UPDATE August 2013: During the 2013 legislative session, the General Assembly enacted S.L. 2013-366, which prohibits a local government from providing health insurance coverage for abortions that is greater than that provided by the State Health Plan for Teachers and State Employees under Article 3B of Chapter 135 of the General Statutes.
Several local government officials recently have asked me whether a 1981 North Carolina Supreme Court case, Stam v. State, 302 N.C. 357, 275 S.E.2d 439 (1981), prohibits a local government from (1) providing (or contracting for the provision of) health insurance for its employees that includes coverage for “medically unnecessary” abortion procedures; or (2) funding such health insurance coverage with local property tax proceeds. As is explained below, Stam held that counties lacked the authority to fund medically unnecessary abortions for indigent women through their social services programs. It did not address the issue of funding local government employee health insurance coverage for such procedures. As such, Stam does not prohibit a local government, if it so chooses, from providing, and funding with property tax proceeds, employee health insurance coverage for lawful abortions. Please note that the following analysis is limited to this narrow issue. It does not expound on whether a local government can or should exclude such coverage from its employee health insurance policies.
Local Property Tax Authority
Before discussing Stam, it is helpful to review the contours of a local government’s authority to levy ad valorem property taxes. I have summarized this authority in a previous post, but I am replicating the analysis below for ease of exposition.
Pursuant to Article V, Section 2(5) of the North Carolina Constitution, G.S. 153A-149 (counties), and G.S. 160A-209 (cities), local units are authorized to levy property taxes to fund certain, specified local government activities. The activities are divided into three groups.
Group I. Local governments may levy property taxes for Group I functions without restriction on tax rate or amount. For cities, this group includes revenue to meet debt service on general obligation debt, to cover certain unforeseen deficits, and to meet the cost of additional law enforcement and equipment necessitated because of civil disorders. For counties the group also includes the most important state-mandated functions: schools and social services.
Group II. Counties and cities may levy property taxes for Group II functions without a vote, to a maximum combined rate of $1.50 per $100.00 valuation of taxable property. The list of Group II functions includes most activities in which counties and cities engage. A local government may hold a referendum on the levy of property taxes for any Group II function. If such a referendum passes, the tax levied under it does not count against the $1.50 limitation. A local government may also hold a referendum to raise the $1.50 limitation.
Group III. Group III functions include all authorized activities that the General Assembly has not specified as either Group I or Group II functions. The statute does not identify Group III functions. If the voters approve the levy of property taxes for a Group III function, any tax levied for that function does not count against the $1.50 rate limitation.
Stam v. State
Stam was a declaratory judgment action challenging both the use of State appropriations and county property tax proceeds to fund elective (medically unnecessary) abortions for indigent women. The North Carolina Court of Appeals affirmed the superior court’s grant of summary judgment for the defendants, concluding that both the State and county funding schemes for the procedures at issue were lawful. Stam v. State, 47 N.C. App. 209, 267 S.E.2d 335 (1980). The North Carolina Supreme Court affirmed the court of appeals’ decision in part, and reversed in part.
Specifically, the North Carolina Supreme Court affirmed the court of appeals’ judgment that the State may appropriate funds to pay for medically unnecessary abortions for indigent women, holding that such funding did not violate Article 1, Sections 1 and 19, or Article 5, Section 5 of the North Carolina Constitution.
The North Carolina Supreme Court, however, held that counties lacked the statutory authority to implement a program to pay for, and therefore levy property taxes to fund, medically unnecessary abortions for indigent women. The court looked to the enumerated purposes set forth in G.S. 153A-149 as Group I and II functions. Specifically, it analyzed whether the authority to levy property taxes to fund medically unnecessary abortions for indigent women stemmed from G.S. 153A-149(c)(30), which stated at the time “Social Services. To provide for the public welfare through the maintenance and administration of public assistance programs not required by Chapters 108 and 111 of the General Statutes. . . .”
The court first noted that G.S. 153A-149(g) provides that the statute authorizing the county to levy local property taxes “does not authorize any county to undertake any program, function, joint undertaking, or service not otherwise authorized by law. It is intended only to authorize the levy of property taxes within the limitations set out herein to finance programs, functions, or services authorized by other portions of the General Statutes or by local acts.” The court then determined that the authority to provide social services programs under G.S. 153A-255 did not include the authority to implement a program to pay for medically unnecessary abortions. The court, accordingly, concluded that counties lacked the authority to levy property taxes to fund medically unnecessary abortions for indigent women.
Local Government Provision of Employee Health Insurance Benefits that Cover Elective Abortions
The issue in Stam was whether the statutory authorization for counties to provide social services programs included the authority to use local revenues to pay for medically unnecessary abortions for indigent women. The holding in Stam simply does not apply to the issue of whether a local government may provide and fund health insurance benefits for its employees that includes coverage for elective abortions. To answer the question, an inquiry similar to the one in Stam is necessary, but Stam does not point to the answer one way or the other.
And, with respect to that inquiry, G.S. 153A-92(d) and G.S. 160A-162(b) provide explicit authority for counties and cities, respectively, to provide health insurance for the benefit of their employees. That authority does not list (or restrict) the types of medical procedures or services to which the health insurance coverage may apply. And, it does not limit coverage only to procedures or services that are “medically necessary.” Determinations of the types and scope of employee health insurance benefits are left to the discretion of a local unit’s governing board.
A local government may appropriate unrestricted revenue to pay for the health insurance coverage it provides for its employees. (The largest source of unrestricted funds typically are local sales and use tax proceeds. There are several other minor sources of unrestricted revenue.) A local government also may fund its employee health insurance benefits with local property tax proceeds.
With respect to the property tax authorizing statutes, “employee health insurance” is not among the enumerated purposes listed as a Group I or II function for counties or cities. Neither are “employee salaries” or “employee benefits.” The authority to fund employees’ salaries and benefits (including health insurance benefits) with property tax proceeds is inherent in the authority to finance the activities or functions the employees serve, though.
For example, G.S. 153A-149(c)(1) authorizes the levy of property taxes as a Group II function—“to provide for general administration of the county through the board of county commissioners, the office of the county manager, the office of the county budget officer, the office of the county finance officer, the office of the county assessor, the office of the county tax collector, the county purchasing agent, and the county attorney . . . .” The authority to levy property taxes to fund the general administration expenses associated with the listed county departments includes the authority to pay the employees that work in these departments and fund these employees’ health insurance benefits with property tax proceeds. As another example, G.S. 153A-149(c)(6) lists “animal protection and control” as a Group II function. The authority to levy property taxes to provide for this service includes the authority to pay the salary of, and fund the health insurance benefits for, an animal control officer or other animal control personnel. A similar analysis applies to listed Group I or II functions under the statute applicable to cities (G.S. 160A-209).