N.C. court again tackles governor's budget powers

By Gary D. Robertson

RALEIGH, N.C.

Another appeals court weighed in Tuesday on what North Carolina's governors can do to balance the state's budget, this time ruling then-Gov. Mike Easley was wrong to transfer $80 million from a road-building fund to pay for other government operations in 2002.

In a split decision, a three-judge panel of the state Court of Appeals ruled the state constitution doesn't allow a governor to transfer money appropriated by the General Assembly for one purpose and use it for another purpose without legislative approval.

Easley transferred the money from the Highway Trust Fund to the state's general fund with a February 2002 executive order to help close a shortfall in that year's budget that ultimately reached $1.6 billion. Two former state officials sued later that year, arguing trust fund revenues must only be used for what was outlined in state law.

Judge Robert Hunter of Morehead City, writing the majority opinion, said a governor has many ways to narrow a budget gap — including escrowing funds, employee furloughs and temporary spending cuts. But transferring funds appropriated by the Legislature crosses the line, Hunter wrote in reversing a March 2008 ruling by Superior Court Judge Joseph John.

"The transfer of these funds, designated by the budget statute for one purpose and transferred by the Governor to another does not fulfill the executive's duty to administer the budget enacted by the Legislature, nor does it assure that the laws are faithfully executed," Hunter wrote.

Easley and current Gov. Beverly Perdue — who also siphoned cash from dedicated pots of state money and cut down on expenses this year to deal with a $3.2 billion shortfall — have said the constitution gives the state's chief executive broad powers to scour state government to find money to close a shortfall.

Judge Barbara Jackson joined with Hunter in the 2-1 opinion. The divided court means the state Supreme Court must hear the case if the state appeals the ruling. During a visit to Chapel Hill, Perdue told reporters she expects the state will appeal.

"The people of North Carolina have an expectation that the state of North Carolina will pay its bills" and that the governor has the tools to do so, Perdue spokeswoman Chrissy Pearson said.

Attorneys for the plaintiffs — former Transportation Secretary Jim Harrington and ex-Sen. Bill Goldston — called the ruling a victory for taxpayers who expect state government to use tax dollars for their intended purpose, not just to pay for what is convenient.

The Highway Trust Fund is primarily used to build urban loops, widen four-lane highways and improve secondary roads. The fund generates revenue largely through a 3 percent use tax on vehicle sales, a gasoline tax and title fees.

"It's the constitution that's got to be followed, not what is practical or if it's an emergency," said Gene Boyce, one of the lawyers.

The state constitution says the governor "shall effect the necessary economies in state expenditures" to "insure that the State does not incur a deficit for any fiscal period."

In a dissenting opinion, Judge Linda McGee said Hunter's interpretation of the state constitution would hamstring governors from acting quickly to plug a deficit.

"The restrictions on executive action as mandated by the majority are inefficient, impractical, and likely to thwart the governor in the governor's constitutional duty to prevent a deficit," McGee wrote.

The three judges agreed to uphold a portion of John's ruling that the Legislature had the authority to take another $125 million from the Highway Trust Fund to balance the 2002-03 budget.

The case already has wound its way through the court system once on a procedural question. The state Supreme Court agreed in 2006 that Harrington and Goldston, who helped created the fund in 1989, had the legal standing to sue as taxpayers.

State courts have heard two similar cases involving how Easley managed the budget crisis earlier this decade — decisions that will affect the options Perdue and future governors have to plug spending holes.

In 2005, the state Court of Appeals unanimously upheld Easley's decision to withhold $210 million in expected tax reimbursements to local governments to balance the budget.

But another three-judge panel last year ruled it was wrong for Easley to intercept $225 million headed to state employee pension funds because the state and federal constitutions protect them.