It is common for North Carolina counties and municipalities to seek out state or federal grants and loans to help fund local projects. These external funding sources can be essential to getting work done, especially in communities with limited local revenue options. But there is an important legal constraint that local officials must keep in mind: local governments may accept state or federal grants and loans only for activities they are otherwise authorized by law to undertake. In addition, once a grant or loan is accepted, the local government must comply not only with the specific program rules and requirements imposed by the granting agency, but also with state law requirements related to budgeting, contracting, disbursement, and financial management. Both sets of rules apply, and compliance with one does not excuse noncompliance with the other.

Authority to Accept State and Federal Grants and Loans

The authority to accept state and federal grants and loans comes from G.S. 160A-17.1, which applies to both municipalities and counties. The statute authorizes the governing body of any municipality or county to make contracts for and accept grants and loans from the federal or state government or their agencies, but only “for constructing, expanding, maintaining, and operating any project or facility, or performing any function, which such city or county may be authorized by general law or local act to provide or perform.” In other words, the funding must be tied to a specific function the local government has legal authority to perform. The grant or loan itself does not create that authority.

This issue comes up frequently in practice. For example, a local government may have statutory authority to build and maintain public infrastructure like water and sewer systems but may not have authority to provide direct assistance to certain private homeowners or businesses. A grant or loan program that includes both components cannot be fully accepted unless the unit has legal authority for each element. In some cases, the local government may be able to participate in part of a grant or loan program, but must decline the portions that exceed its legal authority.

Who Has Authority to Accept a State or Federal Grant or Loan?

One important and often overlooked detail in G.S. 160A-17.1 is who may accept a state or federal grant or loan on behalf of the local government. The statute clearly vests this authority in the governing body, meaning the municipal council or the board of county commissioners. No other official or employee has legal authority to accept grant or loan funding on behalf of the unit. 

This means that even where staff members, such as managers, finance officers, or department heads, prepare and submit grant or loan applications, only the governing board may formally accept the funds and authorize the local government to enter into related agreements. (The governing board may not delegate this authority to an official or employee.) The board’s approval must occur by official action, typically through a resolution or vote recorded in the board’s minutes.

This requirement promotes transparency and accountability, and ensures that elected officials are making deliberate decisions about entering into financial commitments and complying with associated terms and conditions. It also helps confirm that the funded activity falls within the legal authority of the local government, as it is ultimately the board’s responsibility to make that determination.

Complying with Both Grant Rules and State Law

Even when a local government has the legal authority to perform the activity and the governing board has voted to accept the funds, the government still must comply with both the terms of the grant or loan and state law requirements. This means navigating two layers of compliance. 

State or federal programs often come with their own requirements related to procurement methods, allowable costs, disbursement procedures, matching funds, reporting obligations, and documentation. G.S. 160A-17.1 expressly allows the governing body to agree to and comply with any lawful and reasonable conditions attached to the grant or loan. This ensures that local governments have clear authority not only to accept funds but also to bind themselves to the terms necessary to receive and use those funds appropriately.

At the same time, North Carolina’s legal framework for local governments still applies. This includes statutory requirements for budgeting, competitive bidding, contracting, and obligating and disbursing funds. To remain in compliance, local governments must meet both sets of requirements.

Special Statutes and Local Acts May Also Apply

While G.S. 160A-17.1 is the primary statute authorizing municipalities and counties to accept state and federal grants and loans, the General Assembly may also enact general laws or local acts that specifically authorize local governments to participate in a particular grant or loan program and to undertake the funded activity. These program-specific statutes may expand or clarify eligibility and can be important tools for accessing outside funding.

However, even when such a statute exists, it’s important to remember that authorization for a grant or loan program is not enough on its own. There still must be clear statutory authority for the local government to perform the activity or function being funded. The legal authority for the grant or loan program and the legal authority for a local government to carry out the work are separate—and both must be present.

Finding the Legal and Procedural Intersection

To lawfully accept and use outside funding, a local government must find the intersection of three things: the local government must have clear legal authority to perform the function, the function must be eligible under the grant or loan program, and the local government must be able to comply with both the program’s requirements and applicable state laws. If any of these three conditions is not met, the government risks noncompliance, audit findings, or the possibility of having to return the funds.

Local government officials should carefully assess grant and loan opportunities before applying. Ask: Do we have statutory authority to do this? Has our governing board approved acceptance of the funds? Can we meet both the program’s and state law’s procedural requirements? By answering these questions upfront, local governments can ensure that external funding strengthens their operations rather than creating legal or financial risk.