1. September 5, 2014 CCRESA Strategy Session © Confidential © Allen, Pinnix & Nichols, P.A. September 5, 2014 Central Carolina RESA Organization Formalization Discussion

2. September 5, 2014 CCRESA Strategy Session © Two Primary Options Are Available for CCRESA to Formalize Operations Interlocal Joint Agency Governed primarily by N.C. Gen. Stat § 160A-460 et al. Tax Exempt Nonprofit Corporation Governed primarily by N.C. Gen. Stat. Chapter 55A and the Internal Revenue Code OR 2

3. September 5, 2014 CCRESA Strategy Session © What If We Are Neither? Unincorporated nonprofit association? If an organization is not expressly created to be an interlocal agency cloaked with certain powers and the applicable statutes (and any adopted agreement) are not adhered to, a court could determine that the organization is an unincorporated nonprofit association. This determination could present foreseeable and unforeseeable legal and reputational hurdles. We always ask whether you pass the legal test and the N&O test To ensure both tests can be passed at all times, we recommend aligning the organization squarely in one corner or the other, not in the middle. 3

4. September 5, 2014 CCRESA Strategy Session © Major Considerations In Formalizing the Organization Activities of Organization – Limited functions or broad mandate? Proportionality of Representation for Each District – Equal or weighted? Duration of Organization – Temporary or indefinite? Flexibility of Organization – Intertwined with districts or independent? How strictly has/is the organization going to adhere to applicable laws? Oversight of Organization Fundraising of Organization – Sole reliance on regular member funding? Employees of Organization – Reporting structure, salary and benefits 4

5. September 5, 2014 CCRESA Strategy Session © North Carolina Joint Agency – What Is It? Purpose: When local governments want to combine or share their resources to achieve a common objective, the General Assembly has authorized such governments to enter into agreements creating and governing joint agencies Funding: Primarily supported by member units’ funds, as agreed to by contract; for ease of administration, a fiscal agent may be appointed in the contract Prevalence: Every NC county utilizes interlocal agreements to facilitate cooperation with other governing bodies Examples: RESAs Operation of multi-city or county public works facilities and services Law enforcement cooperation agreements (other statutes implicated as well) 5

6. September 5, 2014 CCRESA Strategy Session © North Carolina Joint Agency – What Is It? Statutes provide that local government units [Boards of Education] may enter into agreements to establish and operate a joint agency: §160A ‐ 461: Agreements can be for any “reasonable” duration; agreements “shall be ratified by resolution of the governing board of each unit spread upon its minutes” § 160A-462: Units may confer on the joint agency any power, duty, right, or function needed for the execution of the undertaking, except legal title to all real property; “units may appropriate funds to the joint agency on the basis of an annual budget recommended by the agency and submitted to the governing board of each unit for approval” § 160A-463: Units may agree that any joint agency shall appoint the officers, agents, and employees necessary to execute the undertaking, or that the units jointly shall appoint these personnel § 160A-464: Terms that the agreement must contain include organization purpose, duration, financing, method for amending and terminating the agreement, etc. 6

7. September 5, 2014 CCRESA Strategy Session © North Carolina Joint Agency – Benefits & Risks Benefits -One-stop-shop agreement governs organization -Government agency cloaked in certain powers and immunities (if agreement so provides) -Only subject to oversight of contracting parties (school districts) -Employees may be able to participate in TSERS Risks -Activities and operations limited to scope of contract -Subject to political headwinds at state and local levels, esp. statutory changes and funding -Funding generally limited to school district appropriations -Annual budget must be approved by each unit’s governing board -Subject to laws such as public records & open meetings 7

8. September 5, 2014 CCRESA Strategy Session © Tax Exempt Nonprofit Corporation – What Is It? Incorporation Under State Law Chapter 55A of General Statutes – “North Carolina Nonprofit Corporation Act” Corporation governed by its board of directors and operated by staff LEAs and Affiliate Members (school districts & higher education institutions) pay dues Bylaws outline framework by which corporation operates Each Member would appoint 1 voting representative (board member) Tax Exemption Under Federal and State Law Potentially established as a 501(c)(3) Public Charity Board must ensure that corporation operates within acceptable guidelines for risk management, executive compensation and unrelated business income Extensive lobbying and political campaign participation limitations Able to contract with particular entities for personnel or services (i.e., one of the member LEAs) 8

9. September 5, 2014 CCRESA Strategy Session © Tax Exempt Nonprofit Corporation – What Is It? Purpose: Organized and operated exclusively for exempt purposes set forth in section 501(c)(3), including charitable, educational, scientific, and literary purposes Funding: Primarily supported by LEA member dues May pursue grants from government entities and other nonprofits Examples: SmartStart NC Community Foundation Recent NC economic development partnership 9

10. September 5, 2014 CCRESA Strategy Session © Tax Exempt Nonprofit Corporation – Benefits & Risks Benefits -Activities and operations not limited to an agreement -Generally operates independent of government units; self-regulated -Flexibility in staffing; no affiliation with TSERS -May be able to more effectively develop supplemental funding sources beyond member dues Risks -Directors and staff not government officials cloaked in immunity -Employees generally unable to participate in TSERS -Subject to IRS and NC Secretary of State oversight -Strict governance must be commonplace to ensure exemption compliance 10

11. September 5, 2014 CCRESA Strategy Session © Next Steps Interlocal Joint Agency 1. Revamp existing agency agreement and annual budget process 2. Support unanimous LEA resolution passage re: new agreement and annual budget 3. Develop/revise key contracts, esp. fiscal agent agreement and possibly ED employment agreement Tax Exempt Nonprofit Corporation 1. Determine the purpose/scope of the organization 2. File articles of incorporation 3. Form a board of directors 4. Adopt bylaws 5. Obtain tax ID and determine filing requirements 6. Seek 501(c)(3) exemption with IRS 7. Develop key contracts OR 11