[UPDATE: This blog post has been revised to reflect practitioner input. Revised portions are underlined below.]

Session Law 2021-191 (S.B. 473) modifies governing board members’ duty to vote and recusal procedures. Specifically, Section 14-234.3 prohibits public officials who also serve as directors, officers, or governing board members for non-profits from participating in making or administering any contracts with those non-profits.  When a governing board considers a contract with a non-profit, including any award of money, board members involved with that non-profit must recuse themselves from any deliberation and record their recusal with the clerk. Since knowingly violating these provisions is a Class 1 misdemeanor, local officials are understandably concerned with the statute’s scope and application. Read on for some frequently asked questions.

Who is covered under G.S. 14-234.3?    

The statute applies to public officials, defined as individuals who are elected or appointed to serve on a governing board of a political subdivision of the State. G.S. 14-234(d)(3). We can likely safely assume then that the statute applies to elected or appointed city councilmembers, county commissioners, aldermen, and the like. But can the legislature have intended to limit the statute’s scope to only these individuals?

There is some evidence both from the statute’s construction and its history that the legislature did intend this more restrictive application. For example, Section 14-234.3’s definition of public official differs from the definition used in preceding portions of the statute. Section 14-234(a1)(1) defines public officer as an individual elected or appointed to serve or represent a public agency. Similarly, earlier drafts of S.L. 2021-191 define public official as an individual elected or appointed to serve or represent a political subdivision of the State. Inserting “governing board” into the definition of public official in Section 14-234.3 likely narrows its scope. While internal legislative deliberations are not competent evidence of legislative intent, the debates are still useful to understand the bill’s context. Elec. Supply Co. of Durham v. Swain Elec. Co., 328 N.C. 651, 657, 403 S.E.2d 291, 295 (1991). Here, the House floor debate (beginning at 21:05) references “county commissioners”, “city councilmembers”, and “elected officials” explicitly. Taken together, Section 14-234.3 likely applies primarily to elected or appointed city councilmembers, county commissioners, and other similar governing board members.

Does Section 14-234.3 also cover statutory or other appointed boards?

While I don’t think it’s clear, I lean toward “no.” Section 14-234.3 applies to elected or appointed members of governing boards. This statute does not define “governing board,” but other statutes define governing boards as city councils, county commissioners, boards of alderman, and similar boards. See e.g., G.S. 160D-102(17); G.S. 160A-576(2); G.S. 162A-65(6). Additionally, our courts have defined governing boards as entities with ultimate decision-making power. See e.g., Student Bar Ass’n Bd. of Governors, Of the School of Law, Univ. of N.C. at Chapel Hill et al. v. Byrd et al., 293 N.C. 594, 602 (N.C. 1977). Most statutory and appointed boards lack final decision-making, policymaking, or legislative authority and therefore do not align with the traditional concept of a governing board. Still, the statute is not explicit. An analysis of how much and what type of power is delegated to statutory and other appointed boards may be required on a case-by-case basis.

What might Section 14-234.3 permit?

Section 14-234.3’s focus is clearly public officials as defined in the statute, and it specifically excludes state and local government employees and independent contractors. As a result, contracts between employees or independent contractors and non-profits pose no issues under 14-234.3. 

The section also incorporates exceptions from G.S. 14-234(b) and (d1) through (d5). Subsections 14-234(b) and (d2) through (d5) reference certain types of contracts and relationships, while subsection (d1) describes certain jurisdictions. These exceptions allow governing boards to execute contracts with a non-profit even when a governing board member holds a leadership position with that non-profit, provided that the requirements in (d1) are met. 

Notably, (d1)(2) requires that the involved public official refrain from voting on or otherwise participating in the contract at issue.(See G.S. 14-234(d1)(2) and this prior blog). In other words, these exceptions allow a contract with a non-profit to go forward provided the conditions in subsection (d1) are met, including that the involved public official takes no part in any vote or other participation. The term “exception” may be slightly misleading here, as the exceptions really apply to the governing board’s ability to contract, rather than to the involved public official’s ability to contract.

What does Section 14-234.3 require?

Assuming this section applies to you, how does it apply to you? It may help to consider the following questions:

• Are you associated with a non-profit as defined in the statute?

Remember that non-profits under the statute do not include entities created by the state or its political subdivisions. If yes, continue.

• Are you a director, officer, or governing board member of that non-profit?

If you are not in one of the above-described leadership positions, G.S. 14-234.3 does not apply. Merely volunteering with or being a member of a non-profit will not trigger the statute. If you do hold one of these leadership positions, continue.

• Is the governing board considering a contract, including any grant of or appropriation of money, between the governing board and the non-profit with which you hold a leadership position?

If no, you can still participate in deliberations and voting. If yes, you must recuse yourself and record your recusal with the clerk. This is true even if the contract or jurisdiction at issue falls under 14-234(b) and 14-234(d1) through (d5). If your jurisdiction or unit falls into one of the groups listed in (d1) and all of the conditions in (d1) are met, your unit or agency may continue to execute the non-profit contract.  Importantly, the statute prohibits not just deliberating and voting but also attempting to influence any votes or deliberations. This provision may prohibit merely discussing the merits of a certain non-profit with voting governing board members.

What about budgets?

The statute’s impact on budget deliberations and votes is not very clear. One the one hand, “appropriations” are specifically included in the types of awards of money referenced in the statute, which may indicate the legislature’s intent to include budget votes. On the other hand, the statute seems to require a contract. As written, the statute prohibits participation in the making or administering of contracts, including awards of money. That language suggests that an award of money must also be pursuant to a contract to fall within the statute. Budget appropriations, by themselves, are likely not contracts under North Carolina law and therefore may be beyond the scope of the statute. The plain language of Section 14-234.3 would therefore seem to exclude budget votes.

Still, there may be situations where a unit directly appropriates funds to a non-profit in its budget and does not execute any formal contract outside of that budget appropriation. Units that use that procedure should likely assume that this new law applies to their budget votes. [Assuming that the budget is covered, this blog post might be useful]. Assuming the statute applies to budget votes, local governments may decide to develop procedures for budget appropriations to nonprofits. Some localities have adopted a practice of stripping non-profits from their general budget ordinance and then including those nonprofits later via budget amendments. That procedure allows conflicted-out board members to vote on the general budget ordinance but recuse themselves from amendment voting. Does your jurisdiction have any procedure for budget vote recusals? I’d love to hear.