Goldston v. State

• Decision Date: 15 September 2009
• Docket Number: No. COA08-754.,COA08-754.
• Citation: 683 S.E.2d 237
• Parties: W.D. GOLDSTON, Jr., James E. Harrington, and citizens, taxpayers, and bondholders similarly situated, Plaintiffs, v. STATE of North Carolina and Michael F. Easley, Governor, individually and in his official capacity, Defendants.
• Court: North Carolina Court of Appeals

683 S.E.2d 237

W.D. GOLDSTON, Jr., James E. Harrington, and citizens, taxpayers, and bondholders similarly situated, Plaintiffs, v. STATE of North Carolina and Michael F. Easley, Governor, individually and in his official capacity, Defendants.

No. COA08-754.

Court of Appeals of North Carolina.

September 15, 2009.

Appeal by plaintiffs from judgment and order entered 27 March 2008 by Judge Joseph R. John, Sr., in Wake County Superior Court. Heard in the Court of Appeals 28 January 2009.

Boyce & Isley, PLLC, by G. Eugene Boyce, R. Daniel Boyce and Philip R. Isley, Raleigh, for plaintiff appellants.

Attorney General Roy Cooper, by Special Deputy Attorney General Norma S. Harrell and Assistant Solicitor General John F. Maddrey, for defendant appellees.

HUNTER, JR., ROBERT N., Judge.

Plaintiffs request a declaratory judgment asking whether the transfer to the General Fund of $80,000,000 by the Governor and $125,000,000 by statute from funds appropriated in 2001 to the North Carolina Highway Trust Fund ("Trust Fund") were contrary to provisions of the North Carolina Constitution dealing with public funds, specifically N.C. Const. art. III, § 5(3) and N.C. Const. art. V, § 5. On cross motions for summary judgment, the trial court held both transfers to be lawful. We affirm in part the trial court with regard to the statutory transfer of $125,000,000 but reverse with regard to the Governor's transfer of $80,000,000. As to the other matters raised in the appeal, we affirm the trial court, as discussed herein.

I.

A. Legislative History¹

The General Assembly created the North Carolina Highway Trust Fund ("Trust Fund") in 1989, establishing a special account within the State Treasury to provide multi-year funding for highway construction and maintenance. 1989 N.C. Sess. Laws ch. 1933-97. The Trust Fund receives monies flowing from several revenue streams, including motor vehicle title and registration fees; motor fuels excise taxes; alternative fuels excise taxes; motor vehicle use taxes; and interest and income earned by the Trust Fund. As originally enacted, Trust Fund revenues were to be used only for specified projects of the Intrastate Highway System, for specific urban loop highways, and to provide supplemental appropriations for specific secondary roads and for city streets, with a small portion of the Trust Fund allotted for administrative expenses.

In addition, the 1989 statute creating the Trust Fund directed that a portion of the funds be transferred each year from the Trust Fund to the State's General Fund. Id. at 1982-83. As originally enacted, N.C. Gen. Stat. § 105-187.9 (2007) stated: "In each fiscal year the State Treasurer shall transfer the sum of . . . ($170,000,000) of the taxes deposited in the Trust Fund to the General Fund[.]"² This transfer has been made in each succeeding fiscal year, though the amount transferred each year varied in accordance with fluctuations in motor vehicle use tax collections as required by N.C. Gen. Stat. § 105-187.9(b)(2) and in response to loans made from and payments made to the Trust Fund by the Legislature. In 1989, $279,400,000 was transferred to the General Fund. 1989 N.C. Sess. Laws ch. 1983-84.

On 21 September 2001, in the 2001 N.C. Sess. Laws ch. 424, the "Current Operations and Capital Improvements Appropriations Act of 2001" ("Appropriations Act of 2001" or "Act") was read three times in the General Assembly and ratified. 2001 N.C. Sess. Laws ch. 424. Subsequently, the Act was signed into law by Governor Easley at 11:15 a.m. on 26 September 2001. Id. The Act set spending for the 2001-2003 biennial fiscal years. The Act amended section 105-187.9 so as to continue the yearly transfer of $170,000,000 from the Trust Fund to the General Fund: in the 2001-2002 fiscal year, the sum of $1,700,000; in the 2002-2003 fiscal year, the sum of $2,400,000.

In each fiscal year thereafter, the sum transferred under this subdivision shall be the amount distributed in the previous fiscal year plus or minus a percentage of this sum equal to the percentage by which tax collections under this article increased or decreased for the most recent 12-month period for which data are available.

N.C. Gen.Stat. § 105-187.9(b)(2).

Approximately four months after the passage of the Act, on 5 February 2002, the Governor issued Executive Order 19 ("Executive Order 19" or "Order"). The Order recites that a "`deficit' is defined as having been incurred when total expenditures for the fiscal period of the budget exceed the total of receipts during the period, plus the surplus remaining in the State Treasury at the beginning of the period." Exec. Order No. 19, 16 N.C. Reg. 1866 (Mar. 1, 2002). The fiscal period began 1 July 2001. Id.

The Order includes nine sections affecting the expenditure of funds collected by the State. Section 5 and section 9 are relevant to our analysis. Section 5 of Executive Order 19 states, "[The Office of State Budget and Management] may transfer, as necessary, funds from the Highway Trust Fund Account for support of General Fund appropriation expenditures." Exec. Order No. 19, 16 N.C. Reg. 1866 (Mar. 1, 2002). Accordingly, on 8 February 2002, the State Budget Officer directed that $80,000,000 be debited from the Trust Fund and credited to the General Fund.

Section 9 of Executive Order 19 reads as follows:

The Office of the State Controller, as advised by the State Budget Officer, is directed to receive the local government reimbursement funds and to escrow such funds in a special reserve as established by [the Office of State Budget Management]. Return of all such receipts shall be made to the local government reimbursement funds, if possible, after determination that such funds are not necessary to address the deficit.

Exec. Order No. 19, 16 N.C. Reg. 1866 (Mar. 1, 2002).

Subsequent to Executive Order 19, the General Assembly convened in Extra Session on 14 May 2002 and convened for the continuing Regular Session on 28 May 2002. An examination of the Session Laws passed by the General Assembly during these sessions reveals that the Legislature modified two provisions of the Act which concerned provisions of the Order. In the 2001 Regular Session, the Legislature abolished local government reimbursement statutes effective as of 1 July 2003. 2001 N.C. Sess. Laws chs. 2105-06. At the 14 May 2002 Session, the Legislature changed the effective date for repealing the local government reimbursement statutes from 1 July 2003 to 1 July 2002. 2002 N.C. Sess. Laws ch 503. The General Assembly also made appropriations from the Trust Fund for road construction; however, unlike the local reimbursement act appropriation, the Governor's transfer of $80,000,000 from the Trust Fund to the General Fund was not addressed by the Legislature. 2002 N.C. Sess. Laws ch. 302.

Because the State budget deficit continued for the 2002-2003 fiscal year, the General Assembly transferred $125,000,000 from the Trust Fund to the General Fund, effective 1 July 2002, in addition to the previously appropriated $170,000,000. 2002 N.C. Sess. Laws chs. 298-99. The General Assembly treated this transfer as a loan from the Trust Fund to the General Fund, committing to return the $125,000,000, including interest, to the Trust Fund during fiscal years 2004-2005 through 2008-2009. Id. at 298-99, 457. Subsequently, in fiscal year 2004-2005, the General Assembly reduced the yearly transfer of funds from the Trust Fund to the General Fund by $10,000,000 as a payment on this loan, see 2002 N.C. Sess. Laws ch. 457, and forgave the remainder of the loan in fiscal year 2005-2006. 2005 N.C. Sess. Laws ch. 674. In fiscal year 2006-2007, however, the General Assembly paid the remainder of the loan by again reducing the yearly transfer of funds from the Trust Fund to the General Fund by $115,000,000. 2006 N.C. Sess. Laws ch. 1523.

B. Procedural History

On 14 November 2002, plaintiffs Goldston and Harrington, as North Carolina citizens and taxpayers, brought suit against the State and Governor. Plaintiffs alleged the transfers of $80,000,000 by the Governor and $125,000,000 by the General Assembly from the Trust Fund to the General Fund were unlawful diversions of Trust Fund assets because disbursement of those funds is not allowed for any projects other than those specified by statute. The pertinent statute states that the "special objects" of the Trust Fund are the intrastate highways, urban loops, city streets, secondary roads, debt service, and Department of Transportation administrative expenses. N.C. Gen.Stat. § 136-176(b) (2007). Plaintiffs also contended these transfers violated the North Carolina Constitution, which mandates that "[e]very act of the General Assembly levying a tax shall state the special object to which it is to be applied, and it shall be applied to no other purpose." N.C. Const. art. V, § 5. Plaintiffs asserted that the statutorily defined "special objects" of the Trust Fund preclude use of Trust Fund assets for General Fund expenditures. Finally, plaintiffs alleged the Governor exceeded his constitutional authority under article III, section 5(3). This provision requires the Governor to administer the budget and "[t]o insure that the State does not incur a deficit for any fiscal period," but does not, plaintiffs contended, authorize the Governor to order transfers from the Trust Fund to the General Fund because the Trust Fund is separate from the General Fund and the annual budget process. N.C. Const. art. III, § 5(3).

Filing suit both as individual taxpayers and on behalf of other citizens similarly situated, plaintiffs alleged they were injured because they had paid motor fuel taxes, title and registration fees, and other highway taxes, which by law were collected expressly for application to the Trust Fund but had been diverted for other uses. They argued defendants' actions constituted both a current and future threat of illegal and unconstitutional depletion of Trust Fund...