The post Emergency Management Act Updates Related to Hazard Risk Management appeared first on Coates' Canons.
]]>The legislation updated the EMA’s definition of “[h]azard risk management,” which now includes
[t]he systematic application of policies, practices, and resources and acquisition of real property to the identification, assessment, and control of risk associated with hazards affecting human health and safety and property, for hazard mitigation purposes or in accordance with a hazard mitigation program, plan, or activities funded by State, federal, or philanthropic sources.
S.L. 2026-41 § 5A.19.(a) (emphasis added to show new language). Arguably, the old definition of “[h]azard risk management” would have already covered many efforts to obtain real property. See id. Regardless, the amended language makes explicit how certain “acquisition of real property” qualifies as hazard risk management.
This language also creates a clearer connection between “[h]azard risk management” and local governments or nonprofits engaged in property buyout programs. As this post highlights, communities experiencing flooding might, for example, consider mitigating risk to “lives and property” through “purchas[ing] and demolish[ing] flood-prone property.” And local governments and nonprofit entities might seek funding for this type of activity. As the post also points out, one potential funding source for this type of property buyout has been the federal Hazard Mitigation Grant Program (“HMGP”). See 44 C.F.R. § 206.434. The HMGP provides hazard mitigation funding to states, which can award funds to eligible local governments or nonprofits in a variety of areas, including related to “[p]roperty acquisitions and relocation.” Id. (emphasis removed). To be eligible, local governments must have certain mitigation plans that meet federal standards. See id. The legislation’s added language, mentioning “acquisition of real property” related to “hazard mitigation purposes or in accordance with a hazard mitigation program, plan, or activities funded by State, federal, or philanthropic sources” creates a more explicit connection between the idea of “hazard risk management” and a program like the HMGP that may fund local government and nonprofit property buyouts.
Beyond amending the definition of “hazard risk management,” the legislation then also updated the EMA to explicitly allow local governments “[t]o direct and coordinate the development of emergency management and hazard risk management plans and programs in accordance with” certain state and federal standards. Id. § 5A.19.(b) (emphasis added to show added language).
Local governments may have already been authorized “[t]o direct and coordinate the development of” many types of “hazard risk management plans and programs,” including ones related to certain property buyouts. Specifically, many hazard risk management plans and programs may also have already counted as “emergency management… plans and programs” under the EMA. See G.S. 166A-19.3; G.S. 166A-19.15. In addition, local governments already had general authority to “acquire… [an] interest in real… property for use by the [local government]” and more specific authority to “acquire, by purchase, exchange, or condemnation an existing structure located in a flood hazard area in the area regulated by the local government if the local government determines that the acquisition is necessary to prevent damage from flooding.” G.S. 153A-158 (counties); G.S. 160A-240.1 (municipalities); G.S. 143-215.55. Taken together, these powers arguably may already have authorized a variety of local government property buyout efforts for hazard risk reduction.
Regardless, the law may now give local governments broader and more explicit planning and programming authority to address hazards, including through property buyouts. Emergency management involves “measures taken… to minimize the adverse effect of any type [of] emergency.” G.S. 166A-19.3(8) (emphasis added). But in the EMA, an “emergency” only involves two types of things: (1) “[a]n occurrence or imminent threat of widespread or severe damage, injury, or loss of life or property resulting from” certain specified causes or (2) certain supply chain disruptions affecting how local governments provide or restore “essential services.” Id. § 19.3(6). On the other hand, hazard risk management, addressing “hazards affecting human health and safety and property,” may be broader than emergency management in some sense; the word “hazard” seems like it might cover a more general category of dangers than just the emergencies discussed in the EMA, including potentially smaller-scale or less severe issues. For instance, property buyout plans and programs just aimed at reducing risk from minor, isolated flooding that would not cause an emergency do not seem to count as “emergency management… plans and programs.” But they might well qualify as “hazard risk management plans and programs.” Again, now, state law gives local governments some explicit authority “[t]o direct and coordinate the development of… hazard risk management plans and programs.” S.L. 2026-41 § 5A.19.(b)
In the aftermath of Hurricane Helene, some counties in Western North Carolina pursued the HMGP funds described above to buy out flood and landslide-impacted residential properties. Concerns arose about the potential liability associated with county-owned buyout properties, including the possibility of future damage to surrounding properties by landslide or erosion. The legislation amended language related to the protection from liability that local governments (and their staff), certain entities, emergency management workers, and nonprofits might receive in this area in three key ways.
First, before the new legislation, the EMA classified “activities relating to” in the EMA “or elsewhere in the General Statutes” as “governmental functions” for purposes of governmental immunity. G.S. 166A-19.60 (emphasis added). The doctrine of governmental immunity bars negligence and other tort claims against local government units engaged in the performance of governmental, not proprietary, functions, unless the units have waived their immunity through, for example, the purchase of liability insurance, to the extent of coverage. See G.S. 160A-485 (municipalities); 153A-435 (counties).
As a result of the legislation, the law now also explicitly classifies “activities relating to… hazard risk management” in the EMA “or elsewhere in the General Statutes” as “governmental functions” for purposes of governmental immunity. S.L. 2026-41 § 5A.19.(c) (emphasis added to show new language). This legislative change means that the defense of governmental immunity is available to local governments engaged in hazard risk management activities (in addition to emergency management activities).
Second, before the new legislation, the EMA also afforded the State, local governments, certain entities, such as corporations and associations, and emergency management workers some legal protection when engaged in certain emergency-management-related activities. See G.S. 166A-19.60(a). Specifically, those entities and individuals may be protected from liability for “the death of or injury to persons, or for damage to property as a result of any such activity,” except sometimes where there is “willful misconduct, gross negligence, or bad faith.” Id.
The legislation adds certain protection from liability for these same entities and individuals related to “acquiring real property for hazard risk management purposes so long as the real property is held consistent with all applicable legal requirements, including any deed or easement restrictions or covenants.” S.L. 2026-41 § 5A.19.(c). For context, a property buyout program might require a restriction, like a deed restriction, on future uses of the acquired property. See 44 C.F.R. §§ 80.1, 80.15, 80.17, 80.19.
Third, before the new legislation, this second set of protections did not explicitly apply to nonprofits, which, again, might be involved with property buyout programs for hazard risk management. The legislation expressly extends those protections, including the added protection related to real property acquisition, to “nonprofit entit[ies].”S.L. 2026-41§ 5A.19.(c). The amended version of the EMA defines a nonprofit entity as “an entity exempt from taxation under section 501(c) of the Internal Revenue Code.” Id. The legislation also explicitly exempts nonprofits engaged in “acquiring and maintaining real property for hazard risk management purposes” from the immunity limitations that apply to firms, partnerships, associations, or corporations under G.S. 166A-19.60(b) of the EMA. Id. For example, the immunity available to those entities engaged in emergency or hazard risk management activities does not apply when the entity or its agent “caused in whole or in part the actual or imminent emergency or . . . necessitated emergency management measures.” G.S. 166A-19.60(b)(2). This immunity limitation would not apply to nonprofits when acquiring or maintaining real property for hazard risk management purposes.
Arguably, some hazard risk management activities already fell under the broad category of emergency management, defined under the EMA as “those measures taken by the populace and governments at federal, State, and local levels to minimize the adverse effect of any type emergency, which includes the never-ending preparedness cycle of planning, prevention, mitigation, warning, movement, shelter, emergency assistance, and recovery.” G.S. 166A-19.3(8). So people or entities engaged in those activities may have already been protected under the EMA before these amendments. Nonetheless, the EMA changes described above make explicit that certain people or entities engaged in “activities relating to… hazard risk management” and specifically the “acqui[sition] of real property for hazard risk management purposes” receive some protection. S.L. 2026-41 § 5A.19.
All of the changes in the law were made “retroactively effective January 1, 2025, and appl[y] to causes of action arising on or after that date.” Id. at § 5A.19.(d) (emphasis added). So these amendments may impact existing litigation in this area.
Readers interested in a broader overview of emergency management liability for local governments could read this post.
Readers might also be interested in learning more about flood mitigation property buyouts. The Division of Emergency Management (“North Carolina Emergency Management” or “NCEM”) of the North Carolina Department of Public Safety (“DPS”) works with local governments and property owners on certain grant-funded property buyouts. Readers could visit this page on DPS’s website to learn more. The page addresses frequently asked questions related to property buyouts for local governments and property owners. The page also provides contact information for follow up with DPS staff.
Readers interested in learning more broadly about the HMGP or other federal hazard mitigation programs could review the Hazard Mitigation Assistance Program and Policy Guide from the Federal Emergency Management Agency (“FEMA”).
Readers seeking funding for hazard mitigation efforts could consider looking on the NC Local Government Disaster Recovery Portal.
]]>The post Developing and Updating AI Use Policies: 14 Recommendations for Local Governments appeared first on Coates' Canons.
]]>Why Do Local Governments Need a Robust AI Use Policy?
Local governments may assume that if they have not formally invested in or endorsed the use of AI tools, employees must not be using them. That assumption is likely incorrect, considering the growing phenomenon of “shadow” AI usage. In a 2025 survey conducted by KPMG and the University of Melbourne, 58% of employees reported intentionally using AI tools in their work on a regular basis, and 70% of those employees reported using free, publicly available AI tools. A startling 48% of employees reported that they had “uploaded sensitive company information, such as financial, sales, or customer information, or copyrighted material, into public AI tools.” Moreover, 59% of employees reported they had used AI tools at work without knowing whether it was allowed by their employer. Over half (57%) of employees reported that they had used AI in “non-transparent” ways in the workplace, including presenting AI-generated content as their own or hiding when they had used AI tools to complete their work.
More specific to the government context, a recent survey of public sector workers in the United States revealed that a whopping 72% use AI at work, while only a third (32%) of those workers report having access to enterprise-grade AI tools. More than one in three public servants surveyed were unclear as to whether their organization had a formal AI policy, and fewer than half reported that they received clear direction from leadership.
Meanwhile, in addition to data privacy concerns, cybersecurity risks from semi-autonomous or fully-autonomous agentic AI tools continue to grow as well. This summer, the UK-based AI Security Institute (AISI) evaluated frontier large language model (LLM) agents to test their cybersecurity capabilities. The researchers found that the LLM agents—specifically, Anthropic’s Mythos 5 and OpenAI’s GPT-5.6 Sol models—took unsanctioned actions 10 times out of a total of 122 instances in which they had to solve a cybersecurity challenge. The agents “attempted to deceive and target real people and to plant and prompt-inject malicious code.”
In recent months, OpenAI and Anthropic have both acknowledged separate cybersecurity incidents during internal testing involving their models. In July, OpenAI announced that two of its AI models had escaped their testing sandbox environments and hacked into an online platform called Hugging Face to steal answers to a test the agents were being graded on. Just days later, Anthropic announced that it had identified incidents in which three different Claude models had escaped test environments, accessed the internet, and gained unauthorized access to the systems of three different organizations. Claude “compromised the impacted organizations’ infrastructure using basic techniques, such as exploiting weak passwords and unauthenticated endpoints.”
Now more than ever, units of local government face legal, reputational, and security risks based on how employees are using AI to carry out their work. Robust policies for internal AI use can help to mitigate these risks.
Recommendations for Drafting and Updating Government AI Use Policies
1. Don’t just copy and paste. I’ve seen many state and local government AI policies from around the United States circulating online over the past few years, and I’ve noticed that a number of them contain substantially similar terms—including terms that sometimes seem impractical, illogical, or unnecessary. Templates from national organizations or models from other government entities can be a useful starting point, but a unit of government should be thoughtful about its own unique legal, technical, and practical issues around AI when drafting its own policy. Those issues may differ widely based on applicable state law, technical capabilities, staff capacity, fiscal resources, jurisdiction size, and risk tolerance.
Likewise, if local governments want to use AI in their policy drafting process, it may be tempting to simply copy and paste policy language generated by a tool like ChatGPT, Claude, Copilot, or Gemini. While these tools may offer a helpful starting point for a policy, users should expect their outputs will require a significant amount of editing and revision. For example, a prompt to ChatGPT to write an AI use policy for a local government in North Carolina produced a bloated policy with 28 different sections, including a significant amount of redundant and unnecessary language. Moreover, ChatGPT made multiple judgments in that draft policy about whether particular actions should be prohibited or authorized by the local government, along with judgments about risk levels for various AI use cases. These are judgments that should be made thoughtfully by humans who have evaluated the potential issues and risks in the local context, not by an AI system that lacks the institutional knowledge, legal accountability, and contextual understanding necessary to make those policy choices.
2. Define the covered technology. “Artificial intelligence” is an incredibly broad term that covers a wide array of different technologies. Among other subcategories, this term could include tools that fall into the following categories.
In reality, AI tools and systems are not always neatly confined to one of these categories. A single platform or tool could include generative, predictive, decision-support, and agentic capabilities or features.
For those wanting to craft an AI policy that applies to a wide-ranging spectrum of different technologies, I like the definition of artificial intelligence used by the Stanford Institute for Human-Centered AI: “a broad term for computer systems that can perform tasks with human-like intelligence, such as understanding language, recognizing images, learning from data, reasoning, and making decisions.” Other units of government may want to specifically focus their policies specifically on generative AI, as opposed to AI writ large.
3. Require appropriate IT review and approval for new software or subscriptions. Due to the cybersecurity and data privacy risks around publicly available AI platforms, local governments may want to require that employees use standard, pre-existing procedures for acquiring new software before downloading or subscribing to any AI tools or services for work purposes. For example, the Town of Chapel Hill’s Generative AI Procedures document requires all AI software services (including those that are free) to be acquired by following the standard procedures established by the town’s Technology Governance Policy. It also requires employees to get approval from the town’s Technology Solutions Department before creating a new account for a generative AI service or otherwise using a generative AI system to perform work-related tasks. Creating some sort of centralized review and clearance process for AI tools—whether across an entire unit of government or within individual departments—may help to avoid “shadow” AI usage by employees and ensure consistent mitigation of cybersecurity and data privacy risks.
4. Address boundaries around agentic AI. As described above, generative AI has transitioned beyond mere conversational chatbots, as tools that can autonomously or semi-autonomously execute a series of tasks through agentic workflows are increasingly available to the public. In some cases, AI agents may be able to access datasets and computer systems as necessary to independently carry out their objectives, with little to no human intervention.
Rogue activity from AI agents has the potential to do a significant amount of damage when those agents are integrated into an organization’s data systems. In February, a Meta employee reported that the AI agent OpenClaw (which can be integrated into email systems and messaging apps) autonomously bulk deleted hundreds of her emails without her permission. And in April, the Guardian reported that Cursor, an AI agent powered by the Claude Opus 4.6 model, deleted a company’s entire production database and its backups in less than nine seconds.
An AI policy can establish clear boundaries on whether agentic AI systems may be deployed on government devices and the extent to which they are allowed to take actions or access systems autonomously. Local governments wanting to guard against potential data destruction and system security risks should consider requiring the centralized review and approval process for AI tools and systems described above, to ensure that any tools downloaded or accessed on a government-owned device have been vetted and approved by IT staff. A policy alone won’t necessarily prevent damage from a rogue AI agent, but IT professionals can’t mitigate risks that they don’t know about in advance.
5. Prohibit improper disclosures of confidential and sensitive information. Some government employees handle information that is confidential under state or federal law, or sensitive information that is shielded from disclosure under state public records law. An AI use policy should prohibit employees from entering confidential or non-public information into any publicly accessible AI tools. Ideally, a policy should provide specific examples of confidential information that might be handled by local government employees, such as personnel information (G.S. 153A-98; G.S. 160A-168); protected health information held by HIPAA-covered entities; substance use disorder information (42 C.F.R. Part 2); social services information (G.S. 108A-80); and communicable disease information (G.S. 130A-143), among others.
In some cases, the types of information that may be entered into a specific tool—even an enterprise-level tool—may depend on the legal requirements associated with that information. For example, some tools may not meet HIPAA’s security requirements for protected health information. San Franscisco’s Generative AI Guidelines provide an example of how different data restrictions could apply to different enterprise AI tools (see the “Data Protection Requirements” section).
6. Require fact-checking and accountability for outcomes. Consider requiring employees to fact-check outputs from LLM-powered text generation tools (e.g., ChatGPT, Gemini, Copilot, Claude) before relying on them for decision-making or using them in any internal or external communication. LLM-based text generation tools are notoriously prone to “hallucinations,” meaning they will sometimes confidently assert facts that are not true or even make up fake citations or sources to support those false statements. An AI policy could require that any text outputs created by generative AI tools should be reviewed by a human for accuracy and tone before being used in internal or external communications. Moreover, an AI policy provides an opportunity for a unit of government to remind officials and employees that they are ultimately individually responsible for the results of the work they produce, regardless of whether or not AI tools were involved in preparing that work product.
7. Decide whether department-specific policies or provisions are needed. Some local government agencies have unique AI use cases that may warrant their own separate departmental policies, or at a minimum, their own section in a unit of government’s broader AI use policy. For example, some local law enforcement agencies use an array of AI tools to carry out their duties, including surveillance cameras with AI capabilities, AI facial identification tools, and AI report drafting technology integrated with body-worn cameras. These tools may raise issues outside the scope of a standard local government AI use policy, including concerns regarding the potential for wrongful arrests, internal misuse, and mistakes, which may need to be addressed with separate policy provisions.
8. Remind employees of public records requirements. Generative AI creates new ways for a local government to make and receive records. Under North Carolina’s public records law, any record made or received by a local government official or employee “in connection with the transaction of public business” is a public record subject to disclosure upon request, unless an exception applies (G.S. 132-1). If a local government official or employee is using a generative AI tool to carry out the duties of their role, then both the prompts and other data the individual gives to the AI tool and the outputs the individual receives from the AI tool would be subject to North Carolina’s public records law. In addition to creating text records like chatbot logs, some officials and employees may also make or receive other types of records using generative AI tools, including AI-generated images, videos, audio files, and transcripts or summaries of online meetings.
Ideally, an AI policy should require employees to use work accounts (e.g., enterprise accounts provided by the government employer or accounts created on free platforms using the employee’s government email address) for work-related purposes, to ensure that public records are easily retrievable and not comingled with personal records. If an employee uses a free, publicly available version of a chatbot (e.g., ChatGPT), those chatbot logs may exist only in a transient browser cache or a personal account history that the local government cannot easily access. For more information about how North Carolina’s public records law applies to AI-related records, including retention requirements for those records, see this blog post.
9. Address AI transcription, notetaking, and recording. Units of government may want to address, in policy or guidelines, when and how AI-generated meeting transcription tools or features may be used. Popular online meeting platforms like Zoom and Microsoft Teams have AI transcription features available to users. Other services, such as Read AI, Fireflies AI, or Otter.ai’s Otter Notetaker, may allow an individual to send an AI bot to “attend” an online meeting, including recording and transcribing that meeting. An employee using a chatbot or other AI tool to record a meeting that the employee is not attending could potentially run afoul of North Carolina’s wiretapping law (G.S. 15A‑287) by “intercepting” the communications in the meeting, unless a human participant in the meeting agrees to the recording. A putative class action lawsuit is currently pending against Otter.ai in California, alleging that its Otter Notetaker violates state and federal privacy and wiretap laws. My colleagues Kristina Wilson and Phil Dixon have written more about the legal issues involving recordings by government officials in this blog post.
Even assuming that consent to record a meeting is not an issue, an AI policy could be an opportunity to remind employees that when an AI tool records or transcribes a meeting, it may have created a record that will be subject to public disclosure under North Carolina’s public records law, unless an exception applies. And given that generative AI transcription features are also prone to errors (see this article and this story for examples), the AI-generated record of a virtual meeting may inaccurately reflect the contents of the meeting.
10. State explicitly if any AI use cases or tools are completely prohibited. A unit of government that wants to allow its employees to use AI may nonetheless have some potential uses of AI that it deems unacceptable in all circumstances. For example, a local government might decide to prohibit employees from using AI to draft sensitive or high-profile external-facing communications; make employment-related decisions; make final decisions about a permit or application without human review; or impersonate a real person through the production of “deepfake” videos, audio recordings, or photos. Local governments in North Carolina may want to cross-reference their existing policies prohibiting employees from accessing pornography on government devices and networks under G.S. 143-805 (see this blog post), since using an AI tool to generate pornographic content would violate that prohibition.
Conversely, a local government may want to consider providing examples of allowable use cases for AI in its policy as well (for example, New Jersey’s generative AI policy for state employees describes six broad potential use cases for generative AI, while also providing “dos and don’ts” for each use case).
11. Be thoughtful about the extent to which transparency requirements are needed. Many government AI policies and guidance documents I’ve seen from around the country require some sort of disclosure or labeling from employees when they use generative AI to perform their work. Some policies require employees to affirmatively state or label when work product was created using generative AI. These types of requirements are intended to promote government transparency, but may create implementation problems in practice. Will employees have to put such statements on internal communications, external communications, or both? What if an employee uses generative AI for initial idea generation or a first draft, but does a substantial amount of work to subsequently build on that idea or refine that draft? If an employee goes through dozens of iterations of various prompts into a generative AI tool to create a final product, should every iteration be reported to a supervisor, or labeled as AI-generated for the public? Vague requirements around transparency, disclosure, or citation will inevitably lead to many questions around implementation.
Local governments generally do not require employees to report, cite, or label every time they use other types of technology to do their daily work, so they may want to consider whether their approach to AI tools (or certain subcategories of AI tools) should be any different, and if so, how. This conversation may also include discussing how local community members will perceive the extent and nature of the local government’s AI usage, regardless of whether employees are required to affirmatively disclose it. In a 2026 NBC News poll, 57% of registered voters said they believe the risks of AI outweigh its benefits, and only 26% of voters say they have positive feelings about AI. This public perception issue may impact how community members react to communications from a local government that are labeled as “AI-generated.”
12. Make sure the right people are involved. The process of drafting an AI policy for a government entity should ideally involve both legal counsel and IT leaders. Understanding internal AI usage issues from a legal, technical, and practical perspective is essential to drafting any robust AI policy.
Local governments may also want to seek input from department heads and other supervisors about how AI tools and systems are already being used by their employees (if at all). Desired use cases and associated risks will vary widely from department to department. Some local government departments may even be using state technology platforms or systems that have AI features built in.
When drafting or updating an AI policy, units of government could consider starting with an AI use case inventory to determine how employees are already using AI in their work. This process could involve asking questions such as:
13. Establish a periodic AI policy review process. As we’ve seen over the past few years, AI policies can quickly become obsolete. A local government should make sure it is staying ahead of changes by reviewing its AI policy on a routine basis—for example, at least annually—and whenever there is a significant change in technology, law, or the government’s use of AI. That periodic review could consider questions such as:
14. Ask employees if they can understand and apply the policy. Policies are only effective if employees understand exactly what they allow and prohibit. Ambiguous language may create confusion and lead to more covert AI usage. For example, some government AI use policies classify potential AI use cases into “low risk,” “medium risk,” and “high risk.” This type of classification could help employees understand possible risk levels, but without further guidance and clarification, it does not provide employees a clear understanding of what they are allowed to do. Are “high risk” uses of AI always prohibited? What different guardrails should an employee have in place when conducting a “medium risk” activity as opposed to a “low risk” one? Are “low risk” use cases always permissible, regardless of the type of AI tool used? Seeking feedback from select employees on a proposed (or existing) AI use policy can help identify areas of confusion or ambiguity, while also potentially identifying practical policy implementation issues before they arise.
]]>The post Property Tax Legislation Round Up appeared first on Coates' Canons.
]]>I. Proposed Constitutional Amendment: Are Property Tax Levy Limits Headed Our Way?
Come November, all North Carolina voters will be presented with this question: should Article V, Section 2, of the state constitution be amended to state: The General Assembly shall enact general laws limiting the amount by which the levy of taxes on property may increase, which may include exceptions.
See S.L. 2026-5 for details of the required referendum.
Right now, the only existing fiscal limitation on local property taxes in our General Statutes is a rate cap of $1.50. (G.S. 153A-149(c) for counties and G.S. 160A-209(d) for cities). No local government is currently close to that cap. The highest county tax rate this year is $.93 in Bertie County. That happens also be the highest municipal tax rate that I could find, which was last year in Enfield.
Note that this cap applies per jurisdiction. If you live in a city, you very likely pay a combined city/county property tax rate of over $1.50. That’s okay so long as the city and the county rates are each under $1.50.
Beyond the $1.50 tax rate cap, currently there is no limitation in our statutes on how much a local government may increase its property tax levy from year to year. But if the proposed amendment passes, that may change.
The proposed amendment grants the General Assembly discretion to decide what type of limit on property tax increases it wishes to adopt. Presumably, the General Assembly could satisfy the proposed amendment by adopting a limit on annual increases in appraisal values (for example, Florida limits the increase in tax appraisals for primary residences to 3%) or tax rates (for example, South Carolina limits the increase in local tax rates to the percentage increase in population plus inflation) or total tax levies (for example, New York limits the increase in local property tax levies to 2%).
The General Assembly would also retain discretion as to the timing of any property tax limitations under the proposed amendment. If the amendment is approved, the General Assembly might act in response immediately. Or not. It is entirely up to the legislature.
Finally, remember that the General Assembly already has the authority to enact limits on local property taxes given that our state constitution does not prohibit such legislation. Even if this amendment were to fail at the polls, the General Assembly could move forward with property tax limitations if it so desired.
II. The Penny Panic Solved
The last Unites States penny was minted in November 2025, leading tax offices to wonder what they should do about making correct change once their stash of Abe Lincolns ran dry. The General Assembly solved that problem over the summer by amending GS 105-357 to allow tax offices to round bills down to the nearest nickel when taxpayers pay in person in cash. S.L. 2026-31, §14(j). Previously, tax offices were allowed to forgive small underpayments of less than a dollar only for payments made other than in person.
Here’s how the new rule should work. If Tina Tarheel appears at the tax office to pay her tax bill of $99.97 and hands the tax office a $100 bill, the tax office may round that bill down to $99.95, give Tina a nickel in change, and treat the bill as paid in full. As is true for “traditional” small underpayments, the tax collector must keep records of all penny underpayments and report the total in the annual settlement.
For more details on the penny bill, including how it might affect other local government offices, see Kara Millonzi’s blog here.
III. Exemptions for Pet Semataries? No Longer
Yes, I misspelled cemeteries, intentionally as an homage to one of Stephen King’s scariest books. Over the years I have received a few questions about whether the exclusion for burial grounds in GS 105-278.2 could apply to land used to bury deceased pets. As crazy as that question sounds, it was reasonable under the prior statutory language. But no more. S.L. 2026-31, §6.1 changed that statute so that it now applies only to “human” burial grounds. Sorry, Snoopy.
IV. Two Small Machinery Act Changes
Section 6.2 of S.L. 2026-31 allows refunds of fire district taxes to extend back 10 years instead of the 5-year period that applies to “regular” refunds in G.S. 105-381. But only for a year; this provision expires July 1, 2027.
Section 6.3 of that same bill creates an explicit prohibition against double taxation. It’s unclear what practical impact this change will have, given that under current law double taxation was assumed to be an illegal tax and therefore justification for a refund under G.S. 105-381.
V. “Incentive Districts” for New Development
A local government may now create an “incentive district” for new development eligible for project development financing debt instruments under Article 6 of Chapter 159. S.L. 2026-12. All property within that district would receive a 90% exclusion for 10 years or until the property is sold. If the district is proposed by a municipality, then the county must receive notice and the opportunity to reject the proposal. Property receiving the incentive may not also benefit from the builders’ inventory exclusion in GS 105-277.02.
This new provision is one of the very few exclusions over which local governments have control; if they don’t want to offer this exclusion to new development, they are not required to do so. It raises interesting questions as to whether the General Assembly could create other “optional” exclusions (perhaps a more expansive circuit breaker?) without violating the N.C. Constitution’s uniformity provision.
]]>The post New Disclosure Requirements for Development-Related Fees Including Chapter 160D Fees, Local Act Impact Fees, and System Development Fees appeared first on Coates' Canons.
]]>Development-related fees have received increased attention from the North Carolina General Assembly in recent years. The legislature created a detailed statutory framework for water and sewer system development fees, including requirements for how those fees are calculated, adopted, and spent. It also has placed additional limits on building permit and inspection fees and required local governments to report information about the collection and use of those fees.
S.L. 2026-59 continues that focus. Section 49, which took effect August 11, 2026, adds new requirements governing the disclosure and administration of certain fees associated with development. It adds definitions to G.S. 160D-102 and enacts G.S. 160D-402.1, which requires local governments to (1) publish certain development-related fees and information about how the fees are calculated; (2) report information on fees and collections annually to the Local Government Commission (LGC); and (3) provide project-specific fee estimates and final, binding fee statements for development approvals.
The new law applies to fees imposed for the administration and enforcement of Chapter 160D and Article 8 of Chapter 162A, and to certain development-related fees authorized by local act. It does not replace the existing rules governing the underlying fees or authorize new fees. Chapter 160D continues to govern fees related to development and development regulations, Article 8 of Chapter 162A continues to govern water and sewer system development fees, and local acts continue to govern impact, facility, and similar fees. Section 49(c) expressly preserves existing statutory and constitutional limits on local fee authority. The new law adds additional disclosure requirements related to what the fees are, how they are calculated, and how they are applied to a particular development application.
The new law is not clear in several important respects. Among other things, there are questions about which fees are subject to each requirement, how much information must be published to explain how a fee was calculated, which fees must be included in a project-specific estimate and final fee statement, and how the estimate process works when a development project requires multiple approvals. This post works through those questions separately for each of the law’s three requirements.
It is worth emphasizing that the new requirements took effect August 11, 2026. Cities and counties should immediately review the fees they currently impose, determine which are covered by the new law, prepare the required fee schedule and supporting information, and establish procedures for providing estimates and final fee statements. That work will require coordination among planning and development staff, finance staff, management, IT, and the local government’s attorney because the new requirements involve both legal judgments about which fees are covered and practical decisions about how those fees are calculated, tracked, disclosed, and collected.
The new requirements in G.S. 160D-402.1 apply to a “local government,” which Chapter 160D defines as a city or county. See G.S. 160D-102(22). The limitation to cities and counties is important. Other governmental entities may administer development-related programs or impose fees associated with development, but G.S. 160D-402.1 applies only to a “local government” as defined by Chapter 160D.
The new law adds three principal requirements:
The scope of each requirement is considered separately.
Each city and county must “prominently” display its current fee schedules on its official website. The new law specifies both which fees must be included in the schedules and what information must accompany those fees. But there are significant questions about the scope of both requirements.
The statute requires a “fee schedule” to include:
a statement of all current fees that may be collected by a local government for the administration and enforcement of provisions set forth in this Chapter [160D] and Article 8 of Chapter 162A of the General Statutes and impact fees, facility fees, and other fees authorized by local act, applicable to each project category and purpose, including the data and methodologies used to calculate the fee rates.
The scope of these categories raises several interpretive questions. A threshold point, however, is that the required fee schedules cover only fees imposed by the city or county publishing the schedules. It is not a comprehensive list of every governmental charge that a developer may incur on a particular project.
A single development project may involve fees imposed by several different governmental entities. A developer might, for example, pay regulatory fees to a city, other regulatory fees to a county, and an SDF to a separate water and sewer provider. Each city and county is responsible for publishing its own covered fees; neither is required to include fees imposed by another governmental entity. And the separate water and sewer provider is not subject to the new provisions.
This distinction is particularly important for SDFs. Article 8 authorizes SDFs to be imposed by several types of water and sewer providers, including cities and counties, but also water and sewer authorities, county water and sewer districts, metropolitan water and/or sewerage districts, sanitary districts, and certain other entities. The new fee schedule requirements apply to covered fees imposed by a city or county, but not to fees imposed by a separate local government utility provider (aka public authority).
The first category of fees that must be included in the fee schedules are those collected for the administration and enforcement of Chapter 160D. The clearest covered fees are the regulatory fees cities and counties charge to administer and enforce their development regulations. Depending on the programs administered by a particular city or county, these may include fees for rezoning and conditional zoning applications, special use permits, variances and appeals, subdivision and plat review, site or development plan review, zoning permits, building permits and inspections, certificates of appropriateness, and similar regulatory activities.
G.S. 160D-402 provides useful context. It identifies activities involved in administering and enforcing development regulations, including receiving and processing applications, providing required notices, reviewing applications for compliance, conducting inspections, issuing certificates, enforcing development regulations, and maintaining records. It also authorizes reasonable fees for the support, administration, and implementation of programs authorized by Chapter 160D. These are the types of regulatory activities most naturally encompassed by the new law’s reference to fees for the administration and enforcement of Chapter 160D.
Existing limits on these fees continue to apply. In Homebuilders Association of Charlotte, Inc. v. City of Charlotte, 336 N.C. 37, 442 S.E.2d 45 (1994), the North Carolina Supreme Court required a reasonable relationship between a regulatory fee and the cost of the regulatory activity. Building permit and inspection fees are subject to additional restrictions. G.S. 160D-402(d) limits the use of fees collected by a building inspection department for administration and enforcement of Article 11 to supporting the administration and operations of that department. (G.S. 160D-1102(c) also imposed specific reporting requirements for building-code-enforcement revenues and expenditures for reports due in 2023, 2024, and 2025.) S.L. 2026-59 adds new disclosure and procedural requirements but does not change these existing rules governing the authority for, amount, or use of Chapter 160D fees.
A harder question is whether the fee schedules must include monetary obligations that arise through a Chapter 160D process but are not themselves regulatory fees. Subdivision regulations, for example, may authorize payments in lieu of required improvements or land dedication. Conditional zoning and development agreements also may include project-specific monetary obligations.
There is a reasonable argument that these payments fall outside the fee schedule requirement. They are different from application, plan-review, permit, and inspection fees and generally are not imposed to cover the cost of administering or enforcing Chapter 160D. But the statute does not define the limits of “fees for the administration and enforcement” of Chapter 160D or address payments in lieu, conditional-zoning obligations, development-agreement payments, or similar charges directly. The scope of the requirement therefore is not entirely clear, and local governments should work with their attorneys to determine which charges to include.
The wording also creates a broader interpretive issue. The statute uses similar “administration and enforcement” language for fees under Article 8 of Chapter 162A, even though system development fees are not administrative or enforcement fees in the ordinary sense. As discussed next, that makes the statutory language difficult to apply consistently and counsels some caution in drawing a sharp line around the Chapter 160D fee category.
The second category relates to Article 8 of Chapter 162A, which governs water and sewer system development fees (SDFs). An SDF is a charge to new development for a proportionate share of certain capital costs of providing water or sewer capacity. It must be supported by a professional analysis using a methodology authorized by Article 8.
The wording of the new law creates an interpretive problem. As indicated above, it refers to fees collected “for the administration and enforcement” of Article 8. But Article 8 does not provide for a separate fee to administer or enforce its requirements. The fee it authorizes is the SDF itself, and an SDF is not an administrative or enforcement charge. It is a capital charge imposed on new development.
A narrow reading of “fees for the administration and enforcement” of Article 8 therefore produces an odd result; there appear to be no Article 8 fees that fit that description. That would leave the statute’s express reference to Article 8 with little or no practical effect. For that reason, the more likely reading is that the legislature intended the fee schedules to include SDFs imposed under Article 8 by the city or county.
That reading does not bring every water or sewer charge associated with development into the fee schedule. Meter and service-line installation charges, actual-cost tap or hookup charges, utility deposits, contractual charges, regular water and sewer rates, and similar charges are imposed under separate authority and for different purposes. They do not become Article 8 fees merely because they are charged in connection with new development.
As mentioned above, the Article 8 analysis also may bear on the scope of the Chapter 160D category. The new law uses the same phrase (fees “for the administration and enforcement”) for both Chapter 160D and Article 8. If that phrase must be read broadly enough in the Article 8 context to include SDFs, there is an argument that it should also be read more broadly in the Chapter 160D context, potentially reaching some fees or monetary obligations beyond traditional regulatory fees.
There is an important difference between the two contexts, however. “Administration and enforcement” has a much more natural meaning in Chapter 160D. Chapter 160D uses that terminology to describe the regulatory work of processing applications, reviewing development proposals, conducting inspections, issuing permits and approvals, and enforcing development regulations. It also expressly authorizes fees to support those activities. Article 8 has no comparable category of administrative and enforcement fees.
The phrase therefore may operate differently in the two statutory contexts. It may refer principally to regulatory fees under Chapter 160D while necessarily encompassing SDFs under Article 8 because otherwise the express reference to Article 8 would have little apparent application. But the use of the same phrase for both makes it difficult to be definitive about the narrower Chapter 160D reading. There remains an argument that the Chapter 160D category extends to at least some other development-related monetary obligations authorized or governed by that Chapter.
The third category consists of impact fees, facility fees, and other fees authorized by local act. Unlike the first two categories, the statutory language does not qualify these fees with the phrase “for the administration and enforcement.”
Cities and counties do not have general authority to impose an impact fee simply because new development creates additional infrastructure or service needs. Where a city or county has specific local-act authority to impose such a fee, the local act determines the scope of that authority and any limitations on calculation, collection, or use.
S.L. 2026-59 includes these fees within the new definition of “fee schedule,” but it does not expand or otherwise alter the underlying local-act authority.
The categories above do not include every charge a developer may pay in connection with a development project. And the name of a charge does not determine whether it is covered. Terms such as “connection fee,” “facility fee,” “review fee,” or “fee in lieu” may describe very different charges in different jurisdictions. The key questions are what the charge is for, who is charging it, and the legal authority under which it is imposed. To restate, the law only applies to fees imposed for the administration and enforcement of Chapter 160D, Article 8 of Chapter 162A, and to impact fees, facility fees, and other fees authorized by local act.
For many cities and counties, publishing the amounts of development fees will not be new. The more significant change is that the published fee schedule also must include the “data and methodologies used to calculate the fee rates.” The statute does not define those terms or specify the level of detail required. It also does not define “fee,” and the new provisions sometimes appear to use that term to refer to a fee or rate established by the local government and elsewhere to the amount ultimately charged to an applicant for a particular project. That leaves some uncertainty about exactly what must be published.
There is a range of possible interpretations. At the narrowest end, “data and methodologies” could refer only to the information and formula needed to determine the amount an applicant will pay for a particular project. A fee schedule might state, for example, that an application fee is $500 per application or that a subdivision review fee is $500 plus $25 per lot. This reading has some connection to the statute’s broader focus on giving applicants advance information about development costs. It also would provide the information necessary to calculate the charge for a particular application.
There are several reasons, however, to question whether that reading fully captures what the General Assembly intended. First, the statute requires publication of the data and methodologies used to calculate the “fee rates.” That phrasing more naturally refers to how the local government determined the rate itself, rather than merely how an established rate is applied to a particular project.
Second, many local government fee schedules already provide the information necessary to calculate the amount charged to an applicant. They commonly state fees as a fixed amount per application, an amount per lot, an amount per square foot, or another similar formula. If “data and methodologies” meant only that information, the new requirement would add relatively little to what a conventional fee schedule already contains. The statute’s separate reference to the data and methodologies used to calculate fee rates suggests that something more is contemplated.
Third, system development fees are expressly among the fees addressed by the new law, and the existing SDF statutes use “methodology” in a materially different way. An SDF analysis must use one or more authorized methodologies to determine the underlying fee amount. It must identify relevant facts and data, apply the selected methodology to that information, and calculate a maximum fee per service unit. A separate conversion table is then used to determine the fee applicable to particular categories of development. In that statutory scheme, the methodology concerns how the fee rate is developed; applying that rate to a particular development is a separate step.
The SDF statutes do not control the meaning of the new fee-schedule requirement, but they provide useful context for terminology the General Assembly has used in a closely related setting. They make the narrowest interpretation—that “methodology” refers only to the arithmetic for applying an established fee rate to a project—less persuasive.
At the other end of the spectrum, the new requirement could be read very broadly to require publication of all the data, calculations, assumptions, and supporting documentation used to establish each fee rate. For a regulatory fee based on staff costs, that could include individual salary and benefit information, overhead allocations, workload assumptions, estimates of application volume, estimates of staff time, and the calculations and source materials used to derive each of those figures.
There is textual support for a relatively broad reading. The statute expressly refers to the “data” used to calculate fee rates and to the “methodologies used to develop fees and rates,” without expressly limiting the amount of underlying information that must be disclosed.
But the SDF statutes again provide a useful comparison in the other direction. When the General Assembly wanted an SDF analysis to contain detailed supporting documentation, it said so expressly. The SDF provisions require documentation in reasonable detail of the facts and data, assumptions, reasoning, interim calculations, limiting conditions, and other components of the analysis. The new fee-schedule provision contains none of those specifications. It requires disclosure of the data and methodologies used to calculate fee rates, but it does not expressly require publication of a cost study, every underlying record, or every intermediate calculation.
The most plausible interpretation therefore appears to fall between those two ends of the spectrum. On this reading, a local government must disclose enough of the principal data and methodology to explain how the fee rate was derived, rather than merely state the rate and explain how it applies to a project. But it need not necessarily reproduce every source document, assumption, intermediate calculation, or supporting record used in developing the rate.
For example, suppose a city charges a $500 application fee based on an estimate that review requires five hours of staff time at an average fully loaded cost of $100 per hour. Identifying those principal inputs and the calculation (five hours multiplied by $100 per hour) would explain how the $500 fee rate was derived. Whether the published fee schedule also must disclose all the information used to develop the five-hour estimate or every component used to calculate the $100 hourly cost is less clear.
The statute ultimately does not specify exactly where the required disclosure falls along this spectrum. A broader interpretation remains possible because the statute expressly requires disclosure of the “data” used to calculate fee rates and does not expressly limit that term. A narrower interpretation is also plausible, particularly in light of the statute’s broader emphasis on predictability for applicants.
Assuming the middle reading, the practical challenge may be greatest for older Chapter 160D fees. A city or county may have an application, permit, or inspection fee that has been carried forward for years without readily available documentation showing how the amount was originally calculated. The new law does not say that the absence of historical documentation automatically invalidates the fee. It does, however, require publication of the data and methodology used to calculate covered fee rates, while the existing requirement that a Chapter 160D regulatory fee be reasonable continues to apply. If the basis for an existing fee cannot be identified, compliance with the new disclosure requirement may require developing a supportable current calculation for the fee and, depending on the result, revisiting the fee amount.
The statute also requires the fee schedule to identify covered fees applicable to each “project category and purpose.” Neither term is defined. The language does not appear to require cities and counties to adopt a new standardized classification system. It does suggest, however, that the schedule should be organized with enough detail for an applicant to determine when a fee applies and what the fee is intended to cover.
Finally, Section 49(c) provides that the new law does not require disclosure of information protected from public disclosure under G.S. 132-1.2. That provision confirms that otherwise-protected information need not be published, but it does not itself define the level of data or methodological detail that must be disclosed.
G.S. 160D-402.1(a) requires a city or county to update its website within 30 days after “the adoption of any ordinance amending the fees, rates, or methodologies.” This language raises a practical issue about how covered development fees are adopted.
For SDFs, the process is already clear. Cities and counties must adopt the fees, or incorporate them by reference, as part of their utility ordinances. See G.S. 160A-312 (cities); G.S. 153A-275 (counties).
Other development fees are often treated differently. Many cities and counties maintain a consolidated fee schedule and approve it as part of the annual budget process. The fee schedule may be attached to the budget ordinance, incorporated by reference, or approved at the same meeting. But that does not make the individual fees legally part of the budget ordinance. G.S. 159-13 specifies what may be included in a budget ordinance, and individual development fees are not among those items.
The new law does not expressly say that every covered fee must be adopted by ordinance. Its reference to an ordinance “amending the fees, rates, or methodologies,” however, reinforces the importance of using the proper legal vehicle to establish and change these fees. For covered Chapter 160D and local-act development fees, the cleaner approach is to adopt the fees through a separate fee ordinance rather than relying on the budget ordinance. The governing board can adopt both ordinances at the same meeting, and the same fee schedule can be included in the budget materials, but the fee ordinance should constitute the legal action establishing the fees.
There is a related procedural rule for certain subdivision fees. Under G.S. 160D-805, a city or county generally must provide notice and an opportunity for public comment before imposing a new fee, or increasing an existing fee, that applies solely to subdivision development. That additional procedure does not apply if the new or increased fee is included in the proposed budget submitted under G.S. 159-12.
That exception can be confusing because it refers to putting the fee in the proposed budget. It does not mean that the fee may be legally adopted as part of the budget ordinance. The two statutes address different steps. G.S. 160D-805 addresses the notice and public-comment process before adoption; G.S. 159-13 governs what may be included in the budget ordinance itself. A qualifying subdivision fee can therefore be included in the proposed budget for purposes of G.S. 160D-805 and then separately adopted through the fee ordinance.
Finally, whatever adoption process is used, the published fee schedule must remain current. If an ordinance changes a covered fee or rate, or a methodology used to develop a fee or rate, the city or county must update the fee schedule on its official website within 30 days after the ordinance is adopted.
Each city and county must submit an annual report to the LGC that includes its fee schedule, fee collections, and information about its compliance with G.S. 160D-402.1. The LGC, in turn, must publish and prominently display a statewide report of local governments’ current fee schedules on its website.
The statute leaves much of the reporting process to be worked out. It does not establish a reporting date or period, prescribe a reporting format, or specify how fee collections must be reported, including whether collections must be reported by individual fee, fee category, project category, or in some other manner. Cities and counties will need to follow LGC guidance on these details.
The requirement does have an immediate practical implication. Cities and counties will need records that allow them to identify and report collections from the fees covered by G.S. 160D-402.1. Depending on the reporting format ultimately required by the LGC, that may require changes to how development-fee revenues are coded, tracked, or summarized in the accounting system. Cities and counties should review their current practices now to determine whether covered fee collections can be readily identified rather than waiting until the first annual report is due.
The new law also creates a project-specific process for disclosing fees associated with a development application. Within 10 business days after an applicant submits a completed application, and before issuing the development approval, the city or county must provide the applicant with its current fee schedule and a written fee estimate. When the development approval is issued, the city or county must provide a final fee statement stating the exact fees due.
The details are more complicated. The statute ties these requirements to a “development approval,” uses broader references to “all fees” for the applicant’s “project,” and does not fully explain which fees must be included or how the process applies when a project requires multiple approvals.
The process begins with a completed application for a “development approval.” That is an existing defined term in Chapter 160D. See G.S. 160D-102(13). It generally refers to a written administrative or quasi-judicial approval required before development or a particular development activity may proceed. Examples include zoning permits, site plan approvals, special use permits, variances, certificates of appropriateness, subdivision or plat approvals, development agreements, and building permits.
Legislative decisions are different. Conditional zoning, for example, is a legislative zoning map amendment rather than a development approval. A conditional zoning application fee may belong on the published fee schedule because it is a fee associated with administering Chapter 160D, but the conditional zoning decision itself does not appear to trigger the project-specific estimate and final-statement process.
For an application that does result in a development approval, the statute appears to contemplate a single sequence. Once the completed application is submitted, the city or county has 10 business days to provide the fee schedule and estimate. When the approval is issued, it provides the final fee statement.
A building permit provides a straightforward example. After receiving a completed application, the city or county estimates the applicable permit and review fees and identifies the assumptions used in the calculation. When the permit is issued, it provides a final statement of the exact fees due. The same process can apply to a subdivision approval, site plan approval, special use permit, variance, or other development approval.
A more difficult question is how much of the development project each estimate must cover. The definition of “fee estimate” refers to “all fees” that may reasonably be assessed in the fee statement for the applicant’s “project.” Read alone, that language could suggest an estimate of all fees that the city or county expects to impose over the course of the entire development project.
Other provisions point toward an approval-by-approval approach. The estimate is triggered by a completed application, must precede a development approval, and is followed by a final fee statement when that approval is issued. The statutory process therefore appears to center on the particular application and approval.
Consider a 50-lot subdivision. The preliminary plat (a development approval) will trigger an estimate of the preliminary plat review fees, followed by a final statement when the preliminary plat is approved. As the development moves through horizontal construction, there will be final plat approval, potentially in phases. This will trigger additional fee estimates and fee statements. Construction of the homes will later require 50 building permits. It is not apparent that the city or county could meaningfully estimate all those future permit fees when the preliminary plat application is submitted.
A reasonable reading is that the estimate covers fees associated with the application and development approval that trigger it, with the process repeating as later applications are submitted. But the statute does not expressly adopt this approval-by-approval approach. Its references to “all fees” and the applicant’s “project” leave room for a broader interpretation.
A project may involve city zoning and subdivision approvals, county building-code enforcement, and water or sewer service from a separate authority. G.S. 160D-402.1 does not appear to require one local government to estimate fees imposed by another. Each city or county should be responsible for the fees it imposes or collects in connection with the relevant application and approval.
There is a separate ambiguity about which types of fees must be included. The definition of “fee estimate” refers to “all fees” that may reasonably be assessed in the “fee statement.” A “fee statement,” in turn, is defined as an itemized statement of fees applicable to the applicant’s particular project “pursuant to this Chapter”—Chapter 160D.
That language points most directly to Chapter 160D fees associated with the development approval. SDFs and local-act fees are less certain. Even if an SDF imposed by a city or county is included in the published fee schedule, an SDF is imposed pursuant to Article 8 of Chapter 162A, not Chapter 160D. Likewise, a local-act fee derives its authority from the applicable local act. The definition of “fee statement” therefore provides an argument that neither belongs in the estimate or final statement.
Other language points in the opposite direction. G.S. 160D-402.1(c) requires the city or county to provide both the broader fee schedule and the fee estimate after receiving a completed application. More significantly, it prohibits the city or county from requiring payment of “any fees specified in subsection (a)” before providing the estimate. Subsection (a) is the fee-schedule provision and potentially includes Chapter 160D fees, SDFs, and local-act fees.
The statute does not clearly explain how these provisions fit together. Chapter 160D fees tied to the particular development approval are the clearest fees to include in the estimate and final statement. It is less clear whether the city or county also must include any SDFs or local-act fees that may apply to the project.
The estimate must identify the assumptions applied to the category or purpose of the fees to be charged. Those assumptions should identify the project characteristics used to calculate the estimated amount.
For example, if a subdivision fee depends on the number of lots, the estimate should state the number of lots used in the calculation. If a building permit fee depends on square footage, construction value, number of units, or another project characteristic, the estimate should identify that assumption.
Identifying the assumptions is particularly important because a material change to the project requires a revised estimate. The city or county must provide the revised estimate within 10 business days after receiving the updated project information.
The statute does not define “material change.” A practical reading is that a change is material when it affects an applicable fee or an assumption used to calculate it. If an estimate is based on a 40-lot subdivision and the applicant changes the proposal to 60 lots, for example, a revised estimate would likely be required.
The timing requirement may require a significant change in current practice. A city or county may not require payment of “any fees specified in subsection (a)” before providing the required fee estimate. For local governments that currently collect an application or permit fee when the application is submitted, payment may therefore have to be delayed until after the application is determined to be complete and the estimate is provided.
For a simple permit, the delay may be minimal. Staff may be able to determine completeness, calculate the fee, provide the estimate, and collect payment in quick succession. For a more complicated application, staff may need to review substantial materials before determining that the application is complete and calculating the applicable fees.
This makes the statutory trigger of a “completed application” important. The statute does not define that term. Cities and counties should have a consistent process for determining and documenting when an application is complete because that date starts the 10-business-day period for providing the estimate. The North Carolina Supreme Court has recognized that local governments may establish their own standards for when a permit application is complete. As the court explained, “local governments are empowered to enact their own permitting ordinances, so whether an application has been ‘completed’ or ‘submitted’ will always vary from locality to locality—and even from ordinance to ordinance.” Ashe Cnty. v. Ashe Cnty. Plan. Bd., 387 N.C. 159, 175 (2025). If the local ordinance does not establish a standard, however, the court explained that a “complete application” does not mean a full and final application. Instead, it means an application that the permitting authority has accepted as adequate to begin its compliance review. Id.
The no-payment rule creates an additional question for SDFs. Article 8 already specifies when an SDF may be collected, and the new law does not expressly change those collection points. If an SDF is a fee “specified in subsection (a),” however, G.S. 160D-402.1(c) arguably adds another condition: the city or county must provide the required estimate before requiring payment at the otherwise permissible Article 8 collection point. That issue ultimately depends on how broadly the new law’s SDF provisions are interpreted.
When the development approval is issued, the city or county must provide a written final fee statement stating the exact fees due. The statement is binding on the city or county, and the total generally may not exceed the amount in the most recent estimate.
This gives the estimate real legal effect. If a county estimates $8,000 in fees for a building permit but later determines that the applicable fees should have been $8,700, the statute does not provide an exception simply because the original estimate contained a calculation error. Absent a statutory basis for increasing the amount, the county appears to be limited to the $8,000 estimate.
The new law allows for two exceptions. First, a material change to the project can produce a revised estimate. The final statement is measured against the most recent estimate. If an estimate was based on a 20,000-square-foot building and the applicant later increases it to 25,000 square feet, the city or county may issue the required revised estimate based on the changed project and use that estimate when determining the final amount.
Second, the final fees may exceed the most recent estimate if the governing board adopts a new fee schedule by ordinance. That provision removes the cap created by the earlier estimate; it does not necessarily determine whether a newly adopted fee applies to a particular pending application. Other law, including rules governing vested or other protected development rights, may still determine which fee may lawfully be charged.
The statute does not address every circumstance that may arise after an estimate or approval. Some fees arise only because of later events. A failed inspection, for example, may result in a reinspection fee that could not have been known when the original permit was issued. That is different from a fee that applied to the original approval but was mistakenly omitted from the estimate. The statute does not expressly address how the cap applies to these later-arising fees.
The statute also requires a final fee statement when a development approval is issued on the application. It does not specify a final-statement requirement for an application that is denied or withdrawn.
These unresolved issues reinforce the importance of treating the estimate as part of the particular application and approval process: identify the fees being estimated, state the assumptions used, revise the estimate when the project materially changes, and provide the final statement when the approval is issued.
The new requirements operate in a sequence tied to the application and approval process:
| Point in the process | What happens |
| Applicant submits a completed application | This starts the 10-day clock for the initial fee estimate. |
| Within 10 days after submission of the completed application | The city or county must provide the applicant with the current fee schedule and a fee estimate. The statute requires this information to be provided before the development approval. |
| City or county provides the fee estimate | The city or county may then require payment of fees identified in the fee schedule. It may not require payment of those fees before providing the estimate. |
| Project materially changes and the applicant provides updated project information | This starts a new 10-day clock for a revised estimate. |
| Within 10 days after receiving the updated project information | The city or county must provide the applicant with a revised fee estimate. |
| Development approval is issued on the application | The city or county must provide the applicant, in writing, a final and binding statement of the exact fees due. The amounts generally cannot exceed those reflected on the latest fee estimate. |
This sequence creates three important timing rules. First, the initial estimate is due within 10 days after submission of a completed application. Second, the city or county may not require payment of covered fees before it provides the estimate. Third, when the development approval is issued, the applicant must receive a final, binding statement stating the exact fees due.
A material change to the project adds another step. Once the applicant provides updated project information reflecting the change, the city or county has 10 days to provide a revised estimate. Because the final fee statement generally may not exceed the most recent estimate, keeping the estimate current as a project changes may be particularly important.
The new law allows an applicant to bring a civil action in superior court in the county where the project is located to compel a city or county to comply with G.S. 160D-402.1. The statute also preserves other remedies available under Article 14 of Chapter 160D.
The express remedy is therefore one to compel compliance with the new requirements. The new provision does not itself establish a separate monetary penalty or damages remedy for a violation.
The new section also does not say whether a fee collected before the required estimate is automatically invalid or refundable. G.S. 160D-106 separately requires refunds, with interest, for certain illegally imposed development taxes, fees, and monetary contributions. Whether collecting an otherwise authorized fee too early under G.S. 160D-402.1 makes it an “illegal fee” under G.S. 160D-106 is not resolved by Section 49.
The new requirements are already in effect. Although several important questions remain unresolved, cities and counties should not wait for additional guidance to begin complying. The following are immediate action items:
Implementing these requirements will require coordination across departments. The most useful first step is to map the city’s or county’s existing development fees and current application and collection processes against the new requirements. That exercise should reveal both the changes that can be made immediately and the interpretive questions that require legal judgment.
]]>The post New Statewide Legislation Regarding E-Bikes appeared first on Coates' Canons.
]]>Recently (purely for research purposes), Belal visited a few local bicycle shops and test-rode their electric assisted bicycles (the statute refers to these devices as electric assisted bicycles, also known as “e-bikes”). Two things were noteworthy. First, the retailers indicated that their e-bike inventory was divided into three categories: Class 1, Class 2, and Class 3. And second, they did not sell Class 3 e-bikes out of the box; rather, they sold Class 2 e-bikes that could be adjusted in the settings to become Class 3 e-bikes after sale. Why were these things noteworthy? Because until a new law (S.L. 2026-46 (H 1094)) goes into effect this December, North Carolina does not categorize e-bikes as Class 1, 2, or 3. Also, what the bike shop owners call a Class 3 e-bike is, at least until December, defined by G.S. 20-4.01(27)(j) as a moped, which may explain their hesitance to sell them as Class 3s.
Belal wrote about the law governing the use of e-bikes last November here. At the time, there was proposed legislation that would adopt the Class 1, 2, and 3 e-bike definitions and more clearly provide authority for municipalities and counties to regulate their use. S.L. 2026-46, effective December 1, 2026, enacts definitions and classifications for e-bikes and has authorized certain local regulation of their use. This post describes the newly codified e-bike definitions, how they change the status quo, and discusses local government authority to regulate the use of e-bikes.
While the e-bike definitions were explored in greater detail in Belal’s prior blog post, it is worth reviewing the current state of e-bike classification. The statutory approach to vehicles with a saddle and three or fewer wheels is that they are all motorcycles, unless they are specifically excluded and defined otherwise (G.S. 20-4.01(27)(h)). The term “motorcycle” is defined to exclude mopeds and electric assisted bicycles—terms that are separately defined. “Electric assisted bicycles” are currently defined as bicycles with an electric motor of 750 watts or less, and a maximum powered speed of 20 miles per hour (G.S. 20-4.01(7a)). “Mopeds” are defined in relevant part as vehicles, other than a “motor-driven bicycle” (bicycles with small gas-engines with a top speed of 20 miles per hour) or electric assisted bicycle, with a maximum powered speed of 30 miles per hour (G.S. 20-4.01(27)(j)).
Let’s return to the issue of why bicycle shops might hesitate to sell a Class 3 e-bike out of the box. Class 3 e-bikes have a maximum powered speed of 28 miles per hour. As a result, under current law, a Class 3 e-bike is a moped. Operators of mopeds must be at least 16 years old (G.S. 20-10.1). In addition, mopeds must be registered with the Department of Motor Vehicles (“DMV”), see (G.S. 20-53.4), and must be covered by liability insurance (G.S. 20-309(a)). Further, any moped operator and passenger must wear a helmet (G.S. 20-140.4). Very few, if any, local bicycle shops sell an e-bike with a maximum powered speed over 30 miles per hour, which would render the vehicle a motorcycle under North Carolina law, implicating a host of other requirements. Nevertheless, online retailers do sell these devices.
Section 19 of S.L. 2026-46, effective December 1, 2026, adopts the Class 1, 2, and 3 e-bike classification used by most states. The new law defines an e-bike as “a bicycle with two or three wheels that is equipped with a seat or saddle for use by the rider, fully operable pedals for human propulsion, and an electric motor of no more than 750 watts that meets the requirements of one of the following three classes:
By including Class 3 e-bikes, S.L. 2026-46 expands the definition of “electric assisted bicycles” to include devices that are properly classified as mopeds under existing law. Under the expanded definition, e-bikes will now generally be considered “electric assisted bicycles” or motorcycles – but not mopeds – based on their maximum powered speed or motor size.
S.L. 2026-46 also enacts new G.S. 20-171.3, which allows the use of e-bikes on any roadway, bicycle lane, or sidewalk, subject to other regulations by local government units (discussed in detail below) or by the Department of Natural and Cultural Resources (DNCR) for properties under DNCR jurisdiction. New G.S. 20-171.3(b) requires any rider or passenger of a Class 3 e-bike who is under the age of 18 to wear a helmet. Violations of this provision on or after December 1, 2026 are an infraction (G.S. 20-176).
Finally, Section 19(e) of S.L. 2026-46 directs the Department of Transportation (NCDOT) to “develop educational materials on the proper use and safety considerations of electric assisted bicycles.”
Many people have expressed concerns about the use of e-bikes on public streets, sidewalks, and greenways. Are e-bikes being operated safely? Do e-bike purchasers know what product they are buying (including parents making purchases for their children)? Cary police reportedly responded to more than 219 calls involving e-bikes over a 16-month period beginning in January 2025. This summer, at least one municipality adopted an ordinance differentiating between e-bikes and other electric assisted vehicles and regulating their use on local streets, sidewalks, and greenways. Other municipalities are considering adopting similar ordinances.
As noted above, the new e-bike legislation will allow the operation of e-bikes on all roadways, bicycle lanes, and multiuse paths across the state. However, three categories of regulation are explicitly exempted from this new provision: (1) municipal regulation of pedestrian and vehicular traffic on municipal streets, sidewalks, alleys, and bridges pursuant to G.S. 160A-300; (2) municipal and county regulation of e-bikes on any multiuse path and sidewalk within their jurisdictions, as authorized by the new legislation; and (3) DNCR regulation in state parks, historical sites, and other DNCR properties.
So, what powers do local governments have to regulate the use of e-bikes in their communities? The new law expressly authorizes municipalities (through new G.S. 160A-300.2) and counties (through new G.S. 153A-245.1) to regulate the use of e-bikes on any multiuse path or sidewalk within their jurisdictional limits. They can restrict the use of a single class or classes of e-bikes on those paths or sidewalks, and they can establish speed limits for e-bikes in the same places. In addition, for Class 1 or 2 e-bikes, local governments may require that operators and/or passengers under the age of 18 wear a helmet. The scope of authority to regulate e-bikes differs somewhat between municipalities and counties based on the plain language of the new law and existing laws delegating municipalities the authority to regulate their streets.
Existing laws grant municipalities authority and control over traffic on their streets, sidewalks, alleys, and bridges. Specifically, G.S. 160A-300 authorizes municipalities to, by ordinance, “prohibit, regulate, divert, control, and limit pedestrian or vehicular traffic upon the public streets, sidewalks, alleys, and bridges of the [municipality].” Under North Carolina’s motor vehicle law, the term “vehicle” is broader than the term “motor vehicle” and includes e-bikes. See G.S. 20-40.1(23) (definition of motor vehicle); (49) (definition of vehicle). A related statute, G.S. 160A-296, grants municipalities “general authority and control over all public streets, sidewalks, alleys, bridges, and other ways of public passage within its corporate limits . . .” That authority includes the “power to regulate the use of the public streets, sidewalks, alleys, and bridges.” G.S. 160A-296(b).
The new law does not cross-reference G.S. 160A-296 (the broad grant of authority to municipalities over municipal streets), but it explicitly characterizes G.S. 160A-300 as an exception to the general rule that e-bikes are now allowed on all roadways, bike lanes, and multiuse paths in the state. Because the new law expressly carves out and preserves the authority provided by G.S. 160A-300, municipalities presumably retain their ability to adopt ordinances regulating e-bikes on municipal streets, sidewalks, alleys, and bridges. The new enabling statute for municipalities (G.S. 160A-300.2) also makes explicit municipalities’ authority to regulate e-bikes on multiuse paths and sidewalks, in particular.
Under the new law, counties may regulate the use of e-bikes, including permissible classes, speed limits, and for operators and passengers of Class 1 and 2 e-bikes under the age of 18, helmets, on multiuse paths and sidewalks in county-controlled places such as parks, greenways, or other county properties, but not on state-maintained roads. Counties are different than municipalities in that there are no county streets or roads. G.S. 153A-121(b) specifies that counties’ general “police powers” do not confer the authority to “regulate or control vehicular or pedestrian traffic on a street or highway under control of the Board of Transportation.” Since all public roads in the county are state-controlled, counties do not have the authority to regulate e-bikes on them. For more on local governments’ authority to regulate traffic, see this blog authored by Shea Denning.
Municipal ordinances regulating e-bikes apply within the municipality’s corporate limits and to any city-owned property or rights-of-way outside the city. G.S. 160A-176. County ordinances regulating e-bikes apply to any part of the county not within a municipality. G.S. 153A-122. Indeed, new G.S. 153A-245.1 specifies that no county regulation of e-bikes “shall be deemed to restrict or repeal the authority of a [municipality] to regulate the use of an electric assisted bicycle.”
As previously noted, Section 19 of S.L. 2026-46 is effective December 1, 2026 and applies to offenses committed on or after that date. In the same way that a post-December 1 violation of G.S. 20-171.3 will be an infraction under the state’s motor vehicle laws, a violation of local e-bike regulations could carry penalties under a local ordinance, if so specified, after that date.
]]>The post Does Your Entity’s Federal Award Require a Stevens Amendment Disclosure? appeared first on Coates' Canons.
]]>Although the Stevens Amendment has existed for decades, it has recently received renewed attention, perhaps in part because of the Office of Management and Budget’s 2026 proposed changes to the Uniform Guidance. These changes place greater emphasis on accountability and recipients’ compliance with federal grant requirements when federal agencies make and oversee awards. As a result, compliance with requirements such as the Stevens Amendment may become increasingly important—not only for complying with the terms of an existing award, but also for an organization’s ability to secure future federal funding.
This blog post highlights important takeaways for public entities about the Stevens Amendment, including funding sources to which the Stevens Amendment applies, what constitutes sufficient disclosure language, and where disclosure language must be included.
What is the Stevens Amendment?
The Stevens Amendment (also referred to as the “Amendment” in this blog) is a federal appropriations provision that requires recipients of certain federal funds to acknowledge the source and amount of federal financial assistance in publications and other materials when describing projects or programs funded by those awards. The Amendment first appeared in Section 511 of Public Law 101-166, the appropriations act for the Departments of Labor, Health and Human Services, and Education for the fiscal year ending September 30, 1990. (The federal government’s fiscal year spans from October 1 of one calendar year through September 30 of the next year.) As described in a 2019 report by the Government Accountability Office, the Amendment is intended to promote transparency by informing the public when federal funds support a project or program.
Unlike many federal grant requirements, the Amendment is not part of the Uniform Guidance, 2 C.F.R. Part 200. Instead, Congress includes it each year in appropriations legislation for specific federal agencies. In the Consolidated Appropriations Act of 2026, Public Law 119-75, the requirement appeared in the Departments of Labor, Health and Human Services, and Education and Related Agencies Appropriations Act (the “Act”) at Section 505.
Many resources describe the Amendment as applying only to funds from Departments of Labor, Health and Human Services, and Education. However, this is not the case; the Amendment’s disclosure requirements have occasionally applied to funding from other agencies. For example, the Amendment appeared in Section 631 of the Act, which allocated money to the Treasury, the Judiciary, the District of Columbia, and independent agencies, such as the Small Business Administration and the Election Assistance Commission.[1] Ultimately, public entities should not assume the Amendment does not apply simply because the funding comes from an agency other than the Department of Labor, Health and Human Services, or Education. Instead, public entities should review the applicable appropriations provisions, award terms and conditions, agency or pass-through entity guidance, and grant documents to determine whether a disclosure requirement applies.
What Does the Stevens Amendment Require?
When applicable, the Stevens Amendment requires recipients to disclose federal funding information in public-facing materials that describe a program or project funded in whole or in part with federal funds. The disclosure must include:
Materials explicitly covered by the Amendment include statements, press releases, requests for proposals, and bid solicitations. The Amendment also applies to “other documents” describing a federally funded project. Although the legislative language does not define “other documents,” covered materials may include websites, social media posts, email newsletters, visual presentations (e.g., PowerPoint presentations), toolkits, and procurement solicitations other than requests for proposals. Ultimately, the key question is whether the communication is “describing” the federally funded program or project.
To ensure compliance with the Amendment, public entities should consider interpreting the “other documents” language broadly when determining which communications require a disclosure. Federal agencies and pass-through entities, such as the North Carolina Department of Commerce, regularly advise recipients to include disclosures in any communication “made in furtherance of accomplishing the goals” of the federally funded project or program.
Many federal agencies provide model language that recipients can use to satisfy the requirement. For example, in this Department of Labor desk aid, the following language is suggested:
[Organization Name]’s Homeless Veterans’ Reintegration Program is supported by the U.S. Department of Labor. A total of $250,000, or 50 percent, of the program is financed with federal funds, and $250,000, or 50 percent, is funded by other sources.
The desk aid also provides the following general format:
The [project/program] is supported by the [federal agency]. A total of $[amount], or [percentage] percent of [project/program] [is/will be] financed with federal funds, and $[amount], or [percentage] percent [is/will be] funded by other sources.
However, not all relevant federal agencies or programs provide detailed recommended language, so public entities should independently confirm applicability of the Amendment.
General statements do not meet the requirements of the Amendment. The disclosure must provide specific information about the source, amount, and percentage of federal and non-federal funding. For example, the North Carolina Department of Commerce in Operational Guide OG-08-2022 explains that a statement such as “staff development opportunities, resource purchases, equipment and personnel have been funded in whole or in part with Federal entitlement dollars” does not achieve the specificity required by the Amendment.
Finally, some federal agencies require separate disclaimers stating that the contents or viewpoints in a publication or communication are solely the recipient’s and do not represent the views of the federal agency or the federal government. These disclaimers do not arise from the Stevens Amendment, although they are often included alongside the Stevens Amendment funding disclosure.
Tips and Takeaways for Public Entities
The Stevens Amendment is a relatively straightforward requirement, mandating disclosure of three things for federally funded projects or programs: federal share percentage, federal dollar amount, and non-federal share and dollar amount.
Determining if the Amendment applies to a particular federal award can be challenging. Public entities that receive federal funding, particularly directly or indirectly from the Departments of Labor, Education, or Health and Human Services, should review each award to determine whether the Amendment applies and what communications require a disclosure. Here are a few tips to help ensure compliance:
If you have any questions about the Stevens Amendment, please reach out to me at cuccaro@sog.unc.edu.
[1] Specifically, the Act provided $20 million to the Small Business Administration for grants to States to carry out programs that assist small business concerns and $45 million to the Election Assistance Commission for payments to States for activities to improve the administration and security of elections for federal office.
]]>The post Temporary Two-Bid Minimum for Water and Sewer Construction Contracts appeared first on Coates' Canons.
]]>This blog post explains the scope and operation of the new law, places the amendment in the broader context of North Carolina’s longstanding three-bid requirement, and briefly examines how North Carolina’s bid minimum requirements compare to other states.
North Carolina’s Three-Bid Minimum and the Authorization of a Temporary Two-Bid Minimum for Water and Sewer Construction Contracts
One unique feature of North Carolina procurement law is the three-bid minimum for formal construction contracts, found in G.S. 143-132. This requirement applies to construction or repair projects subject to the formal bidding statute, G.S.143-129.[1] The three-bid minimum does not apply to formal contracts for the purchase of goods or informal construction or repair contracts.
G.S. 143-132 also explains necessary procedures if three bids are not received. If fewer than three competitive bids are received after the first advertisement for bids, the contract cannot be awarded. Instead, the statute requires the project be advertised a second time. Upon readvertisement, if fewer than three bids are received, the contract can be awarded to the lowest responsive, responsible bidder.
Section 22.6.(a) of the 2026 Appropriations Act authorizes the State and local governments to use a two-bid minimum for construction contracts awarded under the formal bidding statute for water systems or facilities or sewage disposal systems or facilities. This limited two-bid minimum is codified at G.S. 143-132(a1) and is effective from July 7, 2026 through December 31, 2030. Unless extended by the General Assembly, the traditional three-bid minimum will again apply to all projects subject to G.S. 143-132, starting January 1, 2031.
The statute adopts broad definitions of “water systems or facilities” and “sewage disposal systems or facilities.” “Sewage disposal systems or facilities” means sewage disposal systems or facilities, including all plants, works, instrumentalities, and properties used or useful in the collection, treatment, purification, or disposal of sewage. “Water systems or facilities” means water systems or facilities, including all plants, works, instrumentalities, and properties used or useful in obtaining, conserving, treating, and distributing water for domestic or industrial use, irrigation, sanitation, fire protection, or any other public or private use. These definitions encompass the infrastructure traditionally operated by public water and wastewater utilities, including treatment facilities, collection systems, and distribution infrastructure.
The new two-bid minimum operates much like the existing three-bid minimum; if a bidding entity does not receive two bids, the entity must readvertise the solicitation. Upon the second advertisement, if the bidding entity does not receive two bids, it can award the contract even if only one bid is received.
The History of North Carolina’s Three-Bid Minimum and its Comparison with Other States’ Minimums
North Carolina’s three-bid minimum has been law for nearly 100 years, since the enactment of Session Law 1931-291. (In fact, there was originally a five-bid minimum for construction or repair contracts above $5,000.) Since then, the bid minimum was recodified at its current location in G.S. 143-132 when Article 8 of Chapter 143 of the General Statutes was rewritten in 1967 by Session Law 1967-860. Briefly, from 1977 to 1979, public entities were allowed to award construction or repair contracts after receiving only two bids without readvertising if they determined “it would not be in the public interest to readvertise.” This allowance was enacted by Session Law 1977-644, but repealed less than two years later by Session Law 1979-182.
In subsequent years, legislation has been introduced or passed to modify the three-bid minimum. In 1999, a local act authorized several counties (including municipalities and school administrative units within those counties) to apply a two-bid minimum to projects where the entire cost of construction or repairs was less than $500,000. (At the time, the formal bidding threshold for construction or repair—and therefore the threshold at which the three-bid minimum applied—was $100,000.) More recently, in 2025, House Bill 352 initially proposed to exempt public infrastructure projects for the Towns of Holly Springs and Fuquay-Varina from competitive bidding requirements. A later committee substitute to the bill proposed to allow a two-bid minimum—rather than the three-bid minimum—for construction contracts under $10 million for water systems or facilities or sewage disposal systems or facilities. House Bill 352 eventually stalled in a Senate committee in June of 2025.
North Carolina is one of the few states to require receipt of a specified number of bids for formal construction and require readvertisement if the specified number is not received. In Ohio, for capital improvement projects awarded by the state horseracing commission, Ohio’s administrative code states “no contract will be awarded to a bidder unless a minimum of three bids have been received before the deadline.” OAC 3769-2-33. If three bids have not been received, the notice must be reissued, the deadline extended, and the process repeated until at least three bids are submitted. Id. In Montana, public construction contracts above $300,000 can be awarded only after two formal bids have been received, if such bids are “reasonably available.” Mont. Code Ann. 18-2-103 (3). The statute does not specify procedures if fewer than two bids are received and the clause about availability seems to suggest flexibility for the requirement. Interestingly, this same statute imposes a three-bid minimum (if bids are reasonably available) for informal construction contracts costing between $50,000 and $150,000. Id. at (4)(a). Vermont’s statute governing public construction for state projects above $50,000 requires inviting three or more bids. 29 V.S.A. § 161. Then, the contract can be awarded to one of the three lowest responsible bidders. This language implies a three-bid minimum, but it is not as explicit as North Carolina law. It is unclear whether the State of Vermont could award a contract if fewer than three bids are received.
Most other states’ laws require competition for public procurements, but procedural requirements vary widely, including the number of bids that must be solicited or received. Some states require public entities to obtain three quotes for low dollar contracts. For example, small purchases and emergency purchases by the Alabama Department of Transportation require the solicitation of at least three quotes, but this minimum does not extend to formal competitive bidding. Ala. Admin. Code r. 450-12-1-.05. Otherwise, Alabama law allows for award of a contract where only one responsive bid was received and time does not allow for readvertisement, among other conditions. Ala. Admin. Code r. 355-4-3-.01(2)(c).
In other states, receipt of a small number of bids for a public contract authorizes—but does not require—an entity to readvertise. In Connecticut, state law provides options to the Commissioner of Administrative Services when fewer than three bids are received for State public works projects under $1.5 million; the Commissioner can negotiate a contract with any of the contractors submitting a bid, or reject the bids received and rebid the project. C.G.S.A. § 4b-91(a)(5)(C). In several states, if an entity chooses not to readvertise, it typically must document some or all of the following: the numbers of bidders solicited, that vendors had a reasonable opportunity to respond, the entity’s efforts to comply with the law, and that costs are reasonable and fair. As an example, Idaho law requires solicitation of three bids for public works projects in the state’s informal range (below $250,000). I.C. § 67-2805. When fewer than three bids are considered, a description of the efforts undertaken to procure at least three bids must be documented by the political subdivision. Id. In Maryland, certain categories of “small procurements” under $100,000 require state agencies to obtain offers from at least two vendors, but if a single offer or bid is received, an award can be made if the procurement officer determines the price is fair and reasonable and other vendors had an opportunity to respond. COMAR 21.05.07.06. For Mississippi state agencies procuring professional or personal services, an award can be made when only one responsive bid is received if the agency procurement officer finds that the price is fair and reasonable, that other prospective bidders had reasonable opportunity to respond, or there is not adequate time for re-solicitation. 27 Miss. Code. R. 1-3-102.
Although North Carolina law does not provide such flexibility for formal construction contracts, G.S. 143-132(a1) may provide some temporary relief and reduce the likelihood that water and sewer construction projects will require a second advertisement before award. If you have questions about North Carolina’s bid minimums or construction contracting, drop me a line at cuccaro@sog.unc.edu.
[1] However, contracts for dredging services in the State’s coastal waters are exempt from the three-bid minimum pursuant to Session Law 2021-92.
]]>The post Variances, or how to bend the rules without breaking them appeared first on Coates' Canons.
]]>In most cases, land use regulations apply uniformly across the jurisdiction. At the same time, each property is unique, and a governing board cannot possibly anticipate every circumstance that will arise in implementing its development regulations. To account for this, General Statute 160D-705(d) allows (in fact, it requires) a local government to vary the rules when four criteria are met: strictly applying the regulation would cause an undue hardship, the hardship is caused by conditions unique to the property, the applicant did not cause the hardship, and granting the variance would still be consistent with the general intent of the ordinance and with public safety and welfare.
The decision as to whether to grant a variance is a quasi-judicial decision. This means that it proceeds somewhat like a court trial. The board that will make the decision conducts a hearing that follows constitutionally appropriate due process. At this hearing, the applicant puts on evidence tending to show that they are entitled to a variance, and other parties might do the same. At the end of that hearing, the board makes a final decision based on the evidence presented and reduces that decision to writing. This procedure is in contrast to some other types of land use decisions. The range of decision types is discussed in more detail in this post by Adam Lovelady.
The decision is ultimately made by the local government’s board of adjustment. Indeed, the North Carolina Supreme Court has held that granting variances is “[o]ne of the fundamental purposes of zoning boards of adjustment…” Morris Comm. Corp. v. City of Bessemer City Zoning Bd. of Adjust., 365 N.C. 152, 159 (2011). A quick note regarding the term “board of adjustment.” Some local governments give the authority to make quasi-judicial decisions to their planning board or governing board, see G.S. 160D-302(b) and 160D-705(a), but the operation of the criteria and the process remain the same regardless of which board has the duty to make the decision. When this post refers to a “board of adjustment,” that term should be read to apply equally to another board that has the authority to hear variance cases.
As an example, let us imagine that Logan wants to build a microbrewery somewhere in the Town of Fakesville. He finds an ideal site: it looks like just the right size, it has easy access to plentiful clean water, and the local zoning regulations and land use plan favor this spot for a brewery. But there is one little problem – Fakesville’s tree protection regulations require a 40-foot setback around “champion” trees (the really big, really old ones), and one such tree, a great old live oak, sits right in the corner of the lot Logan wants to build on!
Applying the 40-foot setback would mean that Logan’s vats and fermenters would not all fit in the building. Fakesville’s setback rules did not anticipate this kind of situation (how could they have?), but the tree’s roots only extend 16 feet into the setback. Allowing Logan’s brewery to extend 3 feet into the setback would allow him to build the facility he needs while giving the tree room to grow.
Logan only needs three measly feet. What can he do? Will Logan’s run as brewmaster come to an end before it even begins?
What follows is the story of Logan seeking a variance from this setback standard. The remainder of this post will summarize the criteria for granting variances, apply those criteria to the scenario of Logan’s proposed brewery, and suggest some evidence that Logan might put forward.
Two notes about this evidence: First, as discussed in this post on evidence in quasi-judicial matters, Logan does not have to prove his case beyond doubt like a criminal prosecutor. He is only required to put forth some evidence that tends to support findings in his favor (though he will of course want to provide as convincing of evidence as he can in case there are disputed facts). Second, any evidence suggested here should not be taken as a standard requirement for someone seeking a similar variance; the testimony and documents included in the scenario are to be illustrative of the kind of evidence that could be helpful for someone in Logan’s position.
Variances are unique among local land use decisions in that state law—specifically, G.S. 160D-705(d)—sets the criteria for granting a variance from zoning regulations and requires variances to be granted when those standards are met. (other development regulations can provide for variances but are not required to do so). Because variances are provided for in the statutes, they can be granted even where development regulations do not address them, and the criteria are the same regardless of the jurisdiction. G.S. 160D-705(d) establishes the following four criteria for granting a variance:
These criteria can be challenging to apply and therefore require a bit more explanation.
G.S. 160D-705(d)(1): Unnecessary hardship would result from the strict application of the regulation. It is not necessary to demonstrate that, in the absence of the variance, no reasonable use can be made of the property.
The zoning statutes allow variance requests to be granted only when the board concludes that applying the regulation strictly as written would cause unnecessary hardship. The applicant is not required to show that the property lacks any reasonable use. What makes a hardship “unnecessary” is that applying the regulation strictly would result in a significantly greater cost or burden than would be expected.
At the same time, the fact that the applicant does not want to comply or that it is inconvenient or costly to comply is not a legitimate basis for a variance petition. Such costs or inconveniences are, as Justice (later Senator) Sam Ervin noted in a 1949 North Carolina Supreme Court opinion, “a misfortune which [a property owner] must suffer as a member of society.” Financial loss alone is not sufficient to demonstrate a hardship, but it can be a factor. Turik v. Town of Surf City, 182 N.C. App. 427, 434-35, (2007).
So an unnecessary hardship is something more than an inconvenience but something less than a total deprivation of all reasonable use of the property. That leaves a board a great deal of discretion in determining whether a condition rises to the level of an unnecessary hardship. Determining exactly where that line should be drawn requires a case-by-case judgment and is perhaps the single most difficult task for many boards handling variance requests.
Let us return to Logan’s proposed brewery and the champion tree in the corner of his lot. If the champion tree setback rule is strictly enforced, the property cannot be used as a brewery. Taking away an otherwise valuable use of the property is more than a minor inconvenience. At the same time, presumably the same property could be used for a trendy gym or a silversmith’s workshop instead. These are other reasonable uses of the property. How, then, would Logan demonstrate that the hardship his project faces is unnecessary?
One approach Logan might take is to present preliminary drawings of the building to show that the building does not fit within a 40-foot setback, but may fit within a 37-foot setback. This would suggest that the strict application of the setback creates a hardship. He might also provide expert testimony from an arborist, or else some research or other document evidence, to show that the champion tree’s fragile roots near the dripline will not be damaged by allowing a three-foot encroachment into the setback. This would suggest that the hardship is unnecessary, since the tree would still have plenty of room to grow even with the relaxed setback requirement.
G.S. 160D-705(d)(2): The hardship results from conditions that are peculiar to the property, such as location, size, or topography. Hardships resulting from personal circumstances, as well as hardships resulting from conditions that are common to the neighborhood or the general public, may not be the basis for granting a variance. A variance may be granted when necessary and appropriate to make a reasonable accommodation under the Federal Fair Housing Act for a person with a disability.
For a variance to be granted, the hardship also must be caused by circumstances peculiar to the property, such as its size, shape, or natural features. The hardship cannot be one that every lot on the same block, in the same neighborhood, or in the general public, faces. When such a shared hardship occurs, a legislative approach to addressing the issue—such as a text amendment to development regulations—is more appropriate. In addition, the conditions causing the hardship should relate to the property, not to the applicant’s personal circumstances. Like a special use permit, a variance stays with the property, not the applicant. Therefore, it is the property’s characteristics on which the board should focus its attention.
This factor is examined differently for persons with disabilities and accommodations of those disabilities. Normally a variance is granted or denied independent of any personal circumstances of the applicant. However, state law explicitly allows for variances as needed “to make a reasonable accommodation under the Federal Fair Housing Act for a person with a disability.” G.S. 160D-705(d)(2). Thus, a variance might be allowed for a particular resident who needs to install a ramp that might otherwise encroach on a setback or for a resident who needs an elevator not otherwise allowed in their two-story home. This “reasonable accommodation” rule serves as an exception to the typical practice of ignoring the identity and circumstances of the applicant (it also happens to avoid a conflict with federal law!).
Once more to Logan, the tree, and the brewery: Not every property will have a champion tree in the corner, and not every use will require this kind of variance. Logan might demonstrate that his situation is peculiar to his property through aerial imagery from the internet, possibly even from the town’s or county’s online mapping tool, that shows other breweries in town or just the street his property is on. Some boards might simply accept testimony that other uses or other lots would not present the same hardship. As long as the evidence tends to support a finding in Logan’s favor, it is sufficient to meet his burden of proof.
G.S. 160D-705(d)(3): The hardship did not result from actions taken by the applicant or the property owner. The act of purchasing property with knowledge that circumstances exist that may justify the granting of a variance is not a self‑created hardship.
The third criterion is that the hardship must not be self-created; that is, it cannot be caused by the actions of the applicant. For example, Logan did not put the tree where it is and did not subdivide the lot on which his proposed brewery would sit. He has not caused the situation that he seeks a variance to fix.
In contrast, let’s say that the prior owner of the property, Jake, was the one to subdivide the lot. He obtained approval to create this particular parcel as part of a larger light industrial development project. Jake could not obtain a variance to put a brewery on the property, because it was his subdivision that created the situation in the first place. Similarly, if Jake bought the champion tree somewhere else in the world and had it planted in the corner of the lot, he could not then ask for a variance to the setback. Again, it was he who created the conundrum, and the variance statutes will not rescue him from his own mistake.
But wait a minute, what if Logan buys his brewery property knowing that he will need a variance? Did he then cause his own problem? G.S. 160D-705(d)(3) says no. Unlike Jake, Logan did nothing to create the circumstances that led to him seeking a variance. He faces the same hardship that any other owner of the property would face in trying to establish a brewery on the site.
To support a finding in his favor on this criterion, Logan might provide the old subdivision plat, or simply testify that he had nothing to do with bringing this situation about. Again, he only needs to produce evidence that tends to support a finding in his favor. He does not need to confirm beyond a shadow of a doubt that he did not cause the hardship he now faces.
G.S. 160D-705(d)(4): The requested variance is consistent with the spirit, purpose, and intent of the regulation, such that public safety is secured and substantial justice is achieved.
The final criterion is one of general consistency. Even though the variance grants some relief from the development regulation, it should not violate the intention of the ordinance or endanger the public. Variances are intended to be adjustments to the rules, not significant alterations. Thus, to the maximum extent possible, the variance should stay within the bounds of existing rules and priorities. As such, a variance cannot be issued to expand a nonconformity, create a nuisance, or subvert a guiding principle of the regulation.
Further, while variances can be used to adjust setbacks, to reduce landscaping requirements, or to alter most any other aspect of development regulation, a variance cannot be used to allow a permitted use where it would otherwise be prohibited. Although he might get a variance from the champion tree setback requirement, he would not be able to obtain a variance to build a brewery in a zoning district that did not allow breweries. In that situation, Logan would need to request a rezoning to a suitable zoning district rather than a variance.
With regard to the setback, its purpose is presumably to protect the extensive and delicate root systems of champion trees. If the champion tree in the corner of Logan’s lot is still adequately protected by allowing him to develop closer than the usual setback allows, the purpose and intent of the regulation is still served. Depending on one’s perspective, it might have been unjust for a variance to be granted if the tree would be severely damaged or taken out entirely. That would not have been consistent with the purpose of the setback.
A variance hearing will thus involve the applicant producing evidence tending to show that they face an undue hardship that is peculiar to the property and that they did not create, and that granting a hardship would be generally consistent with the jurisdiction’s regulations and plans.
In seeking a variance, the applicant “bear[s] the burden of proving their case and must show … why the variance is needed.” Robertson v. Zoning Bd. of Adjust. for City of Charlotte, 167 N.C. App. 531, 534 (2004). The applicant must produce evidence related to each of the four variance criteria. The law, in G.S. 160D-406(j), describes this evidence as having to be “competent, material, and substantial.” This means (in short) that the evidence must be reliable, relate to the criteria to be applied, and have some tendency to support a finding that one or more criteria are met.
If the applicant does not meet that burden, their application fails. However, if the applicant produces competent, material, and substantial evidence in their favor related to each of the four variance criteria, then the burden shifts. At this point, if no competent, material, and substantial evidence is introduced that would contradict the applicant’s evidence, the board must award the variance.
For more on how a board of adjustment applies the evidence to the criteria in making a quasi-judicial decision, see this post.
The statute also provides that “[a]ppropriate conditions may be imposed on any variance, provided that the conditions are reasonably related to the variance.” Where appropriate, the board of adjustment can grant a variance subject to conditions. However, any condition must be reasonably related to the variance and the standards for its approval.
Thus, the Fakesville board in our example might require some additional steps to be taken to preserve the champion tree, such as avoiding any disturbance to vegetation within the rest of the setback, preserving additional non-champion trees to support the big oak, or creating a landscaping feature that separates and protects the space set aside for the tree. But imposing a condition that Logan include a town slogan like, “Born in Fakesville: where life is as real as it gets” on his brewery’s sign or improve vehicle access to a nearby school would not be allowed.
In summary, variances are used to avoid unnecessary hardships in limited circumstances. Further, in our example and like any other applicant for a variance, Logan needs to demonstrate that (1) applying the regulation strictly as written would cause a substantial hardship, (2) the hardship results from conditions unique to the property, (3) his actions did not create the conditions that have given rise to the hardship, and (4) granting the variance would still be consistent with the purpose of the regulation and would not be unjust or dangerous.
Logan can provide evidence that applying the setback strictly as written would create a hardship for his brewery that is not necessary given the fact that the champion tree would not be harmed by allowing him to build in the setback. He can show that the hardship is unique to this particular property and is not the result of any of his actions. Finally, he can show that adjusting the application of the rule would still protect the champion tree and thus be consistent with the intent of the setback rule. Once he provides competent, material, and substantial evidence on these points, Fakesville’s Board of Adjustment can vary the application of the champion tree setback rule.
Let’s imagine that no one provides competent, material, and substantial evidence to refute Logan’s evidence that a tree setback variance is justified. If Logan can present evidence to support all four variance criteria, the Fakesville Board of Adjustment will grant Logan a variance to encroach into the setback, possibly with some conditions to assure protection of the champion tree. In honor of the tree and his variance, Logan decides to name his brewery Old Oak Brewing Co. and feature it prominently on the label.
]]>The post Local Governments May Owe Their Special Taxing Districts Sales and Use Tax Revenue appeared first on Coates' Canons.
]]>Understanding when that happens requires separating two concepts that are easy to confuse: sales and use tax allocation and distribution. Allocation determines how sales and use tax proceeds are divided among counties. Distribution determines how a particular county’s allocation is then divided within that county, among the county and its eligible municipalities.
This post first explains those allocation and distribution rules for the general local sales and use taxes under Articles 39, 40, and 42 of Chapter 105. It then focuses on what happens when a county uses the ad valorem distribution method, including how to calculate the share attributable to a special taxing district, how that share should be handled in practice, and what a unit should do if it discovers that it has not been making the required district allocations. It also briefly distinguishes the sales and use tax provisions in Articles 43, 44, and 46, which do not follow this same general framework.
North Carolina does not have a single local sales and use tax. Instead, Chapter 105 authorizes several local sales and use taxes in separate Articles, each with its own rules for how the revenue is allocated and distributed.
The three that matter for this discussion are Articles 39, 40, and 42. Article 39 authorizes a 1% local sales and use tax. Article 40 authorizes an additional ½% tax, and Article 42 authorizes another ½% tax. The taxes are imposed locally but administered and collected by the North Carolina Department of Revenue.
[Other Articles address different local sales and use taxes. Article 43 authorizes certain transportation-related sales taxes. Article 46 authorizes an additional ¼% county sales and use tax if approved by the voters. Article 44 is somewhat different; it now primarily contains hold-harmless and redistribution provisions rather than a separate general local-option sales tax. The requirement that sales and use tax proceeds distributed on an ad valorem basis be shared with special taxing districts does not apply to these articles.]
The distinction among the Articles matters because the revenue is not all divided in the same way. To understand how Articles 39, 40, and 42 work—and when special taxing districts must eceive a share—it helps to separate two steps: allocation and distribution.
Allocation determines how much sales and use tax revenue goes to each county. Distribution determines how a county’s allocation is then divided between the county and the eligible municipalities within that county. The same method does not apply at both steps.
Article 40 provides a good example. Article 40 proceeds are generally allocated among counties based on population (per capita), subject to the adjustments in G.S. 105-486. That determines how much each county receives. But the calculation does not end there. Once a county’s Article 40 allocation is determined, that amount must be distributed within the county. For this second step, Article 40 uses the distribution method the county has selected under Article 39. G.S. 105-486(c).
A county chooses between two Article 39 distribution methods: per capita or ad valorem. G.S. 105-472(b). To continue with the example, Article 40 proceeds are allocated among counties based on population and then may be distributed within a particular county using the ad valorem method. Those are not competing rules. They apply at different stages.
Each of these Articles has its own allocation rule, but all three ultimately use the Article 39 rules to distribute the county’s allocation within the county.
That is what brings special taxing districts into the picture. If a county uses the ad valorem distribution method, the property tax levies of certain special taxing districts are included in the calculation, and those districts are entitled to their proportional share of the resulting sales tax proceeds. (Remember that the allocation method does not matter.)
A county is not permanently locked into its existing distribution method. The board of county commissioners may change from per capita to ad valorem, or from ad valorem to per capita, but G.S. 105-472(b) establishes a specific process and timetable. To change methods, the board must adopt a resolution during the month of April selecting the new distribution method. A certified copy of the resolution must be delivered to the Secretary of Revenue within 15 calendar days after adoption. The change does not take effect immediately. The new method applies beginning July 1 of the fiscal year following the succeeding fiscal year. For example, if the commissioners adopt the required resolution in April 2027, the new distribution method takes effect July 1, 2028. If the board does not adopt a resolution changing the method, the county’s existing method continues. The existing method also continues if the county does not timely deliver the certified resolution to the Secretary of Revenue.
And if a county is considering a change to or from the ad valorem distribution method, there is a consequence to consider: the treatment of special taxing districts.
For purposes of this discussion, a special taxing district is an area in which an additional property tax is levied to fund a particular service or purpose. Unlike the countywide or municipal property tax, the additional tax applies only to property within the district or tax area. North Carolina law authorizes several types of special taxing districts.
Rural fire protection districts may be established under Article 3A of Chapter 69. Voters within the district approve an additional property tax to fund fire protection, and the county levies and collects the tax. G.S. 69-25.1.
Counties also may establish county service districts under Article 16 of Chapter 153A. These districts allow a county to provide and fund specified services within a defined area of the county. Authorized services applicable to all counties include fire protection, recreation, water, sewer, solid waste, ambulance and rescue services, beach erosion control and flood and hurricane protection, cemeteries, and watershed improvement projects. G.S. 153A-301. Fire protection is one of the most common uses of county service districts.
Municipalities may establish municipal service districts under Article 23 of Chapter 160A. These districts fund additional services or improvements within a defined part of the municipality. They are commonly used for downtown or urban area revitalization, although the statutes authorize a number of other purposes, including beach erosion control and flood and hurricane protection works, drainage, sewer, transit, off-street parking, watershed improvement projects, historic district projects, and conversion of private residential streets to public streets. G.S. 160A-536.
There also may be special school tax districts or areas. Under Article 36 of Chapter 115C, voters may approve an additional property tax within a local school administrative unit, school district, or other school tax area to supplement State and county school funding. G.S. 115C-501.
These districts differ in how they are created, what services they provide, and how their revenues may be spent. But they share one feature that matters for the sales and use tax calculation: a county or municipality levies and collects property taxes on behalf of the district or special tax area.
Under G.S. 105-472(b)(2), the ad valorem method distributes sales and use tax proceeds based on the relative property tax levies of the county and its municipalities. There is a two-step calculation. First, the county and municipalities receive their respective shares based on their total qualifying property tax levies. Second, each county or municipality shares the appropriate portion of its distribution with the special taxing districts whose levies were included within its total.
The first step is to determine the property tax levy for each unit. For this purpose, a county’s or municipality’s levy includes both its general property tax levy and the property tax levies of its special taxing districts. (The statute also specifically includes in a county’s levy property taxes levied for a merged school administrative unit described in G.S. 115C-513 on property located within that county.) The district levies are included within the county’s or municipality’s total levy. They are not treated as separate levies when the sales tax proceeds are initially divided among the county and municipalities.
An example helps illustrate the calculation.
Suppose County A has two municipalities, Town X and Town Y. Their property tax levies are:
The total property tax levy used to distribute the sales tax proceeds is $100 million. Fire Tax District A’s $6 million levy is already included in County A’s $60 million total.
Assume there is $10 million in Articles 39, 40, and 42 sales and use tax proceeds to distribute within the county. County A’s $60 million levy represents 60 percent of the $100 million total levy, so County A receives $6 million. Town X receives $2.5 million, and Town Y receives $1.5 million.
There is then a second calculation for any special taxing district levy included within a county’s or municipality’s total levy. G.S. 105-472(b)(2) requires the county or municipality to immediately share its sales tax proceeds with each district on behalf of which it levied property taxes, in proportion to the district’s share of the unit’s total levy.
Here, Fire Tax District A’s $6 million property tax levy represents 10 percent of County A’s $60 million total levy. The district therefore receives 10 percent of County A’s $6 million sales tax distribution, or $600,000. The remaining $5.4 million belongs to the county.
The same calculation applies when a municipality levies property taxes for a special taxing district. Suppose $5 million of Town X’s $25 million levy is for a downtown municipal service district. That $5 million is included within Town X’s $25 million levy when Town X’s share of the sales tax proceeds is calculated. Because the district levy represents 20 percent of Town X’s total levy, 20 percent of Town X’s $2.5 million sales tax distribution—or $500,000—is belongs to the municipal service district.
To repeat the basic rule: when a special taxing district levy is included in determining a county’s or municipality’s share of the sales and use tax distribution for Articles 39, 40, and 42 using the ad valorem method, the district receives the corresponding proportional share of that distribution. (A special taxing district does not get a share of the sales and use taxes if the county has selected the per capita distribution method for Articles 39, 40, and 42.)
The district’s share of the sales and use tax proceeds does not just need to be accounted for as district revenue. Once sales and use tax proceeds are allocated to a special taxing district fund under G.S. 105-472(b)(2), those proceeds are legally restricted to the purposes for which that district was created.
This applies to all special taxing districts included in the ad valorem distribution calculation. The particular purposes will vary depending on the statutory authority for the district. A fire district’s sales and use tax share must be used for its authorized fire protection purposes. A county or municipal service district’s sales and use tax share must be used for the services or purposes for which that district was established. A school supplemental tax district’s sales and use tax share must be used for the authorized supplemental school purposes.
The governing board cannot allocate the sales and use tax proceeds to a district fund and later transfer them to the general fund or use them for an unrelated purpose. The district’s share of the sales and use tax proceeds is legally restricted to the authorized purposes of that district and cannot be diverted by the governing board to other purposes.
A county or municipality may discover that the Department of Revenue has been including special district property tax levies in calculating the relevant shares of the ad valorem sales and use tax distribution but has not been giving the districts their proportional shares of the resulting proceeds. The local unit must correct this going forward. Current and future sales and use tax proceeds should be properly allocated to the affected districts and accounted for in the appropriate district funds.
What to do about prior years is more complicated. G.S. 105-472(b)(2) requires the sharing of the proceeds but does not specifically address how a county or municipality should correct a historical failure to make those distributions. There also may be statute-of-limitations issues affecting how far back a correction must extend. See G.S. 1-52(2) (providing a three-year limitations period for an action upon a liability created by statute). A local government that discovers a historical problem should consult its attorney about whether and how prior years must be addressed. The finance officer and auditor also should be involved in determining the appropriate budget and accounting treatment.
The uncertainty about prior years does not change the obligation going forward. If a special district’s property tax levy is being counted in the ad valorem calculation, the unit must properly identify, account for, and restrict the district’s share of the resulting sales and use tax proceeds.
]]>The post State Appropriations Act Shifts Potential Federal SNAP Benefit Cost-Sharing to North Carolina Counties appeared first on Coates' Canons.
]]>The Federal Background: SNAP and H.R. 1
To understand why the General Assembly enacted this legislation, it is helpful to begin with recent changes in federal law.
SNAP is a federally funded program that provides food assistance to low-income individuals and households. In North Carolina, this program is referred to as “Food and Nutrition Services” (FNS) and was historically known as the “food stamp” program. Eligible families and individuals receive SNAP benefits through a monthly allocation on an Electronic Benefit Transfer (EBT) card, which can be used to buy groceries. In North Carolina, a family or individual that wants to apply for SNAP benefits must do so through their county department of social services, which is responsible for determining whether that family or individual is eligible for SNAP.
Historically, the federal government has:
That funding structure changed with Congress’s enactment of H.R. 1, the “One Big Beautiful Bill Act” (Public Law 119-21), in 2025. Among numerous changes to the SNAP program, which I have discussed previously in this blog post, Congress established two significant changes to the federal-state funding model for SNAP:
In the 2026 Appropriations Act, the General Assembly addressed the second change—specifically, how North Carolina will fund any future amount it owes towards SNAP benefit costs based on the statewide SNAP payment error rate as a result of Public Law 119-21.
What’s the SNAP Payment Error Rate?
“Payment error rate” refers to the percentage of SNAP benefit payments that were made incorrectly based on a sample of participating households, which includes both overpayment and underpayment of benefits. See 7 USC § 2025(c)(2). According to USDA data, the national average for state payment error rates in federal FY 2025 was 10.62%. The triggering threshold for the new state SNAP benefits payment obligations under Public Law 119-21 is a state payment error rate over 6%. In federal FY 2025, only ten states had a payment error rate under 6%.
North Carolina’s SNAP payment error rate was 7.36% in federal FY 2025. Accordingly, North Carolina predicts owing 5% of the SNAP benefit cost share in federal FY 2028 (Oct. 1, 2027 – Sept. 30, 2028) or an estimated $150 million towards the cost of SNAP benefits. The 2026 Appropriations Act establishes how counties will be held responsible for this cost.
What is the Cost-Sharing Formula Established by the 2026 Appropriations Act (G.S. 108A-52.2)?
The new G.S. 108A-52.2 establishes that if federal law requires North Carolina to pay a portion of SNAP benefits, the N.C. Secretary of Revenue must withhold amounts from each county’s sales tax allocation, based on a formula established in the statute. The statute becomes effective October 1, 2027 and applies to withholdings from county sales tax distributions on or after that date.
Under G.S. 108A-52.2, each county’s benefit cost-share amount—the amount to be withheld from sales tax allocation—will be based on the sum of two different assessments:
How is the Proportional Assessment Calculated?
To understand how the proportional assessment is calculated, a county must first understand its assessment factor, which the law defines as “the product of a county’s penalty factor and its base year sales tax allocation.” The county’s penalty factor is the ratio of a county’s portion of the statewide SNAP payment error rate dollar amount attributable to a county, expressed as a decimal. For example, if a county was responsible for $978 of the state’s $24,442 total error dollars for a year, the county’s penalty factor would be 0.04. The county’s base sales tax allocation is defined as “[t]he net proceeds of the tax collected under Articles 39, 40, and 42 of Chapter 105 of the General Statutes and allocated to a taxing county during the most recently completed State fiscal year.”
By way of illustration, if a county was responsible for $978 of the state’s $24,442 total error dollars for a year (0.04 penalty factor) and had a base sales tax allocation of $50 million, the county’s assessment factor would be $2,000,000 (0.04 x $50,000,000).
The county’s assessment factor is then multiplied by a fraction, the numerator of which is the total state SNAP benefit cost-share (i.e. the estimated amount of SNAP benefits the state must pay per federal law in a given fiscal year based on its payment error rate) minus the sum of all counties’ flat assessments, and the denominator of which is the sum of all counties’ assessment factors. The formula looks like this:
[[State SNAP benefit cost-share amount] minus [Sum of 100 counties’ flat assessments]]
divided by
[Sum of 100 counties’ assessment factors]
For federal FY 2025, the state’s SNAP payment error dollar total was $24,442. Forty-six counties had error dollars contributing to that total, ranging from $61 to $4,030 per county. If the state has an error rate over 6% in future fiscal years, even counties with no payment error dollars will have 0.75% of their base year sales tax allocation withheld (through the flat assessment). For some counties, these withholdings will cost tens or hundreds of thousands in revenue, and for others, millions in revenue.
How Will the Sales Tax Allocation Withholding Work?
On or before October 1 of each year, NCDHHS will calculate and notify the N.C. Secretary of Revenue of each county’s benefit cost-share amount. The Department of Revenue must then withhold from each county’s monthly base year sales tax allocation the county’s annual benefit cost-share amount divided by 12 (or otherwise, an appropriate amount to ensure sufficient monthly transfers are made to reach the state’s SNAP benefit cost-share obligation by the required date). The Secretary of Revenue will remit the withheld amounts to NCDHHS to pay the state’s SNAP benefit cost-share.
Based on the statutory language, it appears that the withholding will be based on the total amount of base year sales tax allocated to the county, before the split between counties and municipalities is done by the Department of Revenue. That would mean that municipalities will also be impacted by this withholding, because it will reduce the entire allocation, not just the county’s share of the allocation.
Practical Implications for Counties
County officials have already begun evaluating potential budget implications from this change, along with the increase in SNAP administration costs. County finance officers may want to monitor future federal guidance implementing Public Law 119-21 (H.R. 1), as well as state guidance from NCDHHS. The amount of any state obligation will depend upon federal calculations of North Carolina’s SNAP payment error rate.
County departments of social services are facing heightened attention to eligibility determinations and payment accuracy, at a time when some of those departments are also dealing with workforce shortages and high turnover rates. Because part of the funding formula under the 2026 Appropriations Act is tied to county-attributable payment errors, investments in additional staff, managing case load size, training, and quality assurance may have long-term fiscal implications for counties.
Funding for State-Level SNAP Improvements
In addition to establishing the cost-sharing formula described above, the 2026 Appropriations Act (Section 9B.7.(a)) appropriates funding to NCDHHS to improve SNAP administration– $2.58 million in recurring funds beginning in FY 2026-2027 and $2.5 million in nonrecurring funds for FY 2026-2027. This money must be spent on the following items:
While this funding is intended to improve county SNAP administration through state-level SNAP oversight, tools, and technical assistance, this section of the Appropriations Act does not allocate any money directly to counties to assist with the improvement of SNAP administration or SNAP program staffing at county departments of social services.
Looking Ahead
Historically, states have relied on the federal government to finance SNAP benefit payments. Congress, through the enactment of Public Law 119-21, has altered the federal-state relationship for the SNAP program by authorizing federal benefit cost-sharing for states with SNAP payment error rates of greater than 6% (in addition to increasing state responsibility for administrative costs). North Carolina’s response through the 2026 Appropriations Act is to allocate that potential state cost-sharing obligation largely to counties through reductions in local sales tax distributions.
The extent to which counties ultimately experience sales tax allocation withholding will depend on North Carolina’s future payment error rates. Nevertheless, G.S. 108A-52.2 is significant because it links county revenues to statewide SNAP payment accuracy in a way not previously seen in North Carolina law.
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