NEW HANOVER COUNTY — The Local Government Commission disagreed with New Hanover County’s legal reasoning and analysis that its soon-to-be-formed “community foundation” tasked with managing $1.25 billion in public hospital sale proceeds would operate as an entity separated from county government.
The Local Government Commission operates under the North Carolina Department of the Treasurer and provides financial oversight to over a thousand local and regional government agencies. The LGC’s opinion, shared by staff and legal counsel at the Office of the State Treasurer, is significant in that it could alter New Hanover County’s direction in forming the new foundation and/or may require public oversight laws that the county was seeking to avoid.
Under the county’s plan, over a billion dollars of public money will soon be funneled into the new “private” foundation created by politicians to be controlled by their appointees and their appointees’ appointees. The public would have no right to attend meetings, review minutes and documents, or otherwise keep up with the spending actions of this putatively “non-political” group, by the county’s design. As a private foundation, the investments of the community foundation would also not be subject to LGC oversight.
The new 11-member community foundation will be formed by five direct appointees of the county and six members appointed by a newly-formed successor hospital board. The NHRMC Board of Trustees — who are all appointed by the county — will provide the list of names that will make up the newly-formed successor hospital board.
Importantly, trustees, commissioners, and all other elected officials are subject to a two-year ‘cooling-off’ period before they can be appointed to the community foundation board.
Members of the new foundation can serve three, three-year terms. Commissioners extended the term limits to a nine-year rather than a six-year maximum after briefly discussing the idea, presented by counsel; consideration for extending the terms took less than two-and-a-half minutes. Rob Zapple cast the only dissenting vote.
LGC weighs in
In a legal analysis submitted to the LGC Sept. 2, the county asserted it would essentially be far enough removed from the new community foundation to render it “not a component unit” of the county and therefore, not a local government.
County staff have held this assumption since at least July. Friday, the county announced a vote on the hospital sale would take place Oct. 5 — two weeks ahead of previous expectations shared earlier this month, including in the county’s presentation to the LGC.
On Thursday, the LGC informed the county the new foundation would “more likely than not” be considered a local government for the purpose of §159-30, the specific statue outlining the investment of idle funds the county sought approval to avoid. If the statute didn’t apply, the county believes it would have been able to maximize investment profits.
It’s worth noting the LGC and the county’s recent back-and-forth was only in reference to the investment of funds statute — not specifically whether public records rules would apply. But the opinion may have larger implications for the county, considering the law’s broad definition of “public bodies” which are subject to Open Meetings law.
Don Munford, the county’s outside counsel tasked with drafting the foundation’s creation documents, told Commissioners on Monday he believed allowing public records law to apply would “inject” politics into the foundation, rendering it the most “destructive” move they could make.
Commissioner Zapple has been the only Commissioner or known county representative to voice concerns about the avoidance of Open Meetings law to date. Zapple took specific issue with Munford’s legal conclusion, believing the foundation would be too entangled with the county for it to be considered completely legally distinct.
Related: Here’s how to keep up with the hospital sale as the vote quickly approaches [Free]
Even after receiving the LGC’s opinion, the county asserted it would continue to seek a solution that separates the new foundation from itself.
“The county has already been, and will continue to, further review and refine the foundation’s framework and bylaws to help ensure the foundation can be a stand-alone nonprofit, not acting as an agency of the county – so the foundation can make the best investments that will benefit our community for generations to come,” the county shared in a statement late Friday afternoon.
This steadfast approach demonstrates the county’s eagerness to make sure the community foundation remains private.
Aside from maximizing investment profits (the “overarching issue,” according to county manager Chris Coudriet), the reasoning behind attempting to distance the foundation from the county in its formation has been to avoid politics or the appearance of politicization. On its face, this avoidance of politics appears to be a noble step toward assuring the foundation does not sway at the whims of an election or particularly partisan leaders.
At the same time, in practice, a private community foundation tasked with managing $1.25 billion of the public’s money would have little to no public oversight the way the county aims to design it; the public couldn’t attend meetings and would have no right to access contracts or see how members voted.
The only public oversight built into the foundation is the requirement that it provide the county with an annual report that summarizes its activities and grants over the prior year. This requirement, included in the foundation’s draft bylaws, does not specify how detailed the reports must be and does not guarantee the public would have access to detailed line items related to spending.
Below, view the county’s legal opinion shared with the LGC. Below the document, view the LGC’s response.
Community Foundation and NCGS159-30 (1) by Johanna Ferebee Still on Scribd
Response from Sharon Edmundson, LGC Division Director. Emphasis included in response:
“Our staff and Division attorney have reviewed your memo and the Letter of Intent, including Exhibit D (accessed via the link you provided). The question you asked is whether the proposed Foundation would be subject to NCGS 159-30, Investment of Idle Funds, which applies to local governments and public authorities. In considering your question, we have assumed that the details of the Foundation, once formed, will be exactly as presented in Exhibit D. We also are assuming that (a) the arrangement will comply with all relevant North Carolina Constitutional and statutory requirements regarding the County’s authority and (b) the potential uses of the funds comply with the public purpose requirement.
We disagree with the approach of performing a “component unit” analysis, using the financial reporting GASB standards. The question involves the legal issue of whether the Foundation is a local government as defined in NCGS 159-7(b)(15). That definition, applicable to NCGS Chapter 159, Article 3, includes “boards, agencies, commissions, authorities and institutions” of local governments. Our Division attorney researched the existing NC law and prepared a legal analysis. Based on the legal analysis, we do not concur with your conclusion that the proposed Foundation would not be required to follow the investment restrictions of NCGS 159-30. Rather it is our opinion that the Foundation, as proposed, could in fact meet the legal definition of a local government and be subject to NCGS 159-30.
Existing NC law provides no interpretation of NCGS 159-7(b)(15). However, we found instructive guidance in cases that examined a similar statutory definition of an “agency” of a sub-division of State government in order to decide if a nonprofit corporation was an agency of a local government. (News & Observer Pub. Co. v. Wake Cty. Hosp. Sys., Inc.; Chatfield v. Wilmington Hous. Fin. & Dev., Inc.; Coats v. Sampson Cty. Mem’l Hosp., Inc.; and others.) The principles gleaned from these cases include:
- examine the totality of the relationship between the government and the nonprofit, and
- evaluate each arrangement in its own context.
In other words, a case by case review of each relationship between a government and the outside entity is required. Our review of the entirety of the details in the documents provided leads us to the conclusion that the Foundation, as proposed, would, more likely than not, be considered a local government for purposes of NCGS 159-30.
Therefore, we suggest, out of an abundance of caution, that you proceed assuming the Foundation must comply with NCGS 159-30.“
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