N.C. Local Government Finance Policy Manual

1.0 Introduction

The authority to raise money and to expend it for purposes varies among the different types of local entities. Almost all local entities are subject to a uniform set of rules governing fiscal management, though. Most of these rules are contained in a series of statutory provisions known as the Local Government Budget and Fiscal Control Act (LGBFCA). The act comprises Article 3 of Chapter 159 of the North Carolina General Statutes (hereinafter G.S.). It prescribes for North Carolina local governments and public authorities “a uniform system of budget adoption and administration and fiscal control,” detailing the proper procedures for budgeting, managing, disbursing, and accounting for public funds. [G.S. 159-7(c)]. There are other statutes that apply to specific finance processes, such as competitive procurement, disposal of property, and borrowing money, but the LGBFCA is the main set of financial management provisions.

The LGBFCA covers five main topic areas, including Finance Personnel and Local Government Commission (LGC), Budgeting Public Funds, Managing Public Funds, Disbursing Public Funds, and Accounting for Public Funds. This chapter focuses on the first category; it discusses which local entities are subject to the LGBFCA and introduces the various actors involved in ensuring compliance with the act’s provisions. Other chapters cover the requirements of the LGBFCA in the remaining topic areas.

1.1 Entities Subject to the Local Government Budget and Fiscal Control Act

Before delving into the requirements of the Local Government Budget and Fiscal Control Act (LGBFCA), it is important first to determine if a particular local entity is covered by the act. There are two types of entities that are subject to the act— “units of local government” and “public authorities.” (G.S. 159-7). Most local entities can be characterized as one of these two types. Almost all the act’s requirements and limitations apply equally to both, but occasionally units of local government are treated differently from public authorities. It is therefore important to know if a local entity is a unit of local government or a public authority to determine if the entity is subject to the LGBFCA and, if so, to determine which of the act’s provisions apply.

1.1.1 Unit of Local Government

A unit of local government is defined as “a municipal corporation that is not subject to the State Budget Act . . . and that has the power to levy taxes . . . and all boards, agencies, commissions, authorities, and institutions thereof that are not municipal corporations.” [159-7(b)(15)]. There are three important components to this definition. First, the entity must be a municipal corporation. A municipal corporation is a public agency with corporate status. Despite the term “municipal,” it refers to all local government entities, not just municipalities. If the enabling legislation for a local entity specifically states that it is a municipal corporation or otherwise indicates that the entity is a “body corporate and politic” or a “public corporation,” then the entity is a municipal corporation. [See generally Carolina-Va. Coastal Highway v. Coastal Tpk. Auth., 237 N.C. 52, 61 (1953) (“[A] corporation formed for purely governmental purposes is a municipal corporation.”); Wells v. Hous. Auth. of City of Wilmington, 213 N.C. 744, 750, 197 S.E. 693, 697 (1938) (“[W]hen applied to corporations the words ‘political,’ ‘municipal,’ and ‘public’ are used interchangeably.”)].

Second, the entity may not be part of the state’s budgeting system. G.S. Chapter 143C, known as the State Budget Act, governs the budgeting and expenditure of state money by state agencies. Although local entities are subject to several provisions of the State Budget Act with respect to the receipt of state funds, they are not required to comply with the actual budgeting requirements of the act. Note that before Fiscal Year 2007–2008, the terms “unit of local government” and “public authority” in G.S. 159-7 were defined as not being subject to the provisions in G.S. Chapter 143, Article 1, and G.S. Chapter 143, Article 1, did not define the entities subject to its provisions to include units of local government and public authorities. However, G.S. Chapter 143 was repealed as of July 1, 2007, and replaced with G.S. Chapter 143C. Somewhat confusingly, G.S. Chapter 143C does include units of local government and public authorities in its definition of entities subject to its provisions. This appears to be a drafting oversight. It is commonly understood that units of local government and public authorities are subject to the budgeting requirements of the LGBFCA and not the State Budget Act.

Third, the local entity must have the power to levy taxes. Based on this definition, the following local entities constitute units of local government:

• counties (G.S. Chapter 153A);
• municipalities (cities, towns, villages*), (G.S. Chapter 160A);
• consolidated municipal-county governments (G.S. Chapter 160B);
• sanitary districts (G.S. Chapter 130A, Article 2, Part 2);
• county water and sewer districts (G.S. Chapter 162A, Article 6);
• metropolitan sewerage districts (G.S. Chapter 162A, Article 5);
• metropolitan water districts (G.S. Chapter 162A, Article 4);
• mosquito control districts (G.S. Chapter 130A, Article 12, Part 2);
• special airport districts (G.S. Chapter 63, Article 8);
• regional public transportation authorities (G.S. Chapter 160A, Article 26).

*Unless a statute specifically provides otherwise, there is no legal difference among a city, town, or village in North Carolina. Therefore, the term “municipality” is synonymous in this chapter with “city,” “town,” and “village.”

For purposes of the LGBFCA, a unit of local government also includes all boards, agencies, commissions, authorities, and institutions that are established or created by the unit’s governing board or that are not themselves municipal corporations. Governing boards often appoint citizen advisory boards for the administration of libraries and parks and recreation. Counties and municipalities also are served by functional boards and commissions in the areas of health, social services, elections, and planning. If these entities are not municipal corporations (and many are not) then their fiscal affairs are the responsibility of the county, municipality, or other unit of government with which they are associated. There are some boards and commissions established by local act that are invested with corporate status.

Occasionally, the LGBFCA refers to a “special district.” A special district is a unit of local government “created for the performance of limited governmental functions or for the operation of a particular utility or public service enterprises.” [G.S. 159-7(b)(13)]. Any local entity that meets the definition of a unit of local government set forth above that is not a county, municipality, or consolidated municipal-county government is a special district for purposes of the LGBFCA (see the last seven items in the above list).

1.1.2 Public Authority

A local entity also is subject to the LGBFCA if it is a public authority. This is an umbrella term that covers a variety of special-purpose local government entities. G.S. 159-7(b)(10) defines two different categories of public authorities. The first has three distinguishing characteristics, two of which are analogous to a unit of local government. First, the local entity is a municipal corporation, and second, it is not part of the state’s budgeting system. The third and differentiating characteristic, however, is that the entity does not have the power to levy taxes. Under this definition, the following local entities are public authorities:

• housing authorities (G.S. Chapter 157, Article 1);
• redevelopment commissions (G.S. Chapter 160A, Article 22);
• water and sewer authorities (G.S. Chapter 162A, Article 1);
• soil and water conservation districts (G.S. Chapter 139, Article 1);
• parking authorities (G.S. Chapter 160A, Article 24);
• public transportation authorities (G.S. Chapter 160A, Article 25);
• tourism development authorities (local act);
• regional transportation authorities (G.S. Chapter 160A, Article 27);
• regional natural gas districts (G.S. Chapter 160A, Article 28);
• single- and multi-county public health authorities (G.S. Chapter 130A, Article 2, Part 1B).

There are four categories that need further consideration. A county’s or municipality’s governing board may adopt a resolution assuming responsibility for the fiscal affairs of a housing authority. If a unit adopts such a resolution, the housing authority is not a public authority for purposes of G.S. 159-7(b); rather, it is a department or agency of the county or municipality (G.S. 157-4.2). A county’s or municipality’s governing board also may adopt a resolution assuming responsibility for the fiscal affairs of a redevelopment commission. If a unit adopts such a resolution, the redevelopment commission is not a public authority for purposes of G.S. 159-7(b); rather, it is a department or agency of the county or municipality (G.S. 160A-505.1). Several soil and water conservation districts are treated as departments of the counties in which they are located. Although technically still public authorities and thus independently subject to the LGBFCA, these districts often rely on county governments to manage most if not all their fiscal affairs. Finally, many local governments are authorized to levy occupancy taxes pursuant to local act. The local acts establishing this authority often require a local unit to establish a tourism development authority (TDA) to manage the expenditure of occupancy tax proceeds. TDAs typically are municipal corporations that are not subject to the state’s budgeting system and not authorized to levy taxes.

The second type of public authority has five distinguishing characteristics. First, it is not a municipal corporation. Second, it is not part of the state’s budgeting system. Third, it has no power to levy taxes. Fourth, it operates on an area, regional, or multi-unit basis. Fifth, it is not part of the budgeting and accounting system of a unit of local government. The last two characteristics are particularly important. As mentioned above, there are many local entities that are not municipal corporations, are not part of the state budgeting system, and lack the power to levy taxes. In fact, most of the boards, agencies, commissions, authorities, and institutions of a unit of local government satisfy these criteria. Very few are not part of the budgeting and accounting system of a unit of local government, though. Local entities that satisfy this second definition of public authority include the following:

• councils of government (G.S. Chapter 160A, Article 20, Part 2);
• regional planning commissions (G.S. Chapter 153A, Article 19);
• regional economic-development commissions (G.S. Chapter 158, Article 2);
• regional planning and economic-development commissions (G.S. Chapter 153A, Article 19);
• single- and multi-county area mental health, developmental disabilities, and substance abuse authorities (G.S. Chapter 122C, Article 4, Part 2);
• district health boards (G.S. Chapter 130A, Article 2, Part 1);
• regional libraries (G.S. Chapter 153A, Article 14; G.S. Chapter 160A, Article 20).

Sometimes a public authority that is independently subject to the LGBFCA chooses to contract with another local entity to perform many or even all its duties under the act. For example, many tourism development authorities (TDAs) contract with the county or municipality with which they are associated to manage, disperse, and properly account for their funds. And, though technically independent public authorities, several soil and water conservation districts rely on the county governments with which they are associated to adopt their budgets and perform some or all other financial management duties. In these cases, the governing board of the public authority still is responsible for ensuring full compliance with the LGBFCA.

There are a few special-purpose local governments that are not public authorities, including local school administrative units and Alcoholic Beverage Control (ABC) boards. These entities are subject to separate budgeting and fiscal control provisions, although many of the requirements are parallel to those in the LGBFCA. Local school administrative units are governed by the School Fiscal Control Act, located in G.S. Chapter 115C, Article 31. The budgeting and fiscal management requirements for ABC Boards are found in G.S. 18B-702.

1.1.3 Private Entities Not Subject to LGBFCA

If an entity is not a unit of local government or a public authority, or a department, agency, board, commission, or institution of one of these entities, it is not subject to the LGBFCA. This may seem obvious, but some private entities, such as nonprofits, are closely aligned with, and even created by, government entities. G.S. 159-42.1 explicitly authorizes a public authority to create a nonprofit corporation. Many counties and municipalities also have established nonprofit corporations, pursuant to their general administrative authority, to aid in fundraising or other support efforts. A local government or public authority must notify the state Local Government Commission if it creates a nonprofit. [G.S. 159-7(e)].

A nonprofit may receive most, if not all, of its funding from the government. It may be treated as a component unit of a local government under applicable accounting rules. And, at times, it may even effectively be controlled by a local entity through board appointments or budget-approval requirements. Because of its close ties to a public agency, a nonprofit may be treated as a public agency for some purposes. For example, a nonprofit agency that has close enough ties to a government entity may be subject to public records laws and open meetings laws that typically apply only to public agencies. Such a nonprofit likely would not be subject to the LGBFCA, though, because it does not satisfy the definition of a covered entity.

1.1.4 Contractual and Statutory Fiscal Management Requirements for Nonprofits and Other Private Entities Contracting with Local Governments

A local government or public authority may contract with a nonprofit or other private organization to carry out a function, service, or activity that the local government has statutory authority to undertake itself. And, a local unit may, require a nonprofit or other private organization to comply with some or all the LGBFCA’s provisions as a condition of contracting with the local entity and receiving public funds. In fact, the LGBFCA specifies that if a county or municipality appropriates $1,000 or more to a nonprofit corporation in any fiscal year, the local unit may require that the nonprofit have an independent audit performed for the fiscal year in which the funds were received and provide a copy of that audit to the local government. (G.S. 159-40). The statute exempts certain entities from this requirement—most significantly, nonprofits that “provide hospital services or operate as a volunteer fire department, rescue squad, or ambulance squad. . ..” (G.S.159-40). The statute also exempts nonprofits that operate as junior colleges, colleges, or universities duly accredited by the southern regional accrediting association, as well as those that provide sheltered workshops, adult development activity programs, private residential facilities for the intellectually or developmentally disabled, and developmental day care centers.

While a local entity may require these exempt nonprofits to provide an accounting of how any public funds were expended during a fiscal year, the entity is prohibited from requiring that exempt nonprofits undergo independent audits. A local entity also is free to require any nonprofits (including those exempt from the independent audit requirement) or other private entities to comply with any of the other LGBFCA provisions as a condition of doing business with the government or receiving public funds.

State law also requires a nonprofit that receives more than $5,000 of public funds (from a local government, the state, or the federal government) within a fiscal year, in grants, loans, or in-kind contributions, to provide the following information upon written request from any member of the public:

1. The nonprofit’s latest financial statements. The financial statements must include a balance sheet as of the end of the fiscal year and a statement of operations for that year. They also must contain “details about the amount of public funds received and how those funds were used.” [G.S. 55A-16-24(a); G.S. 55A-16-20].
2. The nonprofit’s most recently filed Internal Revenue Service (IRS) Form 990, Form 990-EZ, or a copy of its Form 990-N submittal confirmation. A nonprofit may redact information not required for public disclosure pursuant to 26 U.S.C. § 6104(d)(3). Alternatively, a nonprofit may satisfy this requirement if it posts this information on its website or if another entity posts the information as part of a database of similar documents. The information must be accessible by the general public without charge. Also, if another entity maintains the information, the nonprofit must include a link to the other entity’s website on its own website. [G.S. 55A-16-24(a)].

The act exempts a few entities from disclosing this information because they already are required to report it to a state agency: (1) nonprofits required to report to the N.C. Medical Care Commission, (2) nonprofits required to report to the state Local Government Commission, and (3) certain private colleges required to report to the state. These entities must provide information on their public websites about how to access the information, though. [G.S. 55A-16-24(b)].

Finally, if a local government or public authority is using federal grant monies to fund a contract with a nonprofit or other private entity, additional federal compliance requirements will apply to both the local unit and the private entity.

1.2 Ensuring Compliance with the LGBFCA

For those local entities that are subject to the Local Government Budget and Fiscal Control Act (LGBFCA), who within the entity is responsible for ensuring compliance with the act’s provisions? A local entity’s governing board ultimately is responsible for directing and overseeing the financial management of the entity and for ensuring the integrity of the unit’s fiscal internal controls. The LGBFCA assigns some functions to specific finance personnel, though. In addition, the state Local Government Commission (LGC) is legally responsible for monitoring and ensuring the fiscal health of all local entities subject to the LGBFCA.

1.3 Governing Board’s Financial Management Duties

A local entity’s governing board is responsible for the entity’s financial management. [See generally G.S. 153A-12 (counties) and G.S. 160A-12 (municipalities)]. In this vein, the board’s most important job is to set the tone at the top. The board must establish an expectation that all officials and employees will comply with financial policies and other internal controls. To hold others accountable, board members need to abide by strict internal controls and statutory compliance. The board also needs to develop sufficient knowledge and understanding of the unit’s finances. Board members, however, do not generally perform specific financial management tasks. These are assigned or delegated to staff members. There are certain, non-delegable duties that the LGBFCA assigns specifically to the governing board:

Budget Amendments. The governing board must adopt (and make any amendments to) the entity’s annual budget ordinance. (G.S. 159-13, -15). The board may delegate to the entity’s budget officer the authority to move moneys among appropriations within a fund in the annual budget ordinance. The budget officer must report any such changes to the board at its next meeting. If a unit adopts or amends one or more project ordinances, these actions also must be taken by the governing board. (G.S. 159-13.2). There is no authority to delegate any movement of moneys within a project ordinance to the entity’s budget officer.

Select Official Depositories. The board must select the entity’s official depositories (bank accounts). (G.S. 159-31).

Select Auditor, Receive Audit, and Respond to Audit. The board also must select the entity’s auditor, execute the audit contract, receive the yearly audit report, and respond in writing to the LGC about any material deficiencies or financial performance indicators of concern. (G.S. 159-34).

Appoint Finance Positions. Finally, the board must designate one or more individuals to serve certain statutory roles related to financial management—specifically, the budget officer (G.S. 159-9), tax collector (G.S. 105-349), deputy finance officers (G.S. 159-28), and the finance officer (G.S. 159-24). Under the council-manager form of government, the finance officer typically is appointed by, and serves at the pleasure of, the local unit’s manager. (See G.S. 153A-82 for counties and G.S. 160A-148 for municipalities). If the budget officer, tax collector, or finance officer is fired, resigns, or is otherwise unable to carry out the position’s assigned duties, the governing board must ensure that a successor is appointed as soon as possible. As discussed below, there are several statutory duties that may be carried out only by individuals officially appointed to one of these positions.

1.4 Budget Officer

The LGBFCA requires each local government and public authority to appoint a budget officer. (G.S. 159-9).

1.4.1 Duties of Budget Officer

The budget officer has two main duties: (1) to prepare the entity’s annual budget for submittal to the governing board and (2) to execute the local entity’s annual budget ordinance and any project ordinances. These are fairly substantial duties. The individual who serves in this role often is a conduit between the unit’s or authority’s departments and staff members and its governing board. The budget officer provides a technical review of departmental requests and estimates to ensure accuracy and completeness. More importantly, he or she is in a position to critically evaluate departmental needs and recommend funding levels for various services and projects that are consistent with the unit’s overall priorities and goals.

1.4.2 Who Can Serve as Budget Officer?

The budget officer is appointed by, and serves at the pleasure of, the entity’s governing board. The board’s appointment discretion is limited by statute, though. (G.S. 159-9). Who can or must serve as the budget officer differs both by type of local entity and by type of governance structure.

In counties or municipalities with the manager form of government, the county or municipal manager must serve as the budget officer. (All 100 counties currently have the manager form of government.) In municipalities that do not have the manager form of government, the governing board may impose the duties on any municipal officer or employee, including the mayor if the mayor agrees to undertake them. A public authority may impose the duties of the budget officer on the chairman or any member of its governing board of any other officer or employee. (G.S. 159-9).

Questions sometimes arise, particularly in smaller units, as to whether a governing board member may serve as a manager and, therefore, budget officer. For municipalities with the manager form of government, the mayor or another council member may not serve as the manager and thus may not serve as the budget officer. (See G.S. 160A-151). The mayor and members of the council also are ineligible to serve as manager or budget officer on an acting for interim basis. For counties with the manager form of government, the board may confer the duties of county manager and, therefore, county budget officer, on its chairperson or on another member of the board of commissioners. A board member may receive reasonable compensation for serving in this capacity. (G.S. 153A-81).

1.4.3 Delegating Budget Officer Duties in Units with Manager Form of Government

In some units in which the manager is the statutory budget officer, a budget director, who reports to the manager (or occasionally to the finance officer), actually performs most of the duties of the budget officer. The manager remains legally responsible for the budget officer’s statutory duties, though, and should establish policies and procedures to ensure proper oversight.

1.5 Finance Officer

The LGBFCA also requires the governing board of each local government and public authority to designate a finance officer: “each local government and public authority shall, at all times, have a finance officer appointed by the local government, public authority, or designated official to hold office at the pleasure of the appointing board or official.” (G.S. 159-24).

1.5.1 Duties of Finance Officer

Sometimes referred to as accountant, treasurer, finance director, or chief financial officer, or any other responsibly descriptive title (G.S. 159-24), the individual in this position is legally responsible for performing the following duties:

• establishing and maintaining the unit’s accounting system, in accordance with G.S. 159-26;
• controlling expenditures and disbursing moneys;
• preparing and presenting financial reports;
• managing the receipt and deposit of moneys, including routinely auditing accounts of other officials and employees;
• managing the unit’s debt service obligations;
• supervising investments, in accordance with G.S. 159-34. (G.S. 159-25).

The finance officer is not limited to executing just these statutory duties. At the behest of the governing board, he or she may perform or supervise other functions for the unit. [G.S. 159-25(a)(7)]. It is not uncommon, for example, for a finance officer to be involved with budgeting, purchasing and contracting, utilities, information technology, risk management, and even general administration of the unit.

1.5.2 Who Can Serve as Finance Officer?

The duties of the finance officer “may be imposed on the budget officer or any other officer or employee on whom the duties of budget officer may be imposed.” (G.S. 159-24). However, the Machinery Act (Subchapter II of G.S. Chapter 105), which governs the assessment and collection of property taxes, forbids conferring the duties of tax collector and finance officer on the same person except with the written permission of the secretary of the Local Government Commission (LGC). [G.S. 105-349(e)]. For municipalities, any other person or official who may serve as budget officer also may serve as finance officer, and the two positions may be combined. For counties, the sheriff may not be appointed finance officer, and in counties with a population greater than 7,500, the register of deeds may not be appointed finance officer. Otherwise, any other person or official who may serve as budget officer also may serve as finance officer, and the two positions may be combined. (See G.S. 159-24,-9).

The individual serving as finance officer need not be a certified public accountant (CPA) or hold any specific degrees or certifications, but he or she should be well versed in the legal and financial rules, regulations, and best practices governing public finance. There are two threshold legal requirements that must be satisfied before the finance officer may assume the duties of the position: (1) the individual must be bonded and (2) the individual must take the oath of office (discussed below). The LGC may impose additional minimum qualifications for finance officers. [G.S. 159-25(c)].

1.5.3 Who Appoints the Finance Officer?

Who appoints a finance officer varies by jurisdiction. For a county or municipality without the manager form of government, as well as for public authorities, the governing board normally makes the appointment. For a county or municipality with the manager form of government, the manager is empowered to designate the finance officer. (See G.S. 153A-82 for counties and 160A-148 for municipalities). Occasionally, a municipal charter will specify that the finance officer be appointed by the board. In those cases, the charter provisions control. The finance officer serves at the pleasure of whomever makes the appointment.

1.5.4 Interim or Acting Finance Officer

If the finance officer quits or is terminated, the governing board must appoint another qualifying employee or official to perform the finance officer duties until a replacement is hired.

1.5.5 Bonding Requirement

The finance officer must “give a true accounting and faithful performance bond with sufficient sureties in an amount to be [set] by the governing board.” (G.S. 159-29). At a minimum, the amount of the bond must be the greater of the following: (1) $50,000 or (2) an amount equal to 10 percent of the local unit’s annually budgeted funds, up to a maximum coverage of $1,000,000. (That is the maximum bond amount of $1,000,000.) (G.S. 159-29).

A finance officer “is bound to perform the duties of his office faithfully, and to use reasonable skill and diligence, and to act primarily for the benefit of the public.” [See Avery County v. Braswell, 215 N.C. 270, 275 (1939) (quoting 22 R.C.L. 461, Public Officers, Section 124)]. A true accounting and faithful performance bond typically insures for loss sustained by the failure of an employee to properly account for all moneys and property received by virtue of his or her position or the failure to otherwise faithfully perform his or her other duties. The bond inures to the benefit of the unit, and it typically covers acts or omissions due to the finance officer’s negligence, carelessness, or incompetence. “Where a public officer is required to give a bond for the faithful performance of the duties pertaining to his office, the engagement of the surety executing the bond rests on the same legal obligation as is imposed by law upon the officer himself.” Braswell, 215 N.C. at 275. The bond does not protect the bonded finance officer. In fact, if a bonding company makes good any loss to the protected unit, the right to recover the loss directly from the defaulting employee succeeds to the unit. The unit’s governing board pays the premium for the bond.

Position bond not allowed. May a unit procure a bond for the position of finance officer (sometimes referred to as a position bond) that would offer coverage no matter who occupies the position at any given time? The answer is no. The statute states that a “person who is unable to secure the bond required by this section cannot assume the duties for which a bond is required under this section.” [G.S. 159-29(b)]. The purpose of the bonding requirement is to protect the unit from actions or inactions of the specific employee. In order to be fully protected, a unit needs to ensure that the individual who serves as finance officer actually is covered by the bond. If a unit procures a position bond, that bond may not cover certain individuals—for example, persons with criminal records or those who have committed other dishonest acts. Some units run background checks on potential employees. Others do not; thus, a unit may not realize that a particular employee does not qualify for bond coverage until it seeks to apply for the bond. Once hired, the finance officer also must remain bondable during his or her full tenure. The bonds normally are continuous, renewed each year by payment of an annual premium.

Bonding requirement when individual serves as finance officer for more than one unit. How is the bonding requirement satisfied if an individual serves as the finance officer for more than one unit or public authority? For example, what is the bonding requirement for an individual who serves as the finance officer for a county (a unit of local government for purposes of the LGBFCA) and as the finance officer for the local tourism development authority (a tourism development authority for purposes of the LGBFCA is a public authority that is created by local act of the General Assembly to promote travel, tourism, and general development of a unit or region)? An individual who serves as a finance officer for more than one unit of government or public authority must satisfy the bonding requirement for each separate unit. The provisions of the LGBFCA apply to each “unit of local government” and “public authority” in the state. (G.S. 159-7). As reflected in the different definitions, a unit of local government is a separate and distinct legal entity from a public authority. Each of these entities is independently required to comply with the provisions of the act. The act requires each unit of local government and each public authority to appoint a finance officer to perform certain duties for that unit. And the finance officer for each unit of local government and each public authority must be bonded. It may be possible to include coverage for multiple units in the same bond, but the bond must clearly delineate the different beneficiaries as if there were separate bonds. The bond also must provide at least the minimum coverage for each unit.

Additional Bond Processing Requirements for Counties

G.S. Chapter 58, Article 72 imposes some additional process requirements for accepting and registering a county finance officer’s official bond. Many of these requirements date back to the late 1800s. The county commissioners must examine the finance officer bond on the first Monday in December of every year to ensure it is sufficient and meets the legal requirements. (G.S. 58-72-20). If a finance officer fails to properly secure or renew the bond, the board of commissioners must declare the office vacant. (G.S. 58-72-25). The approval of the bond is recorded by the clerk to the board. Each bond must be acknowledged by the parties or proved by subscribing witnesses before the chairman of the board of county commissioners or before the clerk of superior court. The bond must then be filed with the clerk of the superior court. (G.S. 58-72-50).

1.5.6 Oath of Office

Article VI, Section 7, of the North Carolina Constitution requires that elected and appointed public officers take an oath of office. (See also G.S. 153A-26 for counties and 160A-61 for municipalities). The position of finance officer likely qualifies as “public officer” and is thus subject to the oath requirement. The text of the oath is as follows:

I, [finance officer’s name], do solemnly swear (or affirm) that I will support and maintain the Constitution and laws of the United States, and the Constitution and laws of North Carolina not inconsistent therewith, and that I will faithfully discharge the duties of my office as finance officer, so help me God.

A finance officer must take the oath before assuming the duties of the office. The oath typically is administered by the mayor, chairman of the board, or clerk to the board, though it also may be administered by a few other officials (see G.S. 11-7.1 for a list of officials authorized to administer the oath). For counties and municipalities, the oath must then be filed with the clerk to the board.

1.5.7 Delegating Finance Officer Duties

The finance officer has many responsibilities. Even in a small unit, these could prove difficult for a single person to handle. In many units, the finance officer delegates the performance of some of his or her duties to other employees or officials. For example, one or more staff members might be assigned to track accounts payable/receivable, run payroll, make deposits, monitor investments, prepare reports, and even affix the finance officer’s signature to certain documents. The finance officer remains legally obligated to perform these functions, and he or she may be held legally liable for failing to comply with certain LGBFCA provisions. It is imperative, then, that a finance officer establish policies and procedures that allow for sufficient oversight. Note that duties related to accounting or treasury management may not be delegated to the unit’s tax collector without prior approval of the LGC. (G.S. 105-349).

There are some finance duties that only may be performed by the finance officer or a deputy finance officer that is appointed by the governing board. Specifically, the preaudit and disbursement processes, G.S. 159-28, and signing disbursements, G.S. 159-25.

1.6 Deputy Finance Officers

A unit’s governing board may assign certain finance officer functions to one or more other employees or officials by designating them deputy finance officers.

1.6.1 Duties of Deputy Finance Officers

Deputy finance officers legally may perform duties mandated by the LGBFCA related to the obligation and disbursement of public funds. (G.S. 159-28). The governing board must adopt a resolution or ordinance to make the deputy finance officer appointments. It may not delegate this task to the manager or finance officer. Once the appointment is made, a deputy finance officer legally is obligated to perform assigned functions in accordance with the LGBFCA. Like the finance officer, a deputy finance officer may be held legally liable for failing to comply with applicable law. A deputy finance officer may perform duties beyond obligating and disbursing public funds; however, the legal liability for these duties remains with the unit’s finance officer.

1.6.2 Who May Serve as Deputy Finance Officer?

Generally, any employee or official of a unit may serve as a deputy finance officer. Note that duties related to accounting or treasury management may not be delegated to a unit’s tax collector without prior approval of the LGC. (G.S. 105-349). The governing boards in larger units often designate one or more department heads as deputy finance officers to allow for more flexibility in ordering goods, entering into contracts, and disbursing funds at the department level.

1.6.3 Bonding Requirements for Deputy Finance Officers (and Other Officials and Employees)

Each officer or employee of a unit who handles or has in his or her possession more than $100 or who has access to any of the unit’s inventories must “give a faithful performance bond with sufficient sureties payable to the local government or public authority.” [G.S. 159-29(b)]. This requirement applies to deputy finance officers. In fact, it applies to most, if not all, employees and officials of a unit. There is no statutorily prescribed amount for the bond; it is to be set by the governing board. The unit may pay the premium on the bond each year, though it is not required to do so. The bond must be filed with the clerk to the board. [G.S. 159-29(b)].

Instead of requiring individual bonds for each deputy finance officer (and for each employee and official), a unit may adopt a system of blanket faithful performance bonding. [G.S. 159-29(c)]. Most units utilize this option and cover all of their employees and officials, up to a specified amount, with one bond. Note that a blanket bond does not satisfy the individual bond requirement for the finance officer (G.S. 159-29), tax collector (G.S. 105-349), sheriff (G.S. 162-8), or register of deeds (G.S. 161-4). These employees may also be covered by a blanket bond, however, if the blanket bond protects against risks not protected against by the employees’ individual bonds. [G.S. 159-29(c)].

1.7 Tax Collector

In addition to the budget officer and the finance officer, the governing board of each local government and public authority that levies property taxes must appoint a tax collector. (G.S. 105-349). The position of tax collector is not mandated by the LGBFCA but rather by the Machinery Act (Subchapter II of G.S. Chapter 105), which governs the procedures for assessing and collecting taxes. Note that the provisions governing the office of tax collector outlined below are those authorized under general law. Several jurisdictions have local acts that create the office of tax collector. Units should look to those local acts to determine eligibility, duties, appointment, and removal requirements for the office of tax collector.

1.7.1 Who May Serve as the Tax Collector?

Under general law, the tax collector can be an employee of the taxing government or an employee of another government with whom the taxing government contracts for tax collection services. The Machinery Act creates only a few limitations on who can be appointed as tax collector. Members of the governing board are ineligible to serve as tax collector, as are local government finance officers absent special approval from the Local Government Commission. [G.S. 105-349(b)]. In terms of education and experience, the only requirement is that the appointee be “a person of character and integrity whose experience in business and collection work is satisfactory to the governing body.” [G.S. 105-349(b)]. The appointee’s criminal and financial history must not be so bad as to prevent the local government from being able to purchase the required bond to cover losses caused by the tax collector’s misconduct or neglect. The bottom line is that the governing body has great discretion when deciding whom to appoint as tax collector.

Unlike assessors, tax collectors are not subject to mandatory state certification. However, the North Carolina Tax Collectors Association (NCTCA) operates a voluntary certification process for tax collectors. Many local governments now expect their collectors to obtain NCTCA certification as part of their required duties.

1.7.2 Appointment, Removal, and Term of Office

The governing board appoints the tax collector and sets the term of office. Most commonly these terms are two or four years in length. Once fixed by the governing board upon the tax collector’s appointment, the length of the collector’s term may not be changed until the term ends or the collector is removed from office. No term limits exist for collectors, meaning the governing board may reappoint a particular tax collector repeatedly. After appointment, the tax collector can be removed from office only “for good cause,” the same standard that is applied to the removal of the assessor. [G.S. 105-349(a)].

1.7.3 Bond Requirement

A tax collector must attain a bond conditioned upon his or her honesty and faithful performance. The governing board sets the amount, but a tax collector is prohibited from collecting any taxes not covered by the bond and cannot continue collecting taxes if the bond is expired without renewal. [G.S. 105-349(c)].

1.7.4 Oath of Office

Every tax collector and deputy tax collector, as the holder of an office, must take the oath required by Article VI, § 7 of the North Carolina Constitution with the following phrase added to it: “that I will not allow my actions as tax collector to be influenced by personal or political friendships or obligations.” The oath must be filed with the clerk of the governing body of the taxing unit. [G.S. 105-349(e)].

1.8 Local Government Commission (LGC)

The Local Government Commission (LGC) is a nine-member state body situated in the Department of State Treasurer (G.S. 159-3). The commission approves most local government borrowing transactions and other capital contracts and issues bonds on behalf of local units. It also monitors the fiscal health of local units in the state.

1.8.1 LGC Fiscal Management Powers and Authorities

To aid the LGC in its oversight role, commission staff members review the yearly financial audits of each local government and public authority in the state. Staff members often work with local officials to remedy any financial issues or potential financial issues. The LGC requires a local governing board to respond in writing to any “significant deficiencies, material weaknesses, or other findings” identified in the annual audit. (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code). The board must also respond “if the auditor determine[s] that Financial Performance Indicators of Concern were identified based on information present in the audited financial statements . . . .” (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code). The governing body must submit to the LGC a “Response to the Auditor’s Findings, Recommendations, and Fiscal Matters[,]” signed by a majority of the governing board members, within 60 days of the auditor’s presentation. (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code).

State law allows the LGC to take more drastic action if a unit willfully or negligently fails to take corrective action or otherwise comply with the LGBFCA’s provisions in response to the Commission’s notices or warnings. Specifically, G.S. 159-181(c) allows the Commission to “impound the books and records [of the unit] and assume full control of all its financial affairs . . .. ” The Commission becomes “vested with all of the powers of the governing board as to the levy of taxes, expenditure of money, adoption of budgets, and all other financial powers conferred upon the governing board by law.” [G.S. 159-181(c)]. The Commission may assume full control of a unit’s water or sewer system and assume all powers of the governing board as to the operation of the public enterprise if the system, for three consecutive fiscal years, experiences negative working capital, has a quick ratio of less than 1.0, or experiences a net loss of revenue. [G.S. 159-181(d)]. “Working capital” is defined as “current assets, such as cash, inventory, and accounts receivable, less current liabilities, determined in accordance with generally accepted accounting principles.” [G.S. 159-181(d)]. A quick ratio of less than 1.0 “means that the ratio of liquid assets, cash and receivables, to current liabilities is less than 1.0. [G.S. 159-181(d)].

1.8.2 LGC Audit Review

To aid the LGC in its oversight role, commission staff members review the yearly financial audits of each local government and public authority in the state. Staff members often work with local officials to remedy any financial issues or potential financial issues. The LGC requires a local governing board to respond in writing to any “significant deficiencies [or] material weaknesses” identified in the annual audit or to “other findings or if the auditor determined that Financial Performance Indicators of Concern were identified based on information presented in the audited financial statements. . ..” (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code). The governing body must submit to the LGC a “Response to the Auditor’s Findings, Recommendations, and Fiscal Matters[,]” signed by a majority of the governing board members, within 60 days of the auditor’s presentation. (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code).

The LGC also may mandate that the unit’s finance officer and/or one or more of its deputy finance officers participate in training sponsored by the LGC under several circumstances, including where the employing local government or public authority has an internal control material weakness or significant deficiency in the most recently completed financial audit. [G.S. 159-25(d)]. The LGC also may require a unit to contract with outside entities to assist in its financial management. [G.S. 159-25(e)].

1.8.3 Unit Assistance List

In recent years, the LGC has established a more robust support process for units that are in financial distress or are demonstrating other financial indicators of concern. The LGC may place a unit on its Unit Assistance List (UAL) if, based on audited financial statements and associated data submitted to the LGC as required under G.S. 159-34(a), it identifies concerns related to the unit’s general fund, water/sewer quick ratio, income, cash flow, or internal controls. A unit also may be placed on the UAL if it fails to submit its annual audit to the LGC in a timely manner. Placement on the UAL triggers additional assistance for the unit. It also imposes additional statutory obligations and limitations on the unit, including the following:

• City and county managers of units on the UAL must complete a minimum of six clock hours of education, including fiscal management and the requirements of the LGBFCA. (See G.S. 153A-82 for counties and 160A-148 for municipalities). This is in addition to training requirements that may be imposed on finance staff. (G.S. 159-25).
• Units on the UAL must obtain LGC approval of contracts relating to the lease, acquisition, or construction of capital assets with terms that exceed three years and $50,000 (and meet the other criteria set out in G.S. 159-148, as applicable) and must obtain LGC approval for installment financings or other agreements involving the lease of, or the lease of with the option to purchase, motor vehicles where the contract amount equals or exceeds $50,000. (G.S. 159-148).

1.9 Other Oversight Entities

Other state agencies set rules and provide compliance and performance oversight of particular local units, often related to state grants or other funding. The State Bureau of Investigation probes potential criminal wrongdoing of local government officials and staff. The State Auditor investigates reports of certain financial malfeasance. In 2023, the legislature also assigned investigative powers to the Joint Legislative Commission on Governmental Operations.

1.9.1 Joint Legislative Commission on Governmental Operations

First established in 1975, the Joint Legislative Commission on Governmental Operations has provided legislative review of State government implementation of public policies and the expenditure of State funds. The Commission’s charge has been primarily to “conduct evaluative studies of the programs, policies, practices and procedures of the various departments, agencies, and institutions of State government.” G.S. 120-73. A provision in the 2023 State Budget, Section 27.10(b) of S.L. 2023-134, appreciably expanded the scope of the Commission’s investigative powers. And, significantly for local units, it also expanded the reach of the Commission’s investigative authority to include local governments, public authorities, and many private entities that contract with these local units and receive public funds. As stated in G.S. 120-71(b), the purpose of the Joint Legislative Commission on Governmental Operations is now to “undertake the ongoing examination, evaluation, and investigation of State agencies, public authorities, units of local government, and non-State entities receiving public funds, and of their actual effectiveness in implementing public policy or providing public services….”

1.9.2 Entities Subject to Commission’s Examination, Evaluation, and Investigation Authority 

The Joint Legislative Commission on Governmental Operations’ examination, evaluation, and investigation authority now extends to the following four categories of entities:

State agencies. A state agency is “a unit of the executive, legislative, or judicial branch of State government, such as a department, institution, division, commission, board, council, community college, or The University of North Carolina.” G.S. 120-72(11).

Units of local government. A unit of local government is defined in G.S. 120-72(13), by reference to G.S. 143C-1-1(d)(29), as “a municipal corporation that has the power to levy taxes….and all boards, agencies, commissions, authorities, and institutions thereof . . . .” A municipal corporation is a public agency with corporate status. If the enabling legislation for a local entity specifically states that it is a municipal corporation or otherwise indicates that the entity is a”body corporate and politic” or a “public corporation,” then the entity is a municipal corporation. It includes the following:

• counties (G.S. Chapter 153A);
• municipalities (cities, towns, villages) (G.S. Chapter 160A);
• consolidated municipal-county governments (G.S. Chapter 160B);
• sanitary districts (G.S. Chapter 130A, Article 2, Part 2);
• county water and sewer districts (G.S. Chapter 162A, Article 6);
• metropolitan sewerage districts (G.S. Chapter 162A, Article 5);
• metropolitan water districts (G.S. Chapter 162A, Article 4);
• mosquito control districts (G.S. Chapter 130A, Article 12, Part 2);
• special airport districts (G.S. Chapter 63, Article 8); and
• regional public transportation authorities (G.S. Chapter 160A, Article 26);
• hospital districts (G.S. Chapter 131E, Art. 2, Part 3);

Public authorities. A public authority is defined in G.S. 120-72(9), by reference to G.S. 143C-1-1(d)(22), as “a municipal corporation [as defined above] that is not a unit of local government” or “a local governmental authority, board, commission, council, or agency that (i) is not a municipal corporation and (ii) operates on an area, regional, or multiunit basis, and the budgeting and accounting systems of which are not fully a part of the budgeting and accounting systems of a unit of local government.” It includes the following:

• certain housing authorities (G.S. Chapter 157, Article 1);
• certain redevelopment commissions (G.S. Chapter 160A, Article 22);
• water and sewer authorities (G.S. Chapter 162A, Article 1);
• certain soil and water conservation districts (G.S. Chapter 139, Article 1);
• parking authorities (G.S. Chapter 160A, Article 24);
• public transportation authorities (G.S. Chapter 160A, Article 25);
• tourism development authorities (authorized by local acts);
• regional transportation authorities (G.S. Chapter 160A, Article 27);
• regional natural gas districts (G.S. Chapter 160A, Article 28);
• single- and multi-county public health authorities (G.S. Chapter 130A, Article 2, Part 1B)
• councils of government (G.S. Chapter 160A, Article 20, Part 2);
• regional planning commissions (G.S. Chapter 153A, Article 19);
• regional economic-development commissions (G.S. Chapter 158, Article 2);
• regional planning and economic-development commissions (G.S. Chapter 153A, Article 19);
• multi-county area mental health, developmental disabilities, and substance abuse authorities (G.S. Chapter 122C, Article 4, Part 2);
• district health boards (G.S. Chapter 130A, Article 2, Part 1);
• joint municipal power agencies (G.S. Chapter 159B);
• regional libraries (G.S. Chapter 153A, Article 14);
• joint agencies created by interlocal government agreement (G.S. Chapter 160A, Article 20);
• metropolitan water and sewerage districts (G.S. Chapter 162A, Art. 5A);
• local school administrative units* (G.S. Chapter 115C);
• ABC boards* (G.S. Chapter 18B); and
• other local government entities created by local act of the General Assembly.

*Local school administrative units and ABC boards are likely public authorities for purposes of this law even though they are not public authorities for purposes of the Local Government Budget and Fiscal Control Act.

Non-State entities. The term non-State entity is defined in relevant part as “an individual, firm, partnership, association, or corporation, or any other private organization or group acting as a unit” that receives public funds “to (i) conduct a program or (ii) provide a service to a State agency, a unit of local government, or a public authority.” G.S. 120-72(7) & (10). Public funds are state and/or local funds. Local funds include monies generated by a local unit or received as grants, appropriations, donations, or other means from the state government, federal government, and private individuals and entities. In other words, local funds are any funds that must be budgeted according to G.S. 159-8. Local funds do not include monies held by a local unit in a trust capacity.

Local units contract with and disburse local funds to a variety of private entities—ranging from paying money to the local hardware store for supplies, to engaging an architecture firm for design work, to hiring a contractor to construct a new building, to procuring an auditor to conduct the annual audit, to paying a private provider to administer mental health services, to hiring a landscaping company to maintain the public parks, to contracting with a nonprofit to carry out a community support project, and much more. Which of these example activities constitutes a program or service to the local unit as contemplated by the statute? The answer is most of them.

The term program is defined as “a specific activity or set of activities established or described by law, administrative rule, executive order, policy, or local ordinance.” G.S. 120-72(8). Thus, the definition of non-State entity likely comprises any private entity or individual that carries out a legally authorized activity on behalf of the local unit in exchange for public funds. That includes a private party to which a local government has outsourced its administrative functions, as well as a private party that receives public funds to undertake a community program or activity that the local unit has statutory authority to engage in. (Recall that a local unit does not have authority to grant or donate funds to a private entity without receiving some public benefit in return. See N.C. Const. Art. I, Sect. 32.)

The definition of non-State entity also applies to a private individual or entity that provides a service to a local unit. Many other private parties that contract with a local unit and receive public funds can be characterized as providing a service to the local unit. But let’s look at some possible exceptions.

One set of private individuals and entities is explicitly exempted from the definition of non-State entity—those that receive public funds as beneficiaries, without carrying out a program or providing a service in return. See G.S. 120-72(10). For example, if a local government establishes a rental assistance program for low-income citizens, a citizen receiving public funds as a beneficiary of the program is NOT non-State entity for purposes of this law. But if the local government contracted with and paid a nonprofit to administer the assistance program, the nonprofit would be a non-State entity.

The new law does not otherwise define service, though, which creates some interpretative grey area. Black’s Law Dictionary defines service, in relevant part, as “[t]he being employed to serve another; duty or labor to be rendered by one person to another.” Based on this definition, private individuals and entities that supply goods to local units (without also providing services) are likely exempt. Goods, themselves, are neither programs nor services. Similarly, when a local unit purchases equipment or real property, the private party to the transaction may be receiving public funds but likely is not conducting a program for or providing a service to the local unit. What about an economic development incentive agreement? We do not typically think of the consideration promised by a private party in exchange for cash incentives as a service to a local unit. But it’s possible that such a promise, which often involves a commitment to generate additional tax base and/or jobs, would be considered a service for purposes of this definition. Construction contractors present another interpretative challenge. Construction contracts are not considered service contracts for competitive procurement purposes, but, based on the Black’s Law definition, construction contractors may be providing a service to the local unit for purposes of this statute, and thereby included in the definition of non-State entity. And even if certain construction contractors are excluded from the definition of non-State entity, those who engage in design-build contracts, providing a mix of construction and architectural and engineering services work, clearly fit within the definition.

There are likely other types of contracting parties that fall within a grey area. Ultimately it will be up to the Commission to determine its reach. Local units should prepare all their private vendors, contractors, and service providers for the potential of a Commission investigation.

1.9.3 Scope of the Commission’s Examination, Evaluation, and Investigation Authority of Local Units and Non-State Entities

The scope of the Commission’s examination, evaluation, and investigation powers is expansive. The Commission, or a subcommittee of the Commission, may “study the efficiency, economy, and effectiveness” of any local unit and “evaluate the implementation of public policies” of the same. G.S. 120-75.1. It also may investigate “possible instances of misfeasance, malfeasance, nonfeasance, mismanagement, waste, abuse, or illegal conduct” by officers or employees of a local unit in the exercise of their public duties. It is hard to think of an action or function of a local government or public authority that the Commission could not examine, evaluate, or investigate—including general government and public enterprise functions; regulatory actions and the provision of services; state-mandated and discretionary undertakings; official actions of the governing board and actions of individual officials and employees; internal administrative actions and external contracts; policy-setting and ministerial functions. And the law leaves it up to the Commission to develop its evaluative criterion and define such concepts as efficiency, effectiveness, mismanagement, and waste.

The Commission has a similarly broad scope in its examination, evaluation, and investigation of non-State entities (the private entities that conduct programs or provide services to a local unit in exchange for public funds). Employing the means identified below, the Commission may review any aspect of the agreement between the local unit and private party and the execution of the program or service by the private party. It also may investigate any of the private party’s officers and employees for “possible instances of misfeasance, malfeasance, nonfeasance, mismanagement, waste, abuse, or illegal conduct” in relation to the “officer’s or employee’s responsibilities regarding the receipt of public funds.” G.S. 120-75.1(3)(b).

The Commission may carry out its work by any of the following means. (Be sure to also read the section on the confidentiality of Commission inquires below.)

1. Testimony. The Commission may require any official or staff member of a local unit to appear before it and testify about any issue within the scope of the Commission’s authority. G.S. 120-779(a)(2). The Commission also may compel testimony of any officer or employee of a non-State entity who is responsible for implementing a program or providing a service paid for with public funds. Id. Hearings must be conducted in accordance with G.S. 120-19.1 through 19.4. G.S. 120-77(h). During a hearing, a witness may be examined under oath and may be accompanied by his/her attorney.
2. Access to Buildings and Facilities. Unless prohibited by federal law, a local unit must give the Commission and/or Commission staff access to any building or facility owned or leased by it. G.S. 120-77(b)(2). As a practical matter, Commission staff is likely to coordinate a visit with the local government or public authority staff, but advance notice is not mandated by statute. Requests for access are subject to the confidentiality provisions discussed below. Likewise, unless prohibited by federal law, a non-State entity that receives public funds to conduct a program or provide a service to a local unit also must grant Commission staff access to any building or facility used to implement the program or service, if “the access is reasonably related to the receipt, purpose, or implementation” of the program or service. G.S. 120-77(b)(3).
3. Access to Documents. The Commission may compel access to any document or system of record (data management or storage system) held by a local unit. G.S. 120-77(a)(1). Such a request is subject to the confidentiality provisions discussed below. The Commission also may require the same of any document or system of record held by a non-State entity that receives public funds director or indirectly, to the extent the document or system of record relates to the receipt, purpose, or implementation of a program or service paid for with public funds. Most documents that a local unit has are already subject to public access under state public records laws. But there are some records and information that are shielded from public access. May the Commission compel access to documents with protected records or information? Unfortunately, the answer to this question is unclear and may depend on the nature of the document and the extent to which it is shielded. North Carolina’s public records laws are complex. Although the default is that all records made or received in the transaction of public business are subject to public access, G.S. 132-1, the legislature has carved out exceptions. And the exceptions take many forms. Further, records and information held by a local unit and non-State entity may also be protected under federal law.

State Law Protection of Records and Information. The protections for records and information under state law fall on a continuum. At one end are records and information that are not automatically subject to public access; rather the law leaves it to the discretion of the local unit. A common example is public enterprise billing information. G.S. 132-1.1(c). It seems likely that the Commission may compel access to documents and information that are within the discretion of a local unit to disclose.

Moving along the continuum are records or information that must be kept confidential by the local unit, but for which disclosure is allowed if required by law. See, e.g. G.S. 105-259; G.S. 153A-148.1; G.S. 160A-208.1 (certain taxpayer income and receipts information). Disclosure of these documents to the Commission is required by law, pursuant to G.S. 120-77(a)(1). The new law protects this information in the hands of the Commission, providing that “any confidential information obtained by the Commission shall remain confidential and is not a public record as defined in G.S. 132-1.” G.S. 120-77(d).

Next are records or information that must be kept confidential and for which there is no general exception for disclosures required by law. Whether the Commission can compel access to these documents (and with or without redactions of confidential information) is much less clear. The new law does not explicitly grant the Commission access to confidential records or information. The Commission may take the position, though, that the new law allows it to compel disclosure of all documents held by a local unit, regardless of their confidential status. It may cite to the provision quoted above that requires the Commission to keep confidential information confidential as sufficient protection to comply with the underlying confidentiality requirements. Or the Commission may determine that it does not have authority to compel access to these documents. As advised below, a local unit should be prepared for either scenario.

Finally under state law, there are some records and information that may be released only upon a court order. See, e.g., G.S. 132-1.4A (bodycam footage). Other records or information may be released only to certain government entities or officials. It is harder to argue that the general provision in the new law related to the Commission keeping confidential information confidential is enough to override these specific statutory processes or limitations. They don’t just prohibit access by the public generally but also access by other government officials. The Commission likely would have to follow the statutory processes to obtain access to these documents or abide by the more specific statutory limitations to access. Again, though, the law is not entirely clear. The Commission may argue that it has access to all documents of a local unit.

Federal Law Protections of Records and Information. A local unit or non-State entity also may have a variety of documents that are confidential or include confidential information under federal law. As with state law, there is not a uniform approach to these protections. There are complex arrays of federal (and state) protections for social services, public health, public education, and elections records. Additionally, there are protections associated with certain other federal programs administered by local units and associated with certain federal grants. Some federal laws allow disclosure as required by law. Arguably, G.S. 120-77(a)(1) makes disclosure of this confidential information to the Commission required by state law. Other federal laws might shield information from public exposure but allow it to be shared with certain government officials. Still other federal laws might simply make the records or information confidential. A local unit and the Commission will have to closely review the applicable provisions to determine if disclosure to the Commission is allowed. State law cannot override federal restrictions.

1.9.4 Confidentiality of Commission Inquiries and Work Product

Most of the Commission’s work is protected as confidential. The law deems “any request made to an agency employee by Commission staff and any communication between Commission staff and an agency employee” to be confidential. G.S. 120-77(f). An agency employee, defined by reference to G.S. 120-131.1, “means an employee or officer of every agency of North Carolina government or its subdivisions, including every public office, public officer or official (State or local, elected or appointed), institution, board, commission, bureau, council, department, authority, or other unit of government of the State or of any county, unit, special district, or other political subdivision of government.” It includes all local government and public authority board members, other officers, and employees. The law further provides that an officer or employee of a local unit may not disclose to anyone else (including other officials or employees of the local unit) “[t]he nature or existence of the request and communications” unless, and only to the extent, “necessary to fulfill a request for document production or to gather more information as required by the member of Commission staff.” Id. If an officer or employee violates the confidentiality requirement it “shall be grounds for disciplinary action, including dismissal.” Id. It is not clear whether a local employee or official may consult the local unit’s attorney about a Commission request, but under certain circumstances it might be necessary to fulfill a request for document production if there are legal questions about whether confidential records and information can be disclosed to the Commission. An individual receiving a request for documents from the Commission should talk with Commission staff first about whether consulting with the unit’s attorney or others is permissible. Note that this confidentiality requirement does not apply to employees and officials of non-State entities, only to those of state agencies and local units.

And, as stated above, any document or information that is obtained or produced by Commission staff related to their duties to the Commission is also protected as confidential “and is not a public record as defined in G.S. 132-1.” G.S. 120-77(e).

1.9.5 Penalty for Noncompliance

It is a Class 2 misdemeanor for a person to conceal, falsify, or refuse to provide the Commission any document, information, or access to any building or facility with the intent to mislead, impede, or interfere with the Commission’s work.