Can the NC legislature constitutionally give direct cash grants and low-interest loans to homeowners, farmers, and small businesses devastated by a hurricane?
Plain-English summary
Hurricane Floyd hit eastern North Carolina in September 1999 and produced what was then the worst natural disaster in state history. The legislature was preparing emergency relief that would, among other things, cut checks to individual homeowners for repair work and offer low-interest recovery loans to farmers and small businesses. Two state constitutional clauses cast a shadow over those direct payments: the Public Purpose Clause (Article V, § 2(1)), which forbids spending public money for private purposes, and the Exclusive Emoluments Clause (Article I, § 32), which forbids granting "exclusive or separate emoluments or privileges from the community but in consideration of public service." Senator Basnight and Speaker Black wanted the AG's view before they committed the General Assembly to programs that might be struck down in litigation.
Chief Deputy AG Edwin M. Speas, Jr. answered both questions favorably for the legislature.
On public purpose, the AG walked through the leading state cases. Maready v. City of Winston-Salem (1996) had upheld cash incentive grants to private corporations for economic development. Martin v. N.C. Housing Corp. (1970) and In Re Denial of Approval of Bonds (1982) had upheld subsidized housing for low- and moderate-income families. State Education Assistance Authority v. Bank of Statesville (1970) had upheld student loans to "meritorious North Carolinians of slender means." If economic-development grants to private corporations were a public purpose, the AG reasoned, then disaster relief to families and farms in a federally declared disaster zone was at least as defensible. Article XI, § 4 of the state constitution backed the conclusion: "Beneficent provision for the . . . unfortunate . . . is one of the first duties of a civilized and a Christian State." Out-of-state precedent agreed. The Alaska Supreme Court had upheld direct earthquake-relief grants to homeowners in Suber v. Alaska State Bond Committee (1966), and New Mexico had reached the same result in State of New Mexico v. Hannah (1957).
The AG's caveat: the legislation had to be reasonably tailored. To survive challenge, the AG suggested the program limit assistance to (1) persons within the disaster zone, (2) whose home, farm, or business suffered substantial damage from the storm, and (3) who had not otherwise been fully compensated. With those guardrails, "private interests do not predominate over the public purpose."
On exclusive emoluments, the AG applied the Town of Emerald Isle v. State (1987) test. A statute that benefits a particular group is not an unconstitutional exclusive emolument if it "is intended to promote the general welfare rather than the benefit of the individual" and if "there is a reasonable basis for the legislature to conclude that the granting of the [benefit] serves the public interest." Veteran home loans (Hinton v. State Treasurer, 1927) and hospital care for needy citizens (Martin v. Raleigh, 1935) had cleared the same test. Disaster relief was a logical next step.
The opinion did not bind the courts and did not foreclose suit; it was advisory. But it gave the General Assembly the legal cover it wanted to move quickly with a constitutionally aggressive relief package.
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. The Public Purpose and Exclusive Emoluments doctrines have continued to evolve in NC courts since 1999. Most recently, Town of Boone v. State (2019) and other cases have shaped how local governments structure incentives. A modern analysis of disaster-relief grants would draw on developments after Hurricane Matthew (2016) and Hurricane Florence (2018) as well.
Background and statutory framework
Hurricane Floyd and the legislative response. Floyd made landfall in September 1999 and produced 500-year flooding across eastern NC. Whole towns went underwater. Tens of thousands of homes were destroyed. Hog farms breached. The federal response (FEMA grants, SBA loans) covered the largest losses but left meaningful gaps, particularly for uninsured homeowners and for small operators whose income evaporated overnight. The legislature went into special session and crafted what would become the Hurricane Floyd Recovery Act.
The Public Purpose Clause. Article V, § 2(1) of the NC Constitution requires that "the power of taxation . . . shall never be surrendered, suspended, or contracted away" and that "every appropriation by [the General Assembly] shall be for a public purpose." The courts read this as a substantive limit, not just a recital. Whether a particular appropriation is for a public purpose is a question of law that only the courts can finally resolve, although they defer to legislative findings about the program's value to the public.
The Maready turning point. Before Maready v. City of Winston-Salem (1996), the line between public and private purpose was harder to predict. Maready approved direct cash incentives to private corporations because the local economy and tax base benefited. After Maready, programs with a defensible public-good rationale were on safer ground, especially when the legislature made findings about the program's effects.
The Exclusive Emoluments Clause. Article I, § 32 reads: "No person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public service." Originally aimed at hereditary titles and patronage, the clause has been read to bar special favors that lack a public-interest justification. The Town of Emerald Isle test essentially mirrors the public-purpose test: a benefit conferred on a particular group is not an exclusive emolument if it serves a broader public interest and the legislature had a reasonable basis to think so.
The narrow tailoring point. The AG's advice that grants should be limited to disaster-zone residents who suffered substantial damage and who had not been made whole elsewhere was significant. It was the limiting principle that kept the program from looking like a windfall. A grant to a homeowner whose insurance had fully paid out would not survive challenge; a grant to a homeowner whose insurance was capped below the rebuild cost would.
The Council of State concurrence point. A companion AG opinion issued December 1, 1999 (Governors-Authority-to-Provide-Flood-Relief) addressed the Governor's parallel authority to redirect agency appropriations to flood relief during a declared state of disaster. The two opinions together gave the legislature and the Governor coordinated legal cover for a fast multi-track response.
Common questions
Q: Did the AG say the program was definitely constitutional?
A: No. The opinion said NC courts would "likely" uphold the program as drafted, with the suggested limitations. Only a court could finally decide. The AG's view is advisory and persuasive but not binding.
Q: What constraints did the AG suggest?
A: Three. Limit relief to (1) persons in the disaster zone, (2) whose home, farm, or business suffered substantial damage from the disaster, and (3) who had not otherwise been fully compensated. The AG noted that without those guardrails, grants would risk being read as exclusive emoluments rather than disaster relief.
Q: Did the AG distinguish grants from low-interest loans?
A: No. The analysis treated direct grants and below-market loans the same. Both were public-purpose-defensible if reasonably tailored to the disaster.
Q: What was Article XI, § 4 doing in a public purpose analysis?
A: It gave the AG textual backing for the proposition that the state has an affirmative constitutional obligation to provide for "the unfortunate." The provision is unusual among state constitutions and pointed strongly toward broad legislative latitude in disaster relief.
Q: Did NC ever face a Public Purpose Clause challenge to the Floyd relief?
A: The opinion does not record one. The political momentum behind the relief package was overwhelming.
Citations from the opinion
- N.C. Const. Art. I, § 32 (Exclusive Emoluments Clause)
- N.C. Const. Art. V, § 2(1) (Public Purpose Clause)
- N.C. Const. Art. XI, § 4 ("beneficent provision for the . . . unfortunate")
- Redevelopment Commission v. Brock, 252 N.C. 575 (1940)
- Madison Cablevision v. City of Morganton, 325 N.C. 634 (1989)
- Maready v. City of Winston-Salem, 342 N.C. 608 (1996)
- Martin v. N.C. Housing Corp., 277 N.C. 29, 50 (1970)
- In Re Denial of Approval of Bonds, 307 N.C. 52 (1982)
- State Education Assistance Authority v. Bank of Statesville, 276 N.C. 576, 587 (1970)
- Suber v. Alaska State Bond Committee, 414 P.2d 546 (1966) (Alaska)
- State of New Mexico v. Hannah, 314 P.2d 714 (1957) (New Mexico)
- Town of Emerald Isle v. State, 320 N.C. 640, 654 (1987)
- Hinton v. State Treasurer, 193 N.C. 496 (1927)
- Martin v. Raleigh, 208 N.C. 369 (1935)
Source
Original opinion text
December 13, 1999
The Honorable Marc Basnight Room 2007, Legislative Building Raleigh, North Carolina 27603
The Honorable James B. Black Room 2304, Legislative Building Raleigh, North Carolina 27603
Re: Proposed Disaster Relief Programs; Constitutionality With Respect to the Public Purpose and Exclusive Emolument Clauses; North Carolina Constitution, Article I, Sec. 32 and Article V, Sec. 2(1)
Dear Senator Basnight and Speaker Black:
You seek our opinion regarding the constitutionality of a series of proposed measures for providing relief to citizens from the ravages of Hurricane Floyd. The exact contours of these programs have not been fully developed. However, we understand that some of these programs would include direct grants to individuals for housing repair and assistance and low interest loans to farmers and the owners of small businesses. We further understand that the General Assembly believes, and will find as a part of this legislation, that in view of the magnitude and scope of the damage these direct grants and low interest loans are for the common good and constitute a public purpose. In essence, these findings would declare the legislature's conclusion that restoration of the communities devastated by the hurricane through grants and low interest loans to the citizens and small businesses which make up those communities is primarily for the public good.
Whether a particular legislative program is for a public purpose within the meaning of Article V, Section 2(1) of the Constitution is a question of law which can only finally be resolved by the courts. In making that decision, the courts defer to, but are not bound by, the legislature's findings regarding the need for and benefits of the program. Redevelopment Commission v. Brock, 252 N.C. 575 (1940). Public purpose, as the courts have acknowledged, is an evolving, difficult-to-define concept. Id. In general though, a program will be found to be for a public purpose if it is reasonably connected to a legitimate aim of government and if the ultimate benefit of the program accrues to the benefit of the public generally and not to special interests or persons. See Madison Cablevision v. City of Morganton, 325 N.C. 634 (1989).
These principles were most recently applied in Maready v. City of Winston-Salem, 342 N.C. 608 (1996). There the Court was persuaded that a program of incentive grants to private corporations for economic development purposes was for a public purpose in part because the grant program had significantly increased the local tax base and boosted the local economy.
On earlier occasions, our courts have held that using public funds to provide subsidized housing for families who could not otherwise obtain housing was for a public purpose. Martin v. N.C. Housing Corp., 277 N.C. 29, 50 (1970) ("Nothing could contribute more to the stability of our institutions than the acquisition of homes by an ever-increasing proportion of our people"). More recently, the Court held that extending these low-interest loans for housing to moderate income families was likewise for a public purpose. In Re Denial of Approval of Bonds, 307 N.C. 52 (1982). See also, State Education Assistance Authority v. Bank of Statesville, 276 N.C. 576, 587 (1970) ("Loans to meritorious North Carolinians of slender means [in order to] minimize the number of qualified persons whose education is interrupted or abandoned for lack of funds" is for a public purpose).
Although our courts have not examined the scope of the public purpose doctrine in the context of disaster recovery programs, there seems little doubt that our courts would hold that disaster programs generally are for a public purpose. Indeed, our Constitution at Article XI, Section 4 states: "Beneficent provision for the . . . unfortunate . . . is one of the first duties of a civilized and a Christian State." Moreover, the courts of other states have upheld disaster relief programs which included direct assistance to homeowners. In Suber v. Alaska State Bond Committee, 414 P.2d 546 (1966), the Alaska Supreme Court held that direct grants to homeowners to assist them with the "crushing financial burden" placed on them as a consequence of earthquakes was for a public purpose. In this regard, the Court observed:
Relief and support of the poor has long been recognized as an obligation of government and a public purpose. It is no less a public purpose to extend public moneys to relieve economic distress by aiding those persons who have suffered a substantial financial burden as a result of a national disaster.
Suber, 414 P.2d at 550. See also, State of New Mexico v. Hannah, 314 P.2d 714 (1957).
Based on the principles set forth in these cases, it is our opinion that our courts would likely hold that disaster relief programs which encompass direct grants to individuals and low interest loans to farmers and small businesses serve a public purpose within the meaning of Article V, Section 2(1) of the Constitution so long as the legislation is reasonably tailored to address the emergency situation presently existing in eastern North Carolina and to assure that private interests do not predominate over the public purpose. For example, the General Assembly should limit direct grants and low-interest loans to persons (1) who reside within the disaster zone (2) whose home, farm or business suffered substantial damage as a consequence of the disaster and (3) who have not otherwise been fully compensated for that damage.
Article I, Section 32 of the Constitution must also be considered. That provision forbids "exclusive or separate emoluments or privileges from the community but in consideration of public service." The test for determining violations of this section of the Constitution is very similar to the test for determining violations of the public purpose clause of Article V, Section 2(1) of the Constitution. A statute that benefits a particular group of persons is not an exclusive emolument or privilege if it "is intended to promote the general welfare rather than the benefit of the individual" and if "there is a reasonable basis for the legislature to conclude that the granting of the [benefit] serves the public interest." Town of Emerald Isle v. State, 320 N.C. 640, 654 (1987). Applying this test, the courts have held that programs providing loans to veterans to purchase homes, Hinton v. State Treasurer, 193 N.C. 496 (1927), and for hospital care for needy citizens, Martin v. Raleigh, 208 N.C. 369 (1935), do not confer exclusive emoluments or privileges on the citizens benefiting from those programs.
Grants and low interest loans to individuals or business that are not directly related to the accomplishment of a legitimate public purpose would be constitutionally suspect as exclusive emolument. In this instance, however, the grants and low interest loans are part and parcel of programs designed to restore communities devastated by a major natural disaster. Based on the principles set forth in the foregoing cases and the provisions of Article XI, Section 4 of the Constitution ("one of the first duties of a civilized and Christian state" is to make "beneficial provision for the unfortunate"), we are of the opinion that our courts would likely hold that disaster relief programs which encompass direct grants to individuals and low interest loans to farmers and small businesses would not be considered exclusive emoluments or privileges within the meaning of Article I, Section 32 so long as the direct grants and low interest loans are reasonably tailored to assure that private interests do not predominate over the public purpose.
Please let us know if we can provide other assistance with your flood relief efforts.
Sincerely,
Edwin M. Speas, Jr.
Chief Deputy Attorney General
EMSjr/spw
cc: Jack Jenkins