions or duties, if any, it performs. See February 9, 1999 memorandum from Melanie Thompson to Jane Friedensen.

The Commission was not authorized to remove itself from the Department in 1994. As noted previously, at that time, N.C.G.S. § 158-8.2(a), as originally enacted in 1993, stated that the Commission was administratively located in the Department of Commerce. The General Assembly has amended § 158-8.2 several times since 1993, but it has maintained in place the provision stating that the Commission is administratively located within the Department. See 1993 Sess. Laws, Ch. 321, Sec. 309.1(a); 1993 Sess. Laws, Ch. 561, Sec. 17(b); 1993 (Reg. Sess. 1994) Sess. Laws, Ch. 769, Secs. 28.7(k), 28.8(c); 1995 Sess. Laws, Ch. 509, Secs. 106-109; 1997 Sess. Laws, Ch. 495, Secs. 86-87. The General Assembly is vested with the legislative power of the State of North Carolina pursuant to Article II, § 1 of the North Carolina Constitution. The Commission is a subordinate, statutorily created entity, and is bound to follow the decrees of the legislature. The Commission had no evident authority to disassociate itself by vote from the Department of Commerce in 1994; nor did it have the authority effectively to amend or rewrite § 158-8.2(a) by so voting. See Ramsey v. North Carolina Veterans' Commission, 261 N.C. 645, 648, 135 S.E.2d 659 (1964).

Similarly, the Commission was not authorized to abdicate its statutory powers and duties in favor of the Partnership. A statutorily created government agency possesses only those powers either expressly granted by statute, or implied as reasonably necessary as an incident to the accomplishment of the purposes for which the agency was created. See In re Appeal from Civil Penalty, 324 N.C. 373, 379-83, 379 S.E.2d 30 (1989); In re Incorporation of Indian Hills, 280 N.C. 659, 186 S.E.2d 909 (1972). There is nothing in § 158-8.2 that grants the Commission the authority to divest itself of its statutory powers and duties in the areas of economic and tourism development. Nor can such authority be implied as reasonably necessary as an incident to the accomplishment of the purposes for which the Commission was created.

Even assuming arguendo that the Partnership was otherwise properly established as a private nonprofit corporation, it nonetheless appears to be an "agency" within the meaning of § 132-1(a), and thus fully subject to the Public Records Act. The decision of the North Carolina Court of Appeals in News and Observer Publishing Co. v. Wake County Hospital System, 55 N.C. App. 1, 284 S.E.2d 542 (1981) (hereinafter cited as Publishing Co. v. Hospital System), disc. review denied, 305 N.C. 302, 291 S.E.2d 151, cert. denied, 459 U.S. 803, 103 S.Ct. 26, 74 L.Ed.2d 42 (1982) is controlling on this issue.

In Publishing Co. v. Hospital System, the News and Observer sought to compel the Hospital System to reveal both the terms of settlements reached in legal actions for wrongful termination of agreements with medical professional associations, and the expense account records of the System's president and board of directors. The System contended that because it was a private nonprofit corporation, it was not an "agency" within the meaning of the Public Records Act and accordingly not required to disclose the requested items. The Court of Appeals held the System was an agency for purposes of the Public Records Act notwithstanding its formal status as a private nonprofit corporation, and that the requested records were public records under the Act. The Court focused on the fact that the System originally had been constituted as the Wake County Hospital Authority, an agency of county government, and continued to perform public functions with public funds subject to significant governmental oversight and control subsequent to its incorporation. See Publishing Co. v. Hospital System, 55 N.C. App. at 7-12. The Court concluded that "[i]n short, the relationship between the county and its hospitals has undergone little more than a change in name through incorporation." Id. at 12.

It likewise appears from the materials provided that there is little functional difference between the Commission and the Partnership. The Commission preceded and created the Partnership, and their membership is identical. The Partnership performs public functions with public funds. Moreover, it is subject to a significant level of oversight by the Fiscal Research Division, the State Auditor's Office, and the Office of the State Controller. As was the case in Publishing Co. v. Hospital System, it appears that "the relationship between [the Commission and the Partnership] has undergone little more than a change in name through incorporation." We accordingly conclude that the Partnership is an "agency of North Carolina government or its subdivisions" within the meaning of § 132-1(a), and that the Partnership accordingly is subject to the Public Records Act to the same extent as any other such agency.

You have asked for guidelines for complying with the Public Records Act. It is difficult to furnish useful generalized advice of this nature. No one can anticipate every type of request for records that the Partnership may receive in the future. Each request for documents under the Public Records Act must be evaluated on its own merits. The Partnership should consult its local counsel for advice in responding to such requests as they occur. As a general matter, however, the Partnership should presume that every item received or generated in the course of its ordinary business is a public record, and must be disclosed upon request unless a specific exception to the disclosure requirements of the Act applies to the situation at hand.

Yours very truly,

REGINALD L. WATKINS
Senior Deputy Attorney General

Jane T. Friedensen
Assistant Attorney General