As we continue to wrestle with S.B. 473 and its impact on local governing boards, several additional questions have arisen. I’ll address two of the most common (and interesting!) here.

Does S.B. 473 Play on Both Sides?

In other words, does the statute require a local governing board member to recuse himself on the non-profit side in his non-profit leadership role? The statute does not squarely address this question but I believe the answer is “yes.” Section 14-234.3(d)(2) prohibits public officials from deliberating or voting on contracts with non-profits when they hold leadership positions with those non-profits.  Subsection (d)(2)(b) also prohibits any attempts to influence such votes. In broadly restricting public officials from engaging in this conduct, the statute does not distinguish between a public official acting in his governing board capacity versus a public official acting in an individual, personal, or non-profit capacity. The statute simply prohibits these behaviors by a public official.

Subsection (d)(3) defines “public official” as any individual elected or appointed to serve on a governing board of any political subdivision of the State. Even when not acting in that capacity, a local governing board member would still remain an individual elected or appointed to serve on a governing board. A local governing board member acting in a non-profit or personal capacity would therefore still qualify as a public official for purposes of the statute. As a result, voting, deliberating, or even discussing the vote or contract might subject a local governing board member to liability even on the non-profit side.

The statute’s repeated references to governing boards of political subdivisions of the State may seem to suggest that the legislature intended this section to apply to local governing boards more than to non-profit boards. However, the language is broad enough to extend to the non-profit side. Without further judicial or legislative guidance, it may be prudent for impacted local officials to recuse themselves in both their local governing board and non-profit capacities.

Does G.S. 14-234.3 only apply to non-profits with 501(c)(3) tax-exempt status?

In short, probably not. The statute defines “non-profit with which that public official is associated” as “a nonprofit corporation, organization, or association, incorporated or otherwise, that is organized or operating in the State primarily for religious, charitable, scientific, literary, public health and safety, or educational purposes…”, excluding State- or local government-created entities. These enumerated purposes mirror those in 26 U.S.C. § 501(c)(3). It therefore may be tempting to assume that 501(c)(3) status is a prerequisite for the application of Section 14-234.3.

However, I do not think Section 501(c)(3) directly translates. For example, Section 501(c)(3) explicitly applies to corporations, funds, and foundations, whereas Section 14-234.3 recognizes un-incorporated entities, associations, and organizations, giving Section 14-234.3 a slightly broader and arguably more ambiguous scope. More importantly, if the legislature intended to limit this statute’s application based on tax-exempt status, it easily could have explicitly cited to Section 501(c)(3). Since it failed to do so, we cannot limit Section 14-234.3’s application only to non-profits with 501(c)(3) tax-exempt status. As written, Section 14-234.3 applies to non-profit entities that are organized or operating in the State primarily for the enumerated purposes, regardless of tax-exempt status. All in all, Section 501(c)(3) is likely only a good starting point for evaluating qualifying non-profits under 14-234.3, rather than a determinative factor in that analysis.