RALEIGH — The N.C. Court of Appeals ruled Tuesday that governors must keep their hands off one of the state's road building funds when they're scrounging for money to balance the budget.
The decision in the 7-year-old case involving the Highway Trust Fund could sharply restrict the steps that Gov. Beverly Perdue and future governors can take without legislative approval in a financial crisis.
Perdue, a Democrat, plans to appeal the decision, saying that it robs her of some of the tools needed to deal with the sort of deep recession that has wracked North Carolina and the rest of the country.
The former state transportation secretary and former state senator who filed the suit hailed the decision as a safeguard against future governors snatching the road money to pay other bills.
"This is a huge victory for taxpayers," said Dan Boyce, a Raleigh lawyer representing James Harrington, who was state transportation secretary under Republican Gov. Jim Martin in the 1980s, and former state Sen. William Goldston, a Democrat from Eden.
The Highway Trust Fund was created in 1989 to help build bridges and roads, including interstate loops around the state's larger cities.
Martin and legislators took the money generated by the sales tax on cars, which had been flowing into the general fund, and began pumping it into the new trust fund. To make up for the loss of money in the general fund, Martin and lawmakers agreed to transfer $170 million a year from the new Highway Trust Fund to the general fund.
How the case began
When a recession hit in 2001 and 2002, Gov. Mike Easley seized $80 million on top of the $170 million already moved. Easley and lawmakers later shifted an additional $125 million that they called a loan.
Harrington and Goldston, who helped create the trust fund, sued, arguing that a governor cannot take money appropriated for a specific purpose and use it for another.
"We promised the people" that the trust fund would be used to build roads, Harrington said Tuesday.
A three-judge panel of the appeals court upheld the $125 million Easley moved with the legislature's approval, but the panel said Easley "exceeded his constitutional authority" in using an executive order to move the $80 million.
The state constitution grants the governor authority to keep the budget balanced once the legislature has passed it, but the language does not "grant the governor the unfettered power to transfer funds," Judge Robert N. Hunter Jr. wrote.
Governing in a crisis
Judge Linda McGee wrote in dissent that the court was removing "the governor's ability to act quickly in a crisis."
Perdue shared those concerns, according to her press secretary, Chrissy Pearson.
"The governor feels like the people of North Carolina have an expectation that the state will pay its bills," Pearson said, "and she has to have the tools to do that, particularly in the context of these extreme economic times."
Last spring, the state's revenues were nose-diving and jeopardizing North Carolina's ability to write checks. Perdue took at least $145 million from special funds used, among other purposes, to prevent smoking, help needy families, buy park land, clean up scrap tires and preserve wetlands. She also took money from funds to buy textbooks and build schools, but that money was paid back.
If the Supreme Court hears the case, it likely will focus on where to draw the line between the legislature's and the governor's authority to decide how money is spent, said former Justice Bob Orr, a Republican who now heads the N.C. Institute for Constitutional Law.
"It's a very important separation-of-powers issue," Orr said.
In previous rulings on the governor's budget-balancing authority, the appeals court upheld Easley's interception of $210 million in tax reimbursements intended for localities, but the court said he wrongly seized $225 million headed for state employee pension funds.
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