In North Carolina, it’s illegal for state government to compete with private business. That’s because of the Umstead Act, which was originally adopted in 1929. Since then, it has been updated many times. Today, it bans state government entities from engaging in business activity in direct competition with private companies.
The act is comprehensive. It prohibits “the sale of goods, wares or merchandise” in competition with citizens of the state, as well as “the operation of restaurants, cafeterias or other eating places,” service establishments, transportation services, and the “leasing or subleasing of space in any building” owned or leased by a government entity. But there’s one very common exception to the rule: universities.
Over the years, the legislature has granted institutions in the University of North Carolina system a long list of exemptions. Some of them make sense, such as for selling food, books and course packs to students. Other exemptions, however, clearly cross a line. For example, UNC schools are now allowed to operate “an inn or hotel and dining facilities.” Another exemption is so broad that it’s essentially a blank check for universities to do whatever they want — it allows universities to engage in any “activities that further the mission of the university.”
The bill also exempts the entire Centennial Campus at NC State University, which houses more than 70 corporate, government and nonprofit entities as well as 75 NC State research centers, institutes, laboratories and academic departments. Although a good deal of activity on Centennial Campus is strictly academic, many of the tenants are private, for-profit businesses with no connection to the university’s mission of education and research and which have no contact with students. Some partners at Centennial Campus include ABB, the Eastman Innovation Center, the U.S. Department of Agriculture, Merck and LexisNexis.
The legislation leaves room for other universities to follow in NC State’s footsteps by building their own “millennial campuses.” Some, including East Carolina, NC Central and UNC Greensboro, have already begun the process.
Another university enterprise is underway. UNC Charlotte will break ground this year on a university-affiliated hotel and conference center next to campus. The hotel will have 226 rooms and roughly 24,000 square feet of conference space. Marriott International will operate the new facility. The project’s estimated cost is $84 million. Because the hotel is officially funded and financed through the university foundation, it requires very little oversight from the UNC system and none at all from the UNC Board of Governors.
Universities are in a unique position. Not only are they exempt in many ways from the act, but the Umstead Review Panel — the body that determines whether proposed activities violate the Act — is part of the UNC Board of Governors. This structure has the potential to create a conflict of interest.
The Umstead Act was created based on an important principle: That governments should not use their privileged legal positions to unfairly compete with private businesses. In the case of a university, those unfair advantages include the tax-free land they own as well as the ability to accept tax-advantaged donations. Together, those loopholes give universities a sizable advantage over their business competition. When universities enter the market, both taxpayers and local businesses pay the price.
It’s time for North Carolina to revisit the Umstead Act. Universities shouldn’t compete with private entities unless it is a genuine part of the academic mission. Nor should they be able to bypass university governance procedures by working through their nonprofit foundations. Reform and transparency are sorely needed.
Jenna A. Robinson, Ph.D., is president of the James G. Martin Center for Academic Renewal.