Just about every community in North Carolina now agrees that it has a housing problem. In most cases, it’s a need for housing across the board. There are several recognized ways for local governments to provide direct assistance to undertakings to develop persons of low income or very low income. But what about for moderate income housing?
In this post we will outline our current best argument for direct local government assistance to moderate income housing. This won’t be an exhaustive brief (although it is our longest-ever blog post so far), and we expect some will remain unconvinced. But I think this works.
(By the way, we’ve set out our working definition of “moderate income” housing toward the end of this post, but there’s nothing magic about the definition.)
Let’s start with a fundamental legal premise – if the statutes give you the authority to do something, then you’re allowed to do it unless you violate a state or federal constitutional provision.
If you spend your local government’s money to foster development of additional moderate income housing in your community, will you
- Increase the taxable property in your community?
- Increase your population?
- Increase employment in your community?
- Increase your community’s general business prospects?
If you said “yes” to any of these questions, then Congratulations – you have direct authority to spend money for these purposes as economic development under Section 158-7.1(a). It’s right there in black and white, and none of the rest of the statute limits your authority under subsection (a) – subsection (a) says so, right there in the text.
But, you might argue, that’s not what that statute is supposed to mean. Our two-part response would be,
- says who? No published opinions.
- why would we argue about what it is “supposed to mean” when we can read what it “says?”
The public hearing requirement in section -7.1(c) applies to any expenditure under Section 158-7.1, including the ones we’re contemplating. Public hearings are great because (1) they provide cheap insurance – you have a chance to hear from any opponents before you make your decision, (2) they look good in the record if you’re challenged by anyone who didn’t show up, and (3) they provide a natural opportunity to build the record of why your expenditure will serve the purposes in -7.1(a).
You need to follow the rules in -7.1(d) if you’re contemplating a bargain sale of real property. But there are usually better ways of approaching a problem.
State and federal constitutional issues
There really aren’t any federal constitutional issues, so long as you’re acting in a non-discriminatory manner, so let’s get to the State constitution.
As a starting point, recall that the State constitution is a limit on legislative power, and not a grant of legislative power. So just because the constitution says, for example, it’s a proper purpose of government to help the poor, that doesn’t mean that helping other people or groups is not a proper purpose of government.
“Emoluments” is relatively easy. If you have a rough equivalence between what you’re going to get and what you’re putting in, you don’t have an emoluments problem. This is another topic to cover when you’re building your record in connection with your public hearing.
Now we come to public purpose, and how this topic is covered in our cases and especially in Maready v. Winston-Salem.
Over the years, Maready has become somewhat like the Bible, in that (a) more people claim to follow it than have actually read it, and (b) many people rely on others to tell them what it means.
The key holdings in Maready, as opposed to what the facts are in Maready, are as follows:
- “public purpose” is a flexible concept that varies over time
- the courts need to give deference to the legislature in determining what is and is not a public purpose as conditions change from time to time
- economic development is a public purpose (and it follows that “economic development” should be a flexible concept that varies over time
- the local government expenditures at issue in the case are within the scope of the statutes and constitute expenditures for a public purpose..
None of that is inconsistent with the legislature’s grant of authority in 158-7.1(a), which was in effect at the time of the case, or of a local government’s discretion (as granted by the legislature) to make choices of expenditures to further the purposes in -7.1(a).
Maready repeats an established test that for an expenditure to be for a “public purpose,” the expenditure must be primarily for the benefit of the local government, and not primarily for the benefit of the private party. My favorite example here is if your local government buys a box of paper, that expenditure certainly benefits the seller, but the government didn’t buy the paper primarily to give a benefit to the seller.
So, if Maready holds that incentives for big, powerful companies (and that can reach into the millions of dollars) are for a public purpose because those expenditures will create jobs and tax base, and are not primarily for the company’s benefit . . . our proposed expenditures for moderate income housing follow exactly the same pattern.
But you might say, doesn’t Maready have some concept in it of using incentives to fight off competition? Our first answer is that’s not actually part of the holding (see our analogy to the Bible). That’s background in the case to explain why the legislature might have authorized those expenditures to further economic development, but “competition” has not been (and we don’t think is now) part of the test for public purpose.
But if you want to go there . . . . localities face competition now on different battlefields than they used to. Everyone now is fighting to retain and attract workforce and to fight the different negative effects of an insufficient housing stock. Our communities – especially our small and mid-sized communities — are not fighting with Wisconsin (not to pick on Wisconsin) over a facility with 500 jobs, but with the next town over, or the town in South Carolina or Texas, to make sure there are enough workers for the remaining local industry and a place where people can stay in the community when they want to.
(To be clear we are not making a “police power” or “general welfare” argument. We’re not arguing that expenditures for moderate income housing are allowed because they ameliorate the general problem of insufficient viable housing stock. We’re making an economic development argument.)
Finally, you might ask, won’t this approach open the floodgates to calling anything an expenditure for “economic development?” To this, we have a three-part answer.
- That’s the slippery slope argument, and we won’t go down.
- So what?
- This is a legislative argument, and the legislature can change the statute if they don’t like what local governments are doing (as they’ve readily demonstrated . . . but at least this time the homebuilders won’t be the ones complaining).
What is “moderate income” housing?
In this post we’ve had in mind housing that accommodates persons making up to 120% of the area median income adjusted for family size. There’s nothing magical about that, but it seems to be a guideline in active use, and it correlates with 80% being viewed as low income. Our argument doesn’t hinge on a particular percentage or definition, but it does turn on the general concept of “moderate income.”
If you looking for a decided North Carolina case that follows this line of thinking, you won’t find one. If you ask the usual suspects to give this approach their stamp of approval, you probably won’t get it. But we think this approach is consistent with statutory language and otherwise with the law.