NC Institute for Constitutional Law: Protecting Individual Liberty

Updated May 13, 2009

Mission
Headquartered in Raleigh, NC, NCICL is a nonprofit, non-partisan organization whose mission is “to conduct research, educate and advise the general public, policy makers, and the Bar on the rights of citizens under the constitutions of the United States of America and the State of North Carolina. As appropriate, it shall engage in litigation to protect these rights.” The founders of the NC Institute for Constitutional Law believe that one of the fundamental rights of citizens is the preservation of individual liberty, and they vowed to protect individual liberty by limiting government and ensuring compliance with the constitutional restraints on the power of government.

In setting forth this mission the Institute quotes from Article 1 (Declaration of Rights) of the Constitution of North Carolina.

“All political power is vested in and derived from the people; all government of right originates from the people, is founded upon their will only, and is instituted solely for the good of the whole.”

“A frequent recurrence to fundamental principles is absolutely to preserve the blessings of liberty.”

History
The NC Institute for Constitutional Law (NCICL) was incorporated in December 2003 as a 501(c)(3) private foundation, beginning formal operations in August 2004. The Institute received start-up funding from the John William Pope Foundation.

The Institute has actively litigated since that time in both the North Carolina and federal courts. While its initial litigation focus has been on the granting by governmental entities of so-called “incentives” for large corporations in the form of taxpayers’ money being used for corporate welfare, it is also engaged in other areas and maintains a file of active cases in the constitutional field.

The educational component of NCICL is directed by its Education Officer and includes the furnishing of speakers on constitutional issues and on the work of NCICL, op-ed pieces, and White Papers on constitutional issues. The Institute also offers seminars and workshops which qualify for CLE (Continuing Legal Education) credits for lawyers.

Background
The Institute for Constitutional Law describes itself as a private public interest legal foundation, not a law firm or a think tank. It proposes to fulfill its mission of advocating for limited government and constitutional restraints on the power of government by conducting educational programs, tracking legislation in the General Assembly with an eye toward constitutional issues (such as proposed constitutional amendments), and sponsoring forums to facilitate a discussion of these legislative and constitutional issues. The Institute promises to engage in litigation when necessary to achieve its mission.

In terms of issues in the public arena, NCICL proposes to focus on economic issues that impact on the state and the US Constitution. Primary interest for research and litigation are government subsidies and incentives for designated businesses, unconstitutional tax policies and legislation, and other government actions that go beyond limits set by constitutional restraints.

Two Court Decisions
As the mission statement of NCICL points out, one of the main purposes of the organization is to conduct research, education, and perhaps litigation on the issue of government subsidies and incentives to designated businesses. Indeed, this issue was probably the premier impetus for the creation of NCICL. Two court decisions perfectly frame the issue that NCICL is attempting to address. One of these decisions was handed down by the North Carolina Supreme Court in the case of Maready v. Winston-Salem. The other decision came from the United States Supreme Court in the case of Cuno v. DaimlerChrysler.

Maready v. Winston-Salem – In Maready v. Winston-Salem, Winston-Salem lawyer William Maready sued the city of Winston-Salem, Forsyth County, and other parties, contending that NCGS §158-7.1, which authorizes local governments to make economic development incentive grants to private corporations, is unconstitutional because it violates the public purpose clause of the North Carolina Constitution and because it is impermissibly vague, ambiguous, and without reasonably objective standards. Maready also argued that the local governing bodies violated the State's Open Meetings Law by voting on and deciding grant matters in closed sessions. The trial court ruled in favor of Maready and declared NCGS §158-7.1 unconstitutional, and the defendants appealed to the North Carolina Supreme Court.

In a decision filed on March 8, 1996 the Supreme Court, by a vote of 5-2, overturned the trial court and found the law constitutional.

The Court said that in determining whether legislation serves a public purpose, the presumption favors constitutionality and that reasonable doubt must be resolved in favor of the validity of the law in question. In noting the enactment of NCGS §158-7, the Court essentially deferred to the North Carolina General Assembly, which had voted in favor of expenditures of public funds for the promotion of local economic development.

The majority of the court concluded that since jobs were created and the tax based enhanced by the business subsidies, such expenditures were for a “public purpose” as required by Article V, Section 2 of the North Carolina Constitution. The majority in Maready noted that the other 49 states used business subsidies and incentives to attract business, create jobs, and expand the tax base. North Carolina, they imply, could not afford to unilaterally disarm by giving up this business development weapon. If it did so, it would be at a competitive disadvantage. The majority decision invokes a “changing times” theory to justify many of their conclusions about business development and competitiveness among the states. This logic is often associated with those who argue that constitutions are “living documents” and need to adapt to the times.

Dissenting Justice Bob Orr was having none of this. In his minority dissent, he countered the majority on almost every point of argument, concluding with these well-written words:

“...Many of the arguments presented to this Court rest on public policy. Advocates for these business incentives contend that without [incentives], North Carolina will be at a significant competitive disadvantage in keeping and recruiting private industry. They further contend that the economic well-being of our state and its citizens is dependent on the continued utilization of this practice. These arguments are compelling, and even plaintiff admits that a public purpose is served by general economic development and recruitment of industry. However, plaintiff and those supporting his point of view argue that direct grants to specific, selected businesses go beyond the acceptable bounds of public purpose expenditures for economic development. Instead, they say that this is selected corporate welfare to some of the largest and most prosperous companies in our State and in the country. Moreover, these opponents contend that the grants are not equitably applied because they generally favor the larger companies and projects and, in this case, under the County's Economic Incentives Program Guidelines, completely eliminate retail operations from being considered. In challenging the actual public benefit, a question also is raised about the economic loss and devastation to smaller North Carolina communities that lose valued industry to larger, wealthier areas. For example, the move of Southern National Bank headquarters from Lumberton to Winston-Salem undoubtedly adversely affected Lumberton.

Also troubling is the question of limits under the majority's theory. If it is an acceptable public purpose to spend tax dollars specifically for relocation expenses to benefit the spouses of corporate executives moving to the community in finding new jobs or for parking decks that benefit only the employees of the favored company, then what can a government not do if the end result will entice a company to produce new jobs and raise the tax base? If a potential corporate entity is considering a move to Winston-Salem but will only come if country club memberships are provided for its executives, do we sanction the use of tax revenue to facilitate the move? I would hope not, but under the holding of the majority opinion, I see no grounds for challenging such an expenditure provided that, as a result of such a grant, the company promises to create new jobs, and an increased tax base is projected.

In conclusion, for the foregoing reasons and for the reasons stated by the trial court, NCGS §158- 7.1, as broadly interpreted and applied by the majority, is unconstitutional on its face and as applied because it is impermissibly vague, ambiguous, and without reasonably objective standards and because it violates the public purpose clause of the North Carolina Constitution. Therefore, I would affirm the decision of the trial court.”

Cuno v. DaimlerChysler – In the case of Cuno v. DaimlerChysler, several individuals and some small-business owners sued in Ohio state court challenging the legality of a state investment tax credit and local property tax abatements given to the DaimlerChysler Corporation as an inducement to expand their operations in Toledo. The plaintiffs argued the tax breaks given the Corporation granted preferential treatment to an in-state investment in violation of the Commerce Clause of the US Constitution and the Equal Protection Clause of the Ohio Constitution.

The defendants were able to remove the case to the federal courts and a federal district court dismissed the complaint based on the Rules of Civil Procedure, stating that the plaintiffs had failed to state a claim. The plaintiffs appealed and the US Court of Appeals for the Sixth Circuit agreed to hear the case.

The Court of Appeals ruled the Ohio franchise tax credit unconstitutional, but upheld the property tax exemptions. The Court held the tax credit violated the Interstate Commerce Clause because it gave favorable treatment to in-state businesses and discriminated against out-of-state firms. If an Ohio business expanded its operations in Ohio its tax liability would be reduced, but if an Ohio business expanded its operations outside the state, no such reduction in tax liability would occur.

The US Constitution gives the US Congress the power to regulate interstate commerce. Supreme Court precedent has interpreted the Commerce Clause in a manner so as to limit the states ability to create an undue burden on the free flow of commerce across state lines. Based on Supreme Court rulings, the Commerce Clause prohibits a state from engaging in economic protectionism of business activity within a state. This means a state is prohibited from providing a benefit to an in-state business if that benefit is not also available to an out-of-state business. It was this precedent that the Appeals Court relied on in striking down Ohio franchise investment tax credit.

The Appeals Court ruling applies not only to Ohio, but to the other states in the Sixth Circuit, namely Michigan, Kentucky, and Tennessee. In the North Carolina case those supporting business subsidies – usually corporations who benefit from them or those who are paid to procure them – argued that a unilateral disarming in terms of business incentives would put the state at a competitive disadvantage in attracting business and investment. In effect, the Court had disarmed states in the Sixth Circuit, at least to the extent that these states make use of such incentives as the investment tax credit.

When the case was appealed to the US Supreme Court, the North Carolina Institute for Constitutional Law filed an amicus curiae on behalf of the plaintiffs, but in May of 2006, the Court found in favor of Daimler Chrysler et. al.

Economic War Between the States – Each of the 50 states seeks to enhance economic development within its borders. A part of each state’s economic development strategy consists of offering some kind of incentives to businesses to either locate in or expand within its borders. These incentives most often take the form of tax breaks, land grants, or outright cash grants. Depending on one’s point of view these incentives are good economic policy aimed at improving a state’s economy, creating jobs, and expanding the tax base. Others see these incentives as nothing more than wasteful government spending or outright corporate welfare.

No state believes it can leave the game, to unilaterally disarm. Doing so would put a state at a competitive disadvantage, state officials believe. Large businesses generally support such incentives and this is not surprising, since most of the incentives are granted to large businesses. Large in-state businesses will often support giving such incentives to out-of-state businesses on the grounds that “a rising tide lifts all boats.”

Others see these incentives as government intervening in private markets, tilting the playing field in favor of those businesses that get the government goodies. They believe government has no business playing favorites in the marketplace.

This issue clearly divides most large businesses from most conservative thinkers. Almost all conservative think tanks in the country are opposed to these kinds of business incentives. The same can be said of liberal think tanks and libertarian groups.

Looking at the powerful forces lined up on each side of this issue, it is hard to see how the war ends, but NCICL remains actively engaged in protecting taxpayers from having their tax dollars used for corporate welfare purposes.

NCICL Lawsuits
The NC Institute for Constitutional Law has instituted litigation addressing corporate welfare schemes as well as a number of other constitutional issues, including:
Amendment One Litigation
Certificate of Need
Dell Incentives Lawsuit 
Election Tax Litigation
Google Litigation
Lottery Litigation
Nitronex Litigation
Randy Parton Theater Litigation
Goodyear/Bridgestone Firestone Litigation

Staff & Governance
Former North Carolina Supreme Court Justice Robert Orr is executive director and senior counsel of NCICL. Orr oversees a staff of six, including staff attorneys, an education director, a director of paralegal services, and administrative staff. The organization also offers opportunities for internships and law clerks.

NCICL is governed by a six-member Board of Directors which includes some of North Carolina’s top legal minds. Except for Orr, all are uncompensated. A 27-member Board of Advisers provides input and assistance as requested.

Financial Profile
For the tax year beginning September 1, 2006 and ending August 31, 2007, the latest year for which information is available, NCICL reported total income of $496,853, primarily from contributions, gifts, and grants. The largest grantor for the organization is the John William Pope Foundation, which gave $492,125. 

Other supporters have included the Z. Smith Reynolds Foundation, the E. A. Morris Charitable Foundation, and the Goodman Family Fund, all of North Carolina; and the Rockefeller Family Fund of New York.

The organization’s latest IRS Form 990-PF lists the fair market value of all assets at the end of 2006 at $159,152. NCICL reports $145,500 paid in compensation to officers, directors, and trustees of NCICL and $174,999 expended for other employee salaries and wages. Employee benefits total $32,908.

NCICL reported that it did not attempt to influence any national, state, or local legislation, nor did it participate or intervene in any political campaign. No money was expended during the year (either directly or indirectly) for political purposes.

Summary
The NC Institute for Constitutional Law champions the limitation of government power over individual citizens. To put this perspective in layman’s terms, the state constitution was meant to provide a check on the representatives of the people so as to prevent those representatives from exercising such enormous power that it becomes inconsistent with the liberties of the people. In short, the state constitution limits the power of the General Assembly in order to protect the liberties of the people, and NCICL is making a valiant attempt to uphold those provisions.

Given the background of NCICL’s leadership and the political bent of its major contributors, it’s easy to peg the organization as a right-leaning one. But a check of the types of litigation in which NCICL engages is a convincing argument for the group’s claim to non-partisanship. By using the Constitution as its guide, NCICL has become respected across party lines.

With this group on active watch, the power of the North Carolina General Assembly no longer goes unchecked – and that’s exactly as it should be.

Contact
Justice Robert F. Orr, Executive Director
Suite 180 Six Forks Place I
333 E. Six Forks Road
Raleigh, NC 27609
Phone: (919) 838-5313
E-Mail: info@ncicl.org
Website: http://www.ncicl.org/