Can the North Carolina Rural Internet Access Authority give grant money to for-profit companies to set up telecenters in rural counties?

Plain-English summary

Dr. James Leutze, on behalf of the Rural Internet Access Authority (RIAA), asked the AG whether RIAA could award grant funds to for-profit applicants for telecenter projects in rural North Carolina counties. The funds at issue had been contributed to RIAA by MCNC (a Research Triangle Park corporation whose predecessor, the Microelectronics Center of North Carolina, had received public funding) under a Memorandum of Agreement among MCNC, RIAA, and the Rural Center.

Senior Deputy AG Ann Reed, Special Deputy AG Susan Nichols, and Assistant AG Karen Long answered yes.

The RIAA was a state agency with a sunset (the statute and the Authority itself expired effective December 31, 2003) and a short list of statutory goals: high-speed Internet access available to every North Carolina citizen within three years at rural-urban price parity, two model telework centers by January 1, 2002 in enterprise tier one or two areas, increased computer ownership and Internet subscription, accurate information about telecommunications services, government Internet applications, open technology approaches, and coordination/research/recommendations. The statute gave RIAA broad enabling powers: to contract with personnel and consultants, "apply for, accept, and utilize grants, contributions, and appropriations," "enter into contracts," "provide support and assistance to local governments, nonprofit entities, and regional partnerships," and recommend legal/policy changes (N.C. Gen. Stat. § 143B-437.43(a)).

RIAA had no taxing authority and no General Assembly appropriation. All its money came from MCNC, which had committed up to $30 million subject to reporting requirements.

In pursuit of the January 1, 2002 telecenter goal, RIAA issued a request for proposals to fund model telecenters in four economically distressed rural counties. The RFP described the telecenters' mission as strengthening and growing the rural economy, supporting business technology adoption, providing access to resources, and helping local communities build economic strength. Every telecenter needed a T-1 line with 1.5 mbps capability; the specific technology mix was up to the operator. Community colleges were anticipated as critical partners, but the RFP did not limit applicants to nonprofits or community colleges. Leutze wanted to know whether RIAA could award the grants to for-profit applicants meeting the RFP criteria.

The AG's legal framework rested on three pillars.

First, the constitutional pillar. Article V, Section 2(7) of the North Carolina Constitution allows the legislature to appropriate public funds for private use when a public purpose is served. The NC Supreme Court's leading case is Maready v. City of Winston-Salem (1996), which held that "direct disbursement of public funds to private entities is a constitutionally permissible means of accomplishing a public purpose provided there is statutory authority to make such appropriation." Hughey v. Cloninger (1979) had earlier set the same baseline. Rural economic development qualifies as a public purpose under Maready and the related line of cases.

Second, the statutory authority pillar. RIAA's enabling statute, § 143B-437.43(a), authorized RIAA to "utilize" grants, contributions, and appropriations. "Utilize" is open-ended; the statute imposed no restriction on the type of grantee. The AG applied Stevenson v. City of Durham's rule that "the primary rule of statutory construction is that the intent of the legislature controls the interpretation of a statute" and that the statute's language, spirit, and purpose all matter. RIAA's statutory purpose was rural broadband economic development, and the AG read the absence of a nonprofit-only limit as a deliberate choice by the General Assembly to leave RIAA flexibility on grantee type.

Third, the policy-rationale pillar. Section 143B-437.43(b)(2) specifically directed RIAA to "propose and locate funding . . . for incentives for the private sector to make necessary investments to achieve the [RIAA's] goals and objectives." If the legislature had wanted to bar for-profit grantees, it would not have included a clause that essentially requires RIAA to attract private-sector investment with incentives.

Putting the pieces together: the constitutional public-purpose framework, the statutory "utilize" authority, and the private-sector-incentive clause all pointed the same direction. RIAA could lawfully grant MCNC-contributed funds to for-profit telecenter operators that met the RFP criteria.

The practical effect: RIAA's RFP could attract for-profit telecommunications companies, technology integrators, and similar private-sector operators as applicants alongside community colleges and nonprofit community-development organizations. The selection then came down to RIAA's discretion among qualified applicants.

Currency note

This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The Rural Internet Access Authority dissolved as scheduled on December 31, 2003. Its goals were partially achieved and partially absorbed by other state and federal programs (the Federal Communications Commission's Universal Service Fund, the federal Broadband Equity Access and Deployment program, and state-level North Carolina broadband initiatives). The Maready public-purpose framework remains good law, and the principle that direct grants to for-profit entities for economic development are constitutional has been reaffirmed in subsequent NC appellate decisions.

Background and statutory framework

Why the RIAA existed. In the late 1990s, the gap between urban and rural broadband access was widening, and North Carolina lacked the federal subsidies that would eventually narrow it through the FCC's Universal Service Fund. The General Assembly created the RIAA with a tight three-year mission to seed rural broadband through grants, partnerships, and incentives. It had no taxing authority and depended on MCNC contributions for its $30 million capital.

Why telecenters were the most concrete deliverable. Of the RIAA's eight statutory goals, the telecenter goal was the most specific: two model centers by January 1, 2002 in enterprise tier one or two counties. Enterprise tier classifications identified North Carolina's most economically distressed counties. The telecenters were intended to serve as anchor facilities providing broadband, training, and small-business support in rural areas. Their success would (the General Assembly hoped) demonstrate that broadband-driven economic development could scale rural-wide.

The constitutional question for grants to private parties. Article V, Section 2(7) of the North Carolina Constitution, adopted as part of the 1971 constitution revision, was designed to clarify that the state can appropriate funds to private parties for public purposes. Before Maready, there had been doctrinal uncertainty about whether direct grants to for-profit corporations for economic development satisfied the public-purpose requirement. Maready settled it. The Winston-Salem case involved a city's expenditure of public funds on economic development incentives to private companies, and the Supreme Court held that economic development was a public purpose and the direct disbursement to private corporations was constitutional.

Why the "utilize" language matters. The General Assembly could have written § 143B-437.43(a) to say "RIAA may grant funds to nonprofit corporations and local governments" or to restrict grantee type in some other way. It did not. It used "utilize," a broad verb that includes direct grants to any kind of grantee. The AG applied the standard principle that statutes are read as they were written, and that the absence of a restriction implies the absence of an intent to restrict.

The role of the MCNC pass-through. MCNC was not a state agency; it was a private corporation that had received state funding in its predecessor incarnation. The MCNC contributions to RIAA technically converted private money into RIAA control. The AG treated those funds as falling under RIAA's regulatory authority once received. The MCNC source did not exempt the grants from the public-purpose framework that governs all RIAA expenditures.

The economic-development public purpose. Economic development as a public purpose has a long pedigree in North Carolina. Maready is the leading modern case, and many prior cases support state and local incentives to private business in exchange for public-purpose-serving investments (jobs, infrastructure, capital improvements). Rural broadband, as a foundation for rural business growth, fits cleanly within the established public-purpose framework.

The private-sector-incentive clause. Section 143B-437.43(b)(2) was the most direct textual signal. It told RIAA to find funding for "incentives for the private sector to make necessary investments." That clause makes no sense if RIAA cannot grant funds to private-sector applicants. The AG used it as confirmatory evidence that the legislature contemplated for-profit grantees.

Common questions

Q: Did this opinion clear RIAA grants to any for-profit company, or only telecenter operators?

A: The reasoning applies to any grant within RIAA's statutory purposes. The opinion focused on telecenters because that was the immediate question, but the public-purpose-plus-statutory-authority framework would apply to any grant a future RIAA RFP might propose.

Q: Could the General Assembly have restricted RIAA grants to nonprofits if it wanted to?

A: Yes. The General Assembly could amend § 143B-437.43 to add a nonprofit-only restriction. The AG noted only that the existing statute did not impose such a restriction.

Q: Did this opinion settle whether RIAA could be sued by losing applicants?

A: No. The opinion addressed only whether the grants would be constitutional and authorized, not procedural rights of unsuccessful applicants. RIAA's RFP process and grant agreements would govern those.

Q: Did the RIAA actually use this authority to fund for-profits?

A: The opinion does not address what RIAA did with its RFP. Readers wanting to know what telecenter grants were awarded should consult RIAA's records or the post-dissolution archives.

Citations from the opinion

• N.C. Const. art. V, § 2(7)
• N.C. Gen. Stat. § 143B-437.42
• N.C. Gen. Stat. § 143B-437.43(a)
• N.C. Gen. Stat. § 143B-437.43(b)(2)
• Maready v. City of Winston-Salem, 342 N.C. 708, 720, 723, 467 S.E.2d 615, 623 (1996)
• Hughey v. Cloninger, 297 N.C. 86, 95, 253 S.E.2d 898, 904 (1979)
• Stevenson v. City of Durham, 281 N.C. 300, 303, 188 S.E.2d 281, 283 (1972)

Source

• Landing page: https://ncdoj.gov/opinions/rural-internet-access-authority-authority-to-award-telecenter-grants-to-for-profit-organizations/

Original opinion text

(2) High-speed Internet access available to every citizen of North Carolina within three years, at prices in rural counties that are comparable to prices in urban North Carolina.

(3) Two model Telework Centers in either enterprise tier one or enterprise tier two area established by January 1, 2002. To the extent practicable, the Centers should be established in existing facilities.

(4) Significant increases in ownership of computers, related web devices, and Internet subscriptions promoted throughout North Carolina.

(5) Accurate, current, and complete information provided through the Internet to citizens about the availability of present telecommunications and Internet services with periodic updates on the future deployment of new telecommunications and Internet services.

(6) Development of government Internet applications promoted to make citizen interactions with government agencies and services easier and more convenient and to facilitate the delivery of more comprehensive programs, including training, education, and health care.

(7) Open technology approaches employed to encourage all potential providers to participate in the implementation of high-speed Internet access with no technology bias.

(8) To coordinate activities, conduct and sponsor research, and recommend and advocate actions, including regulatory and legislative actions to achieve its goals and objectives.

In pursuing these goals, the RIAA is given statutory authority to contract with personnel and consultants, "apply for, accept, and utilize grants, contributions, and appropriations," "enter into contracts," and "provide support and assistance to local governments, nonprofit entities, and regional partnerships, in carrying out its duties and goals." Finally, it has the power to recommend changes in "laws, rules, programs, and policies . . . to further the goals of rural Internet access." N.C. Gen. Stat. § 143B-437.43(a).

The RIAA has no taxing authority and thus far has received no appropriations from the General Assembly. Rather, all of the money it has received has been contributed to it by the MCNC pursuant to a Memorandum of Agreement among the MCNC, the RIAA, and the Rural Center, by statute the fiscal and staffing agent of the RIAA. MCNC is a corporation located in the Research Triangle Park whose predecessor organization, the Microelectronics Center of North Carolina, received public funding from the State of North Carolina. MCNC has committed to provide $30,000,000 to the RIAA, subject to certain reporting requirements. The legislation creating the RIAA gives it only a little more than three years to meet its goals and objectives in that the organization will be dissolved and its enabling statutes repealed effective December 31, 2003.

In pursuit of its most specific goal, the creation of two telework centers by January 1, 2002, the RIAA has recently published a request for proposals ("RFP") to fund model telecenters in four economically distressed rural counties. The mission of the telecenters supported by the RIAA will be "to strengthen and grow the economy, and create new opportunities for businesses and residents of rural North Carolina counties. Telecenters will help individuals and enterprises participate in opportunities that can result from the use of technology and the Internet in work and daily life, use technology to conduct business and support business activities, access a wide range of resources and services, and acquire and use the technical knowledge and skills necessary to participate successfully in a digital economy." In addition, "[t]elecenters will work with business/economic development groups and local governments to provide applications and support services to build economic strength in the community." Every telecenter will be required to have a T-1 line with transmission speeds of 1.5 mbps, although the specific combination of technologies which best meets its needs will be determined by the telecenter. The RFP makes clear that it is anticipated community colleges "will be critical partners in all facets of telecenter development and operation." RFP at p. 4. Any grant recipient will be required to sign a grant agreement with reporting and other requirements.

Your question is whether the RIAA has authority to award funds to a grant applicant which is a for-profit organization, assuming it meets the RFP criteria and is chosen by the Commission in its discretion as an applicant worthy of funding. The funds to be awarded are from contributions made by the MCNC to the RIAA, a public agency.

A State agency has constitutional authority to award funds to private entities if the award of those funds will serve a public purpose and if the agency has enabling legislation to do so. Since the adoption of Article V, Section 2(7) of the North Carolina Constitution, "direct disbursement of public funds to private entities is a constitutionally permissible means of accomplishing a public purpose provided there is statutory authority to make such appropriation." Maready v. City of Winston-Salem, 342 N.C. 708, 720, 467 S.E.2d 615, 623 (1996) (quoting Hughey v. Cloninger, 297 N.C. 86, 95, 253 S.E.2d 898, 904 (1979)).

Thus, the question is whether there is statutory authority for issuing the grants contemplated by the RFP to for-profit organizations. "The primary rule of statutory construction is that the intent of the legislature controls the interpretation of a statute. In seeking to discover this intent, the courts should consider the language of the statute, the spirit of the act, and what the act seeks to accomplish." Stevenson v. City of Durham, 281 N.C. 300, 303, 188 S.E.2d 281, 283 (1972).

One of the powers of the RIAA is "[t]o apply for, accept, and utilize grants, contributions, and appropriations in order to carry out its duties and goals." N.C. Gen. Stat. § 143B-437.43. The term "utilize" is not further defined or limited by the RIAA statutes. Thus, the statute gives the RIAA authority to use monies it receives, such as the contributions by the MCNC, in a manner that furthers its duties and goals. It is clear that the spirit and purpose of the legislation creating the RIAA is to foster economic development in rural areas of the state by facilitating high speed broadband Internet access. Creating at least two telework centers is a specific goal of the RIAA. Grant-making for telecenters as described in the RFP is an appropriate use of the funds received from the MCNC and is consistent with the purposes of the RIAA. The statute does not limit the entities which may receive grants from the RIAA. The award of funds under the control of a public agency to private entities has long been recognized as a tool for furthering the public purpose of economic development. See Maready v. City of Winston-Salem, 342 N.C. at 723, 467 S.E.2d at 623, and cases cited therein. Finally, using grant funding to provide incentives for the private sector to participate in the development of telecenters is consistent with the duty to propose and locate funding "for incentives for the private sector to make necessary investments to achieve the [RIAA's] goals and objectives." N.C. Gen. Stat. § 143B-437.43(b)(2).

Thus, we conclude that it is within the statutory authority of the RIAA to issue grants to worthy applicants, including for-profit organizations, to further its goals and perform its duties.

Sincerely,

Ann Reed Senior Deputy Attorney General

Susan K. Nichols Special Deputy Attorney General

Karen E. Long Assistant Attorney General