AN ACT to allow capital lease financing for public schools.

The General Assembly of North Carolina enacts:

SECTION 1.  Article 37 of Chapter 115C is amended by adding a new section to read:
"§ 115C‑531.  Capital leases of school buildings and school facilities.
(a)	Definitions. – The following definitions apply in this section:
(1)	Capital lease. – A capital lease as defined by generally accepted accounting principles, regardless of how the parties describe the agreement.
(2)	Private developer. – The entity with which the school board enters into a capital lease or build‑to‑suit lease under the provisions of this section.
(b)	Authorization. – Local boards of education may enter into capital leases of real or personal property for use as school buildings or school facilities. The capital lease may relate to an existing building or a new school building to be constructed. The term of any capital lease, including any renewal periods, shall not exceed 40 years from the expected date that the local board of education will take occupancy of the property that is the subject of a capital lease. Subdivisions (c) and (d) of G.S. 115C‑521 do not apply to a capital lease entered into under this section.
(c)	Construction, Repairs, and Renovation. – The provisions of G.S. 115C‑530(b) apply to a capital lease under this section. A capital lease entered into under this section may provide that the private developer is responsible for providing, or contracting for, construction, repair, or renovation work. Construction, repair, or renovation work undertaken or contracted by a private developer is not subject to the requirements of Article 8 of Chapter 143 of the General Statutes. Construction, repair, or renovation work undertaken or contracted by the private developer involving the estimated expenditure of three hundred thousand dollars ($300,000) or more is subject to the provisions of G.S. 115C‑532.
(d)	Nonsubstitution Clause. – A capital lease may not contain a nonsubstitution clause that restricts the right of a local board to continue to provide a service or activity or to replace or provide a substitute for any property financed or purchased by the capital lease.
(e)	No Deficiency Judgment; No Pledge of Taxing Power. – No deficiency judgment may be rendered against any local board of education or any unit of local government, as defined in G.S. 160A‑20(h), in any action for breach of a contractual obligation authorized by this section, and the taxing power of a unit is not and may not be pledged directly or indirectly to secure any moneys due under a contract authorized by this section. A capital lease shall state that it does not constitute a pledge of the taxing power or full faith and credit of the local board of education or board of county commissioners.
(f)	Budgetary Accounting. – A capital lease entered into under this section shall be considered a continuing contract for capital outlay and is subject to G.S. 115C‑441(c1); provided, however, notwithstanding any provision of G.S. 115C‑441(c1) or G.S. 115C‑426, in each fiscal year the appropriation of funds by the county for the payment of amounts due under the capital lease shall be at the discretion of the board of county commissioners.
(g)	Local Government Commission Approval. – Capital leases entered into under this section are subject to approval by the Local Government Commission under Article 8 of Chapter 159 of the General Statutes if they meet the standards set out in G.S. 159‑148(a)(1), 159‑148(a)(2), and 159‑148(a)(3). For purposes of determining whether the standards set out in G.S. 159‑148(a)(3) have been met, only the five‑hundred‑thousand‑dollar ($500,000) threshold applies.
(h)	No Agreements on Student Assignment. – A capital lease may not contain any provision with respect to the assignment of specific students or students from a specific area to any specific school.
(i)	Lien Laws Not Affected. – The provisions of Article 2 of Chapter 44A of the General Statutes apply to any real property, improvement to the real property, and rights that flow with the real property that is subject to a capital lease under this section. Real property that is subject to a capital lease under this section is subject to liens and foreclosure actions in the same manner and to the same extent as if the property were owned in fee simple by a private entity.
"§ 115C‑532.  Additional provisions applicable to build‑to‑suit capital leases.
(a)	Definitions. – The definitions of G.S. 115C‑531 apply in this section. In addition, for the purposes of this section, the following definitions apply:
(1)	Build‑to‑suit capital lease. – A capital lease that provides for the construction of new facilities or the renovation of existing facilities by the private developer, the cost of which is estimated to be greater than three hundred thousand dollars ($300,000).
(2)	Prime contractor. – A contractor who contracts directly with the private developer or the private developer's construction manager at risk, if any, for construction, repair, or renovation work under this section.
(b)	Contract Provisions. – A build‑to‑suit capital lease may include contractual provisions by the private developer regarding the provision of products, services, and guaranties related to a facility that is the subject of a capital lease. A local board of education may also enter into a separate agreement or series of related agreements regarding the provision of products, services, and guaranties related to a facility that is the subject of a capital lease; provided all agreements are approved by the board of county commissioners in connection with the approval of the build‑to‑suit capital lease.
(c)	Approval by Local Board of Education. – Before entering into a build‑to‑suit capital lease pursuant to this section, the local board of education shall adopt a resolution as provided in this subsection. Before adopting the resolution required by this subsection, the local board of education shall publish a notice of its intent to enter into a build‑to‑suit capital lease at least 10 days in advance of the date of the meeting at which the action is contemplated and in a newspaper having general circulation within the geographic area served by the local board of education. The notice shall include, at a minimum, the date, time, and place of the meeting, a description in brief and general terms of the subject of the lease, the name of the other party to the lease, and an indication of the board's intent to take action to authorize the lease at the indicated meeting. The resolution shall provide the following:
(1)	That entering into the build‑to‑suit capital lease for one or more specified buildings or facilities is in the unit's best interests under all the circumstances. In making this evaluation, the local board of education may consider the time, cost, and quality of design, engineering, and construction, including the time required to begin and the time required to complete a particular activity; occupancy costs, including lease payments, life‑cycle maintenance, repair, and energy costs; and any other factors the board deems relevant.
(2)	That the private developer is qualified to provide, either alone or in conjunction with other identified and associated persons, the products and services called for under the proposed capital lease and any related agreements. The local board of education shall make this determination taking into account any factors the local board deems relevant, including the knowledge, skill, and reputation of the provider and its associated persons, the goals and plans of providers for utilization of minority business enterprises, and the costs to be incurred by the local board of education.
(d)	Additional Requirements Regarding Design Services. – Required design and engineering services shall be performed by an engineer, to the extent permitted under G.S. 83A‑13(b), or a licensed architect. Specifications for any new school building shall be consistent with the requirements of G.S. 143‑128(a). All applicable requirements for the review or approval of design and specifications for school buildings by the Department of Public Instruction and the Department of Insurance apply to school buildings constructed, repaired, or renovated under a capital lease authorized under this section.
(e)	Additional Requirements Regarding Construction Services. – A private developer is required to seek competition and minority business participation in connection with all construction work under this section in accordance with the following provisions:
(1)	A private developer shall either (i) solicit bids from prime contractors for all construction work under this section or (ii) select a construction manager at risk through a qualification based process in which case the selected construction manager at risk shall solicit bids from all of its prime contractors for all construction work under this section.
(2)	The private developer or its construction manager at risk may prequalify contractors. The prequalification criteria, if any, shall be determined by the local board of education and the private developer to address quality, performance, the time specified in the bids for performance of the contract, the cost of construction oversight, time for completion, capacity to perform, and other factors deemed appropriate by the private developer and the local board of education.
(3)	A private developer and its construction manager at risk, if any, shall comply with the requirements applicable to a public entity pursuant to G.S. 143‑128.2, and prime contractors shall comply with the provisions of G.S. 143‑128.2 applicable to contractors, except the private developer and its construction manager shall adopt the local board of education's minority participation goal. The local board of education shall require the private developer to submit its plan for compliance with G.S. 143‑128.2 for approval by the local board of education prior to the private developer soliciting bids under this subsection.
(4)	A private developer or its construction manager at risk shall publicly advertise at least 30 days in advance of the bid date in a newspaper having general circulation within the geographic areas served by the local board of education, shall open bids publicly, and shall award each contract to the lowest responsible, responsive, and prequalified bidder, taking into consideration quality, performance, the time specified in the bids for performance of the contract, the cost of construction oversight, time for completion, compliance with G.S. 143‑128.2, and any other factors deemed appropriate by the private developer and the local board of education and included in the bid solicitation. A private developer or its construction manager at risk shall enter into the construction contracts directly with the successful bidder. After the award of a contract or contracts, the private developer or its construction manager at risk and any contractor may negotiate and reach agreement with the successful bidder on modifications to all aspects of the contract, including the time for performance, the scope of the work, and the price to be paid.
(5)	The local board of education, in its discretion, may require the private developer to provide a performance and payment bond for construction work in accordance with the provisions of Article 3 of Chapter 44A of the General Statutes and may require the private developer to provide a bond or other appropriate guarantee to cover any other guarantees, products, or services to be provided by the private developer.
(f)	Predevelopment Agreements with Private Developer Authorized. – Local boards of education may enter into predevelopment agreements with a private developer in advance of entering into a build‑to‑suit capital lease. Predevelopment agreements with private developers shall be approved by the board of county commissioners. Predevelopment agreements may include provisions for each of the following:
(1)	Site selection, land acquisition, and site preparation, including such services as wetlands delineation, archaeological review, and State and local government land‑use permitting.
(2)	Building programming and design, including both architectural and engineering services pursuant to subsection (d) of this section.
(g)	Real Estate Transfer Authorized. – Notwithstanding any contrary provisions of law, a city, county, or local board of education may, pursuant to the procedures in G.S. 160A‑267, sell, lease, or otherwise transfer real or personal property to any private developer for construction, repair, or renovation of a school facility under a build‑to‑suit capital lease entered into pursuant to this section. The conveying unit may subject the property to any covenants, conditions, or restrictions as the unit deems to be necessary to carry out the purposes of this section. The disposition of property pursuant to this subsection is not subject to the requirements of G.S. 115C‑518. No transfer by a local board of education under this subsection shall occur unless it is approved by the board of county commissioners.
(h)	Additional Permitted Lease Terms. – In recognition of the potential economic and technical utility of build‑to‑suit capital leases, which include in their scope combinations of design, construction, operation, management, and maintenance responsibilities over prolonged periods of time, and the potential desirability of a single point of responsibility for these matters in connection with build‑to‑suit capital leases, any build‑to‑suit capital lease may include provisions imposing responsibility on the private developer or any identified affiliated entity for any of the following matters:
(1)	Site selection, land acquisition, and site preparation, including wetlands delineation, archaeological review, and State and local government land‑use permitting.
(2)	Facility programming, planning, and design, including both architectural and engineering services.
(3)	Qualification and prequalification of contractors and subcontractors.
(4)	Construction and construction management.
(5)	Financing.
(6)	Facility maintenance and repairs.
(7)	Energy usage guarantees.
(8)	Transfer of ownership of the leased property to a local government entity at the end of the lease term.
(9)	Any other guaranties, products, and services as the local board of education may determine.
(i)	Letter of Credit. – A private developer shall provide an irrevocable letter of credit for the benefit of laborers and materialmen in an amount not less than five percent (5%) of the total cost of the improvements which are the subject of the build‑to‑suit capital lease and shall maintain the letter of credit throughout the construction of the project and for the succeeding six‑month period."
SECTION 2.  G.S. 143‑129(e) is amended by adding a new subdivision to read:
"(e)	Exceptions. – The requirements of this Article do not apply to:
…
(12)	Build‑to‑suit capital leases with a private developer under G.S. 115C‑532."
SECTION 3.  This act is effective when it becomes law and is repealed effective July 1, 2011.
In the General Assembly read three times and ratified this the 18th day of July, 2006.

	_____________________________________
		 Beverly E. Perdue
	 President of the Senate

	_____________________________________
		 James B. Black
	 Speaker of the House of Representatives

	_____________________________________
		 Michael F. Easley
	 Governor

Approved __________.m. this ______________ day of ___________________, 2006