Goldston v. State

• Decision Date: 15 December 2006
• Docket Number: No. 328PA04-2.,328PA04-2.
• Court: North Carolina Supreme Court
• Parties: W.D. GOLDSTON, Jr., James E. Harrington, and citizens, taxpayers, and bondholders similarly situated v. STATE of North Carolina and Michael F. Easley, Governor, individually and in his official capacity.

637 S.E.2d 876

W.D. GOLDSTON, Jr., James E. Harrington, and citizens, taxpayers, and bondholders similarly situated

v.

STATE of North Carolina and Michael F. Easley, Governor, individually and in his official capacity.

No. 328PA04-2.

Supreme Court of North Carolina.

December 15, 2006.

On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision of the Court of Appeals, 173 N.C.App. 416, 618 S.E.2d 785 (2005), affirming a judgment allowing summary judgment for defendants and dismissing plaintiffs' complaint entered 29 January 2004 by Judge Joseph R. John, Sr. in Superior Court, Wake County. Heard in the Supreme Court 16 October 2006.

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

Roy Cooper, Attorney General, by Grayson G. Kelley, Chief Deputy Attorney General; John F. Maddrey, Assistant Solicitor General; and Norma S. Harrell, Special Deputy Attorney General, for defendant-appellees.

Ellis & Winters LLP, by Julia F. Youngman and Thomas H. Segars, and Robert F. Orr, Raleigh, for the North Carolina Institute for Constitutional Law, amicus curiae.

EDMUNDS, Justice.

In this case, we must determine whether individual taxpayers have standing to seek relief when they allege government officials violated statutory and constitutional provisions by diverting tax levies appropriated for one purpose but disbursed for another. If so, we next must decide whether a declaratory judgment is a proper remedy for such a claim. We reaffirm our long-standing holdings that taxpayers have standing to challenge unlawful or unconstitutional government expenditures and conclude that taxpayers are entitled to seek equitable relief in the form of a declaratory judgment. Accordingly, we reverse the opinion of the Court of Appeals.

The General Assembly created the North Carolina Highway Trust Fund in 1989, establishing a special account within the State Treasury to provide multiyear funding for highway construction and maintenance. Act of July 27, 1989, ch. 692, secs. 1.1-2.3, 1989 N.C. Sess. Laws 1933, 1933-97 (codified at N.C.G.S. §§ 136-175 to -184.) The Trust Fund is funded through 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 motor vehicle use taxes be transferred each year from the Trust Fund to the State's General Fund. Id., sec. 4.1 at 1982-83. In 1989, $279,400,000 was transferred to the General Fund. Id., sec. 4.3 at 1983-84. That sum has been adjusted each succeeding fiscal year in accordance with fluctuations in motor vehicle use tax collections, N.C.G.S. § 105-187.9(b)(2), resulting in a total transfer of $252,400,000 for the 2002-2003 fiscal year.

During the 2001-2002 fiscal year, the State faced a budget shortfall. Because Article III, Section 5(3) of the North Carolina Constitution does not allow a deficit for any fiscal period, on 5 February 2002, the Governor, as administrator of the budget, issued Executive Order Number 19. Exec. Or. 19, 16 N.C. Reg. 1866 (Mar. 1, 2002). Among other measures, this Executive Order stated that the Office of State Budget and Management could "transfer, as necessary, funds from the Highway Trust Fund Account for support of General Fund appropriation expenditures." Id. Accordingly, on 8 February 2002, the State Budget Officer directed that $80,000,000 be debited from the Highway Trust Fund and credited to the General Fund.

The State faced another budget shortfall for the 2002-2003 fiscal year, and, effective 1 July 2002, the General Assembly transferred an additional $125,000,000 from the Trust Fund to the General Fund. Current Operations, Capital Improvements, and Finance Act of 2002, ch. 126, sec. 2.2(g), 2001 N.C. Sess. Laws (Extra Sess.2002) 291, 298-99. The General Assembly treated this transfer as a loan from the Trust Fund to the General Fund, with the General Assembly committing itself to returning the $125,000,000, including interest, to the Trust Fund during fiscal years 2004-2005 through 2008-2009. Id., secs. 2.2(g) at 298-99, 26.14 at 457.

Plaintiffs Goldston and Harrington, as North Carolina citizens and taxpayers, brought suit against the State and Governor in November 2002. 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.G.S. § 136-176(b) (2005). In addition, 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 to ensure that the State does not incur a deficit for any fiscal period, but does not, plaintiffs contend, 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.

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 Highway 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 assets.

Plaintiffs requested injunctive and declaratory relief, seeking both a declaration that defendants' actions were illegal and unconstitutional and an immediate return of the monies at issue to the Trust Fund. Plaintiffs later abandoned their prayer for relief in the nature of mandamus through which they had requested return of the funds, but they continued to maintain that they faced the threat of future illegal and unconstitutional disbursements from the Trust Fund. In response, the State and the Governor filed a motion to dismiss, arguing that plaintiffs lacked standing "in that they have failed to allege the necessary facts to bring this suit: based on their status as citizens or taxpayers or bondholders; based on any alleged contractual or impairment claim; or on any other basis establishing their right to bring such claim against defendants." In addition, defendants also claimed that plaintiffs failed to state a claim for relief. Plaintiffs and defendants both filed motions for summary judgment.

The trial court merged its consideration of defendants' motion to dismiss and motion for summary judgment, then granted summary judgment for defendants while denying summary judgment for plaintiffs. Plaintiffs appealed, and on 20 September 2005, a unanimous panel of the Court of Appeals affirmed the trial court "to the extent that the trial court's order is a dismissal for lack of standing." Goldston v. State, 173 N.C.App. 416, 422, 618 S.E.2d 785, 790 (2005). Plaintiffs appealed to this Court, and on 2 March 2006, we allowed defendants' motion to dismiss plaintiffs' appeal based on a constitutional question but allowed plaintiffs' petition for discretionary review of the Court of Appeals decision as to the issue of standing. 360 N.C. 363, 629 S.E.2d 850 (2006).

In their briefs, the parties discuss distinctions between "constitutional standing," "direct standing," and "derivative standing" that have never been recognized by this Court. While we do not now pass on the validity of these classifications, we believe that the issue presented in this case can be resolved by reference to our existing case law.

This Court has stated that "`[t]he "gist of the question of standing" is whether the party seeking relief has "alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions."'" Stanley v. Dep't of Conservation & Dev., 284 N.C. 15, 28, 199 S.E.2d 641, 650 (1973) (quoting Flast v. Cohen, 392 U.S. 83, 99, 88 S.Ct. 1942, 1952, 20 L.Ed.2d 947, 961 (1968) (citation omitted)). We recognized as early as the nineteenth century that taxpayers have standing to challenge the allegedly illegal or unconstitutional disbursement of tax funds by local officials. In Stratford v. City of Greensboro, a taxpayer sought to enjoin Greensboro city authorities from street construction that the taxpayer alleged was undertaken for the benefit of a private citizen rather than for the benefit of the public. 124 N.C. 110, 111-12, 124 N.C. 127, 128-30, 32 S.E. 394, 395 (1899). We found "`no serious question'" that a taxpayer had an equitable right to sue "`to prevent an illegal disposition of the moneys of the county.'" Id. at...