Can a North Carolina town accept up to $400,000 in private contributions from some property owners, hold it in escrow, and use it to fund the costs of condemning right-of-way from other (resisting) property owners along a state secondary road that the town wants widened and improved?

Plain-English summary

The Town of Highlands, in Macon County, wanted Bowery Road widened and improved. Bowery Road is a state secondary road (SR 1604) inside the town limits. It was a one-lane, unpaved gravel road, between 11 and 16 feet wide, around 0.7 miles long. The corridor had historic significance: in 1999 the Bowery Road Historic District had been added to the State Study list, and the road may have started as an Indian trail and then a wagon road.

The North Carolina Department of Transportation could not condemn the right of way for the project. DOT's policy on secondary roads (19A NCAC 2C.0108) requires property owners to donate the right of way for additions and improvements; if some owners refuse, DOT lets the remaining owners post a bond to cover condemnation costs. Along Bowery Road, most of the abutting owners had refused to dedicate the additional right of way, and DOT therefore had no path to condemn under its policy.

Highlands had its own eminent-domain authority under Chapters 160A and 40A. The Town Board passed two resolutions in late 1999 to condemn the needed right of way. Some other property owners in town, those who would benefit from a wider, paved Bowery Road, were willing to pony up to $400,000 to cover the litigation costs and the just-compensation payments. The Town's proposal was to enter into an escrow agreement with the contributing landowners: the town would hold the money, use it to pay the condemnation costs, and return any leftover funds.

The Town's attorney, William Coward, asked for a formal Attorney General's opinion confirming the structure was legal. (An attorney for the resisting property owners, Philip G. Carson of Asheville, sent a letter in opposition arguing the deal was illegal and contrary to the public interest.)

AG Mike Easley's office concluded the agreement was permissible. The reasoning:

1. The town has all the underlying powers. Cities can enter contracts (G.S. § 160A-16), hold property (including escrowed funds), exercise eminent domain (Chapters 160A and 40A), and improve state-system streets within their limits (G.S. § 136-66.1). The grant of those express powers carries with it any necessary or expedient supplementary powers (G.S. § 160A-4).

2. Private funding doesn't strip the project of public purpose. The Supreme Court held in Deese v. Town of Lumberton, 211 N.C. 31 (1936), that property owners on one side of a proposed municipal alley could pay the damages for property owners on the other side without changing the analysis: "if public necessity and convenience require improvement of a street, it makes no difference who pays the damages of condemnation." The same logic carries through to the Bowery Road escrow.

3. No statute prohibits it. The AG searched for and did not find any North Carolina statute that bars municipal corporations from receiving private contributions to fund right-of-way acquisition. DOT has its own analogous mechanism for property-owner-funded secondary-road improvements (19A NCAC 2C.0105 and 2C.0108), which the AG read as supporting (rather than excluding) the same kind of arrangement at the municipal level.

4. Public-purpose test is satisfied. Municipal authority must be exercised for a public purpose; no enterprise is permissible solely for private benefit (Keeter v. Town of Lake Lure). Improving a state secondary road is a textbook public purpose. The fact that some benefiting landowners contribute money does not turn the project into a private one.

The opinion added a separate caution about Paragraphs 4 and 9(c) of the draft Agreement: those clauses allowed termination by a unanimous vote of the Town Board. Under G.S. § 160A-75, governing-board action is by majority vote unless a specific statute authorizes a different threshold. The opinion did not opine on the precise validity of the unanimity requirement (it was offered "as an aside"), but the signal to the Town was clear: that clause needed legal review before adoption.

Currency note

This opinion was issued in 2000. 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 municipal-powers framework (Chapter 160A) and the DOT secondary-road rules (Title 19A) have been amended since 2000. The Supreme Court has continued to develop the public-purpose doctrine, and the legislature has periodically tightened or loosened the rules around municipal use of private funds for infrastructure (some "private-public partnership" statutes were enacted in the 2000s and 2010s that affect what such an escrow can look like). Anyone designing a similar arrangement should pull the current versions of those provisions rather than rely on the 2000 framing.

Common questions readers actually have

Is this kind of arrangement common in North Carolina?

Property-owner-funded right-of-way acquisition is not common at the municipal scale, though property-owner-funded paving and dedication are routine at the DOT secondary-road level (under 19A NCAC 2C.0105 and 2C.0108). The Highlands proposal was unusual because it tried to move beyond simple dedication into actual condemnation funded by neighbors of the targeted owners. The AG's view that nothing prohibits it didn't make the structure routine, just legal.

Could resisting property owners challenge the condemnation as not for a public purpose?

The opinion does not say they would lose, only that the private funding element does not by itself defeat public purpose. A condemnee could still challenge the underlying necessity of taking specific land, the adequacy of just compensation, and procedural compliance. Those challenges go through the standard inverse-condemnation and condemnation litigation channels, not through a public-purpose attack on the funding mechanism.

What about the historic-district angle?

Bowery Road was on the State Study list in July 1999. The State Historic Preservation Officer at the time (Jeffrey Crow) had told Highlands that any project requiring federal permits or federal funds would need formal Section 106 review, and that state-permitted or state-funded projects would get closer review. The AG opinion does not resolve any historic-preservation question; it only addresses the funding-and-condemnation arrangement. The Town would still need to handle the SHPO process on its own track.

What's the practical problem with the unanimous-termination clause the AG flagged?

G.S. § 160A-75 sets the default that municipal governing boards act by majority vote. Specific statutes authorize supermajority requirements for certain decisions, but a generic contractual clause requiring unanimous board action is suspect: a future Town Board majority could argue the clause is void as inconsistent with § 160A-75 and proceed to terminate the agreement by majority vote anyway. The clause invites litigation. The AG didn't strike it down, but didn't endorse it either; the practical implication is to rewrite that clause before signing.

Background and statutory framework

Municipal eminent domain in North Carolina

Towns and cities have eminent-domain authority under Chapter 40A (the local public condemnors act) and under various provisions of Chapter 160A. The takings must be for a public purpose; the procedure follows Chapter 40A.

G.S. § 136-66.1: municipal expenditures on state-system streets

A municipality may spend its own funds to make improvements to streets within its corporate limits that are part of the state highway system. The cost of work financed by the municipality may be assessed against abutting property owners. Improvements must follow DOT standards.

G.S. § 136-66.4: necessary-and-expedient grant

Municipalities have whatever additional authority is necessary to carry out their Article 3A responsibilities.

G.S. § 160A-4: broad-construction rule for municipal powers

Powers granted to cities in Chapter 160A are to be broadly construed to include any additional or supplementary powers necessary or expedient to carry them out, so long as those powers are consistent with state and federal law and the State's public policy.

Deese v. Town of Lumberton (1936)

In Deese, property owners on one side of a proposed municipal alley agreed to pay the damages owed to property owners on the other side. The Supreme Court held that the contribution by benefiting owners did not affect whether the taking was for a public purpose. That decision is the doctrinal hook for the Highlands escrow.

G.S. § 160A-75: majority-vote default for boards

The general rule is that municipal governing boards act by majority vote. Specific statutory exceptions can establish higher thresholds (e.g., supermajority votes for certain budget actions, rezoning under protest, etc.), but a generic contractual unanimity requirement is not such an exception.

The signing officials

The opinion was signed by Reginald L. Watkins, Senior Deputy Attorney General, Civil Division, and Robert O. Crawford, III, Special Deputy Attorney General, Transportation Section.

Source

• Landing page: https://ncdoj.gov/opinions/town-of-highlands-proposed-agreement-for-condemnation-of-bowery-road/

Original opinion text

Re: Advisory Opinion: Town of Highlands – Proposed Agreement for Condemnation of Bowery Road (SR 1604, Macon County)

Dear Mr. Coward:

This will respond to your letter dated February 14, 2000, in which you request, as attorney for the Town of Highlands, a formal Attorney General's opinion concerning the legality of a proposed Agreement for the collection and distribution of funds for acquisition of right of way to widen and improve Bowery Road (hereinafter the "Agreement"). We are also in receipt of a letter dated February 17, 2000, from Philip G. Carson, an attorney in Asheville who represents property owners opposed to the Agreement. They believe the Agreement to be illegal and/or against the public interest.

FACTS

The Town of Highlands seeks to condemn right of way to widen and improve Bowery Road, a state secondary road (SR 1604) within the municipal limits. The road is a one lane unpaved gravel road approximately 0.7 miles in length. The width ranges from 11 to 16 feet. The average width is approximately 13 feet. The Bowery Road Historic District was placed on the State Study list in July 1999. According to Jeffrey Crow, State Historic Preservation Officer, any project proposed for Bowery Road that requires a federal permit or the use of federal funds must be reviewed by his office. A state permitted or funded project will be flagged for closer review by his office. The road may have historic characteristics. It is believed to have been an Indian trail that evolved into a wagon road. It remains in very primitive condition today. However, the road leads to subdivisions permitted by the Town of Highlands. It appears that property owners in the subdivisions are most interested in improving Bowery Road. However, the majority of persons who own property along the state-maintained section have refused to dedicate the necessary right of way for the proposed widening and improvement. Consequently, the North Carolina Department of Transportation cannot exercise its condemnation powers. To do so would violate DOT's established rules and policy of giving equal consideration to the expressed desires of all directly affected property owners.

The Town of Highlands has condemnation authority under Chapter 160A and Chapter 40A of the North Carolina General Statutes. The Board of Commissioners for the Town passed resolutions September and December 1999 providing for the condemnation of Bowery Road. Certain other property owners in the Town of Highlands are willing to contribute up to $400,000 for the costs of acquiring the right of way (litigation costs and payment of just compensation). The Town proposes entering into the Agreement with individual property owners concerning the collection and disposition of these funds.

ISSUE

Is a North Carolina municipal corporation authorized to enter into an escrow agreement with individual property owners to collect and dispose of funds in order to acquire right of way, by condemnation or otherwise, from other property owners?

ANALYSIS

The Town of Highlands is a municipal corporation. As such it is a creature of the legislature and has only those powers delegated to it by statute or in its charter. A municipal corporation has general corporate powers, including the power to contract and to be contracted with. It may also acquire and hold any real or personal property. G.S. § 160A-11. "All contracts made by or on behalf of a city shall be in writing." G.S. § 160A-16. A city may also contract with and appropriate money to any person, association, or corporation, in order to carry out a public purpose that the city is authorized by law to engage in. G.S. § 160A-20.1.

Any power conferred upon a municipal corporation must be exercised for a public purpose. No enterprise may be engaged in solely for the benefit of private interests. Keeter v. Town of Lake Lure, 264 N.C. 252, 264, 141 S.E.2d 634, 643 (1965). All acts of a municipality beyond the scope of the powers granted to it are void. Bagwell v. Town of Brevard, 267 N.C. 604, 608, 148 S.E.2d 635, 637 (1966). A city may exercise sound discretion as to the means by which the purposes of its creation may be accomplished. Cody Realty & Mortgage Co. v. City of Winston-Salem, 216 N.C. 726, 727, 6 S.E.2d 501, 502 (1940). The courts will not interfere with the exercise of discretionary powers unless the action is so clearly unreasonable as to amount to an oppressive and manifest abuse of discretion. Sykes v. Belk, 278 N.C. 106, 122, 179 S.E.2d 439, 449 (1971). It is the policy of the General Assembly that cities should have adequate authority to execute their duties. Accordingly, the powers granted to municipal corporations in Chapter 160A are to be broadly construed to include any additional or supplementary powers that are necessary or expedient to carry them into execution, and that are consistent with state or federal law and the State's public policy. G.S. § 160A-4; See Homebuilders Ass'n of Charlotte, Inc. v. City of Charlotte, 336 N.C. 37, 43, 442 S.E.2d 45, 50 (1994)(Charlotte had the authority to charge reasonable user fees to cover the costs of regulatory services provided by the City since the fees were reasonably necessary or expedient to the execution of the City's express power to regulate the land development activities for which the services are provided); Smith Chapel Baptist Church v. City of Durham, 350 N.C. 805, 517 S.E.2d 874 (1999)(Durham's stormwater utility ordinance and fees were invalid as a matter of law because they exceeded the authority granted to the City through G.S. §§ 160A-311 and 314).

Article 3A of Chapter 136 of the North Carolina General Statutes addresses streets and highways in and around municipalities. If the governing body of a municipality determines it is in the best interest of its citizens, a municipality may expend its funds to make certain improvements on streets within its corporate limits that are a part of the State highway system. The cost of work financed by a municipality may be assessed against abutting property owners. G.S. § 136-66.1. A municipality is authorized and empowered to acquire land by dedication and acceptance, purchase, or eminent domain. A town can make improvements to portions of the State highway system within the municipal limits. Local funds may be used for that purpose if authorized by a vote of the citizens of the municipality. Improvements are required to be in accordance with DOT standards. G.S. § 136-66.3(c). Municipalities have and may exercise such authority as is necessary to carry out their responsibilities under Article 3A. G.S. § 136-66.4.

Under Article 2A of the Chapter 136, the North Carolina Department of Transportation has authority to develop and maintain a statewide system of roads and highways for which the Board of Transportation formulates general policies and plans. G.S. § 136-44.1. DOT sets criteria for improving and maintaining secondary roads. Among the policies adopted by DOT are administrative rules for property owner participation in paving. 19A NCAC 2C.0105. DOT has also adopted rules regarding acquisition of right of way for secondary roads. For the addition, improvement or paving of secondary roads, the property owners must donate adequate right of way to DOT. If one or more property owners refuse to dedicate the necessary right of way, DOT may allow the remaining property owners to post a bond to cover condemnation costs. 19A NCAC 2C.0108.

Our research has not revealed a specific authorization to municipal corporations for property owner participation in acquiring right of way or in paving. However, we find no specific statute that prohibits a municipal corporation from entering into an escrow agreement as proposed by the Town of Highlands. In addition, the Supreme Court has held that contribution by property owners whose lands are benefited does not effect the question of whether a taking is for a public purpose. Deese v. Town of Lumberton, 211 N.C. 31, 34, 188 S.E. 857, 859 (1936). In Deese, property owners along one side of a proposed municipal alley agreed to pay the damages assessed in favor of property owners along the other side of the proposed alley. In other words, if public necessity and convenience require improvement of a street, it makes no difference who pays the damages of condemnation.

It is a well-established rule that a municipal corporation, being a political subdivision of the state, can exercise only such powers as are granted in express terms, or those necessary or fairly implied or incident to the powers expressly conferred, or those essential to the declared objects and purposes of the corporation. Stephenson v. City of Raleigh, 232 N.C. 42, 47, 59 S.E.2d 195, 199 (1950). Therefore, the questions are (1) whether the authority to enter the Agreement can be fairly implied or is incident to the powers expressly conferred upon the Town by statute or its charter, and (2) whether the Agreement is against public policy.

A municipal corporation has the express authority to enter into contracts and to hold property. This would include holding funds in an escrow account. A town also has the express power of eminent domain and the authority to make improvements to the State highway system within the municipal limits. The grants of these powers include any additional or supplementary powers that are reasonably necessary or expedient to carry them out. G.S. § 160A-4. It is our opinion that this could include property owner participation in the acquisition of right of way and/or the widening and improving of State secondary roads within a municipality. Deese v. Town of Lumberton, 211 N.C. at 34, 188 S.E. at 859. Since the North Carolina Department of Transportation has such powers, we do not believe that it is against public policy of the State of North Carolina.

CONCLUSION

We are of the opinion that the proposed escrow Agreement between the Town of Highlands and various property owners to collect and dispose of funds in order to acquire right of way, by condemnation or otherwise, to widen and improve Bowery Road, is not prohibited by North Carolina law or public policy.

Please note that this opinion does not address the specific terms of the Agreement. However, as an aside, we note that in Paragraphs 4 and 9(c) of the Agreement, one of the ways in which the Agreement may be terminated is by a unanimous vote of the Town of Highlands Board of Commissioners. As a general rule, specific statutory authority is required for there to be an exception to the usual requirement that it only takes a majority vote for action by a local governing board. See G.S. § 160A-75.

Please advise if we can be of any further assistance.

Signed by:

Reginald L. Watkins
Senior Deputy Attorney General
Civil Division

Robert O. Crawford, III
Special Deputy Attorney General
Transportation Section