§ 148-37.2. Lease-purchase of prison facilities. - North Carolina Statutes

§ 148‑37.2.  Lease‑purchaseof prison facilities.

(a)        Authorization. –The Secretary of Correction may, as provided in this section, enter contractswith private for‑profit or nonprofit firms for the construction of closesecurity correctional facilities described in subsection (a1) of this sectionto be operated by the Department pursuant to a lease that contains a schedulefor purchase of the facilities over a period of up to 20 years.

The State, with the priorapproval of the Council of State and the State Treasurer as provided in thissection, is authorized to execute and deliver one or more lease‑purchaseagreements with a special nonprofit corporation providing for the lease‑purchaseby the State of the Projects from the special nonprofit corporation inconnection with and under an arrangement whereby certificates of participationare sold and delivered by the special nonprofit corporation in order to providefunds to pay the purchase price of the Projects. The Projects will beconstructed by selected contractors designated to the special nonprofitcorporation by the State Property Office of the Department of Administration inconsultation with the Department of Correction. The Projects will be sold tothe special nonprofit corporation, with the purchase price paid by the specialnonprofit corporation from the proceeds of the certificates of participation.The State may lease the real property upon which the Projects will be located,if owned by the State, to the selected contractors constructing the Projectsand to the special nonprofit corporation for nominal consideration.

(a1)      FacilitiesAuthorized. – The following facilities are authorized under this section:

(1)        2001 Facilities. –Three close security correctional facilities totaling up to 3,000 cells.

(2)        2003 Facilities. –Three close security correctional facilities substantially identical to thefacilities described in subdivision (1) of this subsection and totaling up to3,000 cells. If the State and the special nonprofit corporation are able to negotiatea contract for one or more of these facilities with the construction contractorthat constructed the facilities described in subdivision (1) of this subsectionon terms that are reasonable and desirable to the State as determined by theState Treasurer, the Secretary of Administration, and the Council of State,then a request for proposals under subsection (c) of this section is notrequired. The remaining provisions of this section continue to apply.

(b)        Definitions. – Thefollowing definitions apply in this section:

(1)        Certificates ofparticipation. – Certificates or other instruments delivered by a specialnonprofit corporation as provided in this section evidencing the assignment ofproportionate and undivided interests in the rights to receive lease paymentsto be made by the State pursuant to a lease‑purchase agreement.

(2)        Constructioncontract agreement. – Either of the following:

a.         A contract betweenthe Department of Correction and the selected contractors for construction ofthe Projects, under which the selected contractors will be responsible forarranging for and obtaining their own construction financing, which willconsist solely of private funds.

b.         A contract betweenthe special nonprofit corporation and the selected contractors for constructionof the Projects, but only if the contract has provisions sufficient to carryout the requirements of the last paragraph of subsection (c) of this section.The Secretary of Correction shall determine the sufficiency of the contract andshall approve the contract only if it is sufficient.

(3)        Lease‑purchaseagreement. – A lease‑purchase agreement entered into pursuant to thissection, under which the State will lease the Projects from the specialnonprofit corporation, with option to purchase.

(4)        Projects. –Facilities described in subsection (a1) of this section to be constructed byselected contractors, sold to the special nonprofit corporation, and leased tothe State pursuant to this section.

(5)        Purchase agreement.– A contract under which the special nonprofit corporation will purchase theProjects from the selected contractors.

(6)        Selectedcontractors. – One or more private firms selected to construct the Projects.

(7)        Special nonprofitcorporation. – A nonprofit corporation created under Chapter 55A of the GeneralStatutes and designated by the State Treasurer for entering into thetransactions contemplated by this act.

(c)        Request forProposals. – The Secretary of Correction may issue a request for proposals toprivate firms for the private firms to construct the Projects in accordancewith plans and specifications developed by the Department of Correction andreviewed by the Office of State Construction.

The Secretary of Correctionshall make recommendations to the State Property Office of the Department ofAdministration on the final award decision. The Department of Correction andthe State Property Office of the Department of Administration shall consultwith the Joint Legislative Commission on Governmental Operations before makingthe final award decision. The Department of Administration shall make the finalaward decision, which shall then be subject to the approval of the Council ofState. If the contract for construction of the 2003 facilities is entered intowith the construction contractor who constructed the 2001 facilities asprovided by subdivision (a1)(2) of this section, the general terms andconditions of the construction contract for the 2003 facilities shall besubstantially similar to the terms and conditions of the construction contractsfor the construction of the 2001 facilities, including, without limitation,terms and conditions regarding the activities, performance, and constructionstandards required of the contractor, the arrangements for selection andretention of subcontractors by the contractor, and the responsibility of thecontractor for the performance by the selected subcontractors. The constructioncontract for the 2003 facilities may, however, contain any changes from theconstruction contracts for the 2001 facilities that may be necessary ordesirable to reflect the financing arrangements for the 2003 facilities,including provisions for the periodic payment of construction costs based uponconstruction progress.

The Department of Correctionwill enter into a construction contract agreement with the selected contractorsfor the construction of the Projects or, alternatively, the constructioncontract may be entered into with the selected contractor by the specialnonprofit corporation, with the approval of the Department of Correction. Thespecial nonprofit corporation will enter into a purchase agreement with theselected contractors for the sale of the Projects to the special nonprofitcorporation. With respect to the 2003 facilities, the purchase agreement mayprovide for the periodic payment by the special nonprofit corporation to theselected contractor of portions of the purchase price during the constructionof the 2003 facilities on the basis of construction progress, rather than apayment of the entire purchase price upon delivery of the 2003 facilities. TheDepartment of Correction shall furnish plans and specifications for review bythe State Construction Office. Construction contract agreements entered intounder this section shall provide that the Department of Correction and theOffice of State Construction shall inspect and review each facility duringconstruction to ensure and determine jointly that the facility is suitable foruse as a correctional facility and for future acquisition by the State. TheDepartment of Correction may contract with a design consortium for constructionadministration services.

(d)        Approval of Lease‑PurchaseAgreement. – A lease‑purchase agreement may not be entered into pursuantto this section unless the following conditions are met before the lease‑purchaseagreement is entered into: (i) the Council of State, by resolution, approvesthe execution and delivery of the lease‑purchase agreement, and (ii) theState Treasurer approves the lease‑purchase agreement and all otherdocumentation related to it, including any leasehold deed of trust or trustagreement in connection with it. The resolution of the Council of State mayinclude any matters the Council of State determines. In determining whether toapprove the lease‑purchase agreement, the State Treasurer may considerany factors as the State Treasurer considers relevant in order to find anddetermine that all of the following conditions are met:

(1)        The principal amountto be financed under the lease‑purchase agreement is adequate and notexcessive for the purpose of paying the cost of the Projects.

(2)        The increase, ifany, in State revenues necessary to pay the sums to become due under the lease‑purchaseagreement is not excessive.

(3)        The lease‑purchaseagreement can be entered into on terms desirable to the State.

(4)        The sale ofcertificates of participation will not have an adverse effect on any scheduledor proposed sale of obligations of the State or any State agency or of any unitof local government in the State.

(e)        Terms andConditions. – The following provisions apply to a lease‑purchaseagreement entered into under this section:

(1)        In order to securethe performance by the State of its obligations under the lease‑purchaseagreement, the lease‑purchase agreement may require the eviction of theState from the occupancy of one or more of the Projects in the event that theState breaches its obligations and agreements under the lease‑purchaseagreement.

(2)        No deficiencyjudgment may be rendered against the State or any agency, department, orcommission of the State in any action for breach of any obligation contained inthe lease‑purchase agreement or any other related documentation, and thetaxing power of the State or any agency, department, or commission of the Stateis not and may not be pledged to secure any moneys due under the lease‑purchaseagreement.

(3)        The lease‑purchaseagreement shall not contain a nonsubstitution clause that restricts the rightof the State to replace or provide a substitute for the Projects.

(4)        The lease‑purchaseagreement may include provisions requesting the Governor to submit in theGovernor's budget proposal, or any amendments or supplements to it,appropriations necessary to make the payments required under the lease‑purchaseagreement.

(5)        The lease‑purchaseagreement may contain any provisions for protecting and enforcing the rightsand remedies of the special nonprofit corporation that are reasonable andproper and not in violation of law, including covenants setting forth theduties of the State with respect to the Projects, which may include provisionsrelating to insuring, operating, and maintaining the Projects and the custody,safeguarding, investment, and application of moneys.

(6)        The lease‑purchaseagreement may designate the lease payments to be paid by the State under it tobe "principal components" and "interest components." Anyinterest component of the lease payments may be calculated based upon a fixedor variable interest rate or rates as determined by the State Treasurer.

(7)        The lease‑purchaseagreement may be entered into by the State, and certificates of participationmay be delivered by the special nonprofit corporation, at any time, includingat times prior to the delivery of the completed Projects to the specialnonprofit corporation, and the related delivery of occupancy of the Projects tothe State by the special nonprofit corporation. The lease‑purchaseagreement may require the State to make prepayments of lease payments at a timeprior to when the State accepts occupancy of the Projects. The lease‑purchaseagreement and related financing arrangements may provide for the funding ofinterest during construction from the proceeds of certificates ofparticipation. The costs incurred in connection with the preparation of thelease‑purchase agreement and related documents and the delivery of thecertificates of participation may be paid from the proceeds of the certificatesof participation.

(8)        The State isauthorized to agree in the lease‑purchase agreement to indemnify thespecial corporation and its directors and agents for any liabilities that ariseto the special corporation or directors or agents on account of theirparticipation in the activities contemplated by this act.

(f)         Faith and CreditNot Pledged. – The payment of amounts payable by the State under the lease‑purchaseagreement and other related documentation during any fiscal biennium or fiscalyear is limited to funds appropriated for that purpose by the General Assemblyin its discretion. No provision of this section and no lease‑purchaseagreement creates any pledge of the faith and credit of the State or anyagency, department, or commission of the State within the meaning of anyconstitutional debt limitation.

(g)        Certificates ofParticipation. – The State may cooperate as necessary to effectuate thedelivery by the special nonprofit corporation of tax‑exempt certificatesof participation, including participating in the preparation of offeringdocuments, the filing of required tax forms and agreeing to comply withrestrictions on the use of the Projects as required in order for the interestcomponent of the lease payments to be tax‑exempt. Disclosures andcompliance with other federal law requirements by the special nonprofitcorporation shall be under the direction of the State Treasurer. Certificatesof participation may be sold at the direction of the State Treasurer in themanner, either at public or private sale, and for any price or prices that theState Treasurer determines to be in the best interest of the State and toeffect the purposes of this section. Interest payable with respect tocertificates of participation shall accrue at the rate or rates determined bythe State Treasurer with the approval of the special nonprofit corporation.

Certificates of participationmay be delivered pursuant to a trust agreement with a corporate trusteeapproved by the State Treasurer. The corporate trustee may be any trust companyor bank having the powers of a trust company within or without the State. Atrust agreement may (i) provide for security and pledges and assignments withrespect to the security as may be permitted under this section and furtherprovide for the enforcement of any lien or security interest created pursuantto this section, and (ii) contain any provisions for protecting and enforcingthe rights and remedies of the owners of any certificates of participation thatare reasonable and proper and not in violation of law as determined by theState Treasurer. The State Treasurer shall designate the professionalsproviding legal or financial services relating to the lease‑purchaseagreement and the delivery of certificates of participation, including theprovider of any credit facility and the underwriter or placement agent for anycertificates of participation.

(h)        Tax Exemption. –The lease‑purchase agreement and any certificates of participationrelating to it shall at all times be free from taxation by the State or anypolitical subdivision or any of their agencies, excepting estate, inheritance,or gift taxes, income taxes on the gain from the transfer of the lease‑purchaseagreement and certificates of participation, and franchise taxes. The interestcomponent of the lease payments made by the State under the lease‑purchaseagreement, including the interest payable with respect to any certificates ofparticipation, is not subject to taxation as income.

(i)         LicensingRequirements. – The private for‑profit or nonprofit firms authorized torespond to requests for proposals authorized by this section, or entitled to bea selected contractor pursuant to this section, need not be a licensed generalcontractor within the meaning of G.S. 87‑1 so that providing a responseto the request or entering a construction contract agreement or purchase agreementis not general contracting within the meaning of G.S. 87‑1. Thissubsection does not remove the actual construction of any prison facility fromthe provisions of G.S. 87‑1.

(j)         Minority BusinessParticipation. – G.S. 143‑128.2 applies to the Projects authorized inthis section.

(k)        Upon completion ofthe construction of a facility authorized by this section and the commencementof the State's leasehold interest pursuant to the terms of a valid lease‑purchaseagreement:

(1)        The facility shallnot be subject to county or municipal building codes and requirements and shallnot be subject to inspection by any county or municipal authorities under G.S.143‑135.1.

(2)        The Department ofAdministration may exercise all powers and perform all duties set forth in G.S.143‑341 regarding the facility.

(3)        The Commissioner ofInsurance shall conduct the inspections, reviews, and examinations of thefacility set forth in G.S. 58‑31‑40 and shall conduct electricalinspections of the facility pursuant to G.S. 143‑143.2. (1999‑237, s. 18.20(a);2001‑84, s. 1; 2001‑202, s. 1; 2003‑284, s. 47.1; 2005‑98,s. 1.)