Closed Session Deep Dive: The Business Location Exception

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Closed Session Deep Dive: The Business Location Exception

By Tyler Mulligan

Published January 21, 2025

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This post, co-authored by Kristina Wilson and Tyler Mulligan, also appeared on the Coates’ Canons Local Government Law Blog here.

The open meetings law requires all official meetings of public bodies to be open to the public. G.S. 143-318.10(a). However, government bodies can hold closed-door meetings, known as closed sessions, under certain limited circumstances. When in closed session, the public body must restrict its discussion to the narrow topic that is statutorily permitted to be discussed in closed session. Any discussion outside of the allowable topic must be conducted in open session. This post focuses on closed sessions for the purpose of discussing the location and expansion of industries or other businesses and is part of a series authored by Kristina Wilson examining each of the closed session purposes.

Purpose (a)(4): The Location or Expansion of Industries or Other Businesses

Under G.S. 143-318.11(a)(4), government bodies may enter closed session to discuss business or industry expansion and location, as well as military installation closure or realignment. The statute’s legislative history is important for understanding its language. According to the 1979 Legislative Study Commission that recommended (a)(4)’s original statutory language, the purpose of this subsection was to protect “contacts with public groups” by a business that is considering locating or expanding in a jurisdiction. Many companies will only engage with governments that agree to keep certain details surrounding expansion and location plans confidential. It’s not surprising that businesses would rather not alert their competition to potential location or expansion plans. This subsection sought to preserve businesses’ interest in confidentiality during the process of expanding or relocating.

As discussed below, subsection (a)(4) originally did not reference economic development incentives at all, since all incentives were unconstitutional when it was originally enacted. In 1996, the North Carolina Supreme Court found that some incentives could be constitutional under certain limited circumstances in Maready v. City of Winston Salem, 342 N.C. 708 (1996) as described in a law review article (here) and summarized in a blog post (here). In response to the Maready case, the General Assembly added specific language about economic development incentives to subsection (a)(4) in 1997. With that background, let’s walk through the language of the statute.

“To discuss matters relating to the location or expansion of industries or other businesses in the area served by the public body…”

This portion of the statute permits discussion in closed session about businesses’ and industries’ location or expansion within the public body’s area of service. Several aspects merit additional discussion.

What are matters relating to location or expansion?

While there are no cases that directly answer this question, arguably this section covers discussions about a specific company’s site preferences, as well as that company’s other needs and interests for its location. Topics might include utility service provision, workforce training programs for the company’s workers, and public relations issues relevant to the location or expansion. Exploratory conversations are permissible; there’s no need for a company to have made a final decision whether a location or expansion is actually going to occur before this provision can apply.

Does business retention qualify?

Discussions about “location” arguably include retention of an existing company; that is, a company’s decision whether to remain at its present location rather than relocating elsewhere.

Must the discussion involve incentives?

There’s no requirement for the closed session discussion to involve economic development incentives. Under this provision, even a retail or hospitality business (that would not be eligible for economic development incentives) may still hold closed session discussions with a governing board. For example, a retail business may wish to discuss the timing of public road construction or public water extensions confidentially, to avoid alerting its competition to its location plans.

Can publicly-funded projects be discussed under this subsection?

Discussions about contracting to build a publicly funded facility do not fall under this closed session purpose. In those situations, the project developer is not deciding to locate or expand in the community—rather, the local government is simply hiring a contractor.

What if a local government is acquiring real property for economic development purposes?

There is often confusion about the relationship between the (a)(4) business location exception and the (a)(5) real estate acquisition exception, particularly with regard to general policy discussions about where to build industrial parks. No court cases analyze the interplay between these two sections, but a 1995 Attorney General opinion explains whether the business location exception applies to discussions about acquiring economic development property. In that opinion, the Attorney General concludes that in most cases, the only aspect of property acquisition covered under the business location exception is a business identifying the property it wants. A board also likely can decide to acquire a company’s preferred site in a business location closed session since the decision to acquire the property for the company can be said to directly relate to protecting the company’s “contacts with public groups” as it makes its location decision. However, if a board wants to give instructions about negotiable contract terms to its staff, it must do so under the property acquisition exception. Real property acquisition scenarios related to economic development are discussed in a blog post here.

“…including agreement on a tentative list of economic development incentives that may be offered by the public body in negotiations…”

This language, which was added to the open meetings law in 1997 after Maready was decided, explicitly permits discussing and reaching tentative agreement with a company on economic development incentives as long as no legally binding commitments are made. The actual contract or incentive agreement must be approved following a properly noticed public hearing, as required by G.S. 158-7.1(c), but preliminary steps may be handled in closed session.

“…or to discuss matters relating to military installation closure or realignment.”

In addition to discussing the expansion or location of businesses and industries, this closed session purpose covers military installation closures or realignments. There is no case law on point, but arguably this section authorizes conversations about logistics and procedures related to base closure or realignment, the reasoning for such closure or realignment, and other related items.

“Any action approving the signing of an economic development contract or commitment, or the action authorizing the payment of economic development expenditures shall be taken in an open session.”

While this section permits developing a tentative list of economic development incentives in closed session, it prohibits finalizing the incentives there. A vote approving an economic development contract or commitment must be taken in open session. Any other formal action that finalizes an economic development contract or commitment is also required to be in open session. The same is true of votes or other final actions that approve economic development expenditures, such as expenses related to marketing the locality, holding business networking events, or engaging professional services for business recruitment. In other words, final actions on economic development incentives, contracts, commitments, or expenditures should be taken in open session only.

All in all, government bodies can discuss many aspects of business and industry expansion and location in closed session. Incentives discussions qualify for this closed session purpose, but they are not required. Generally speaking, final actions regarding economic development expenditures must be taken in open session. The next installment of this series will deal with several of the lesser-used closed session purposes.

 

Authors Kristina Wilson and Tyler Mulligan are School of Government faculty members.