RALEIGH —The State Supreme Court recently ruled that two taxpayers could move forward with a lawsuit challenging a shift of money out of North Carolina’s Highway Trust Fund. The John Locke Foundation’s Mitch Kokai recently spoke with attorney Gene Boyce, one of the main attorneys in the lawsuit.The interview aired on Carolina Journal Radio. (Go to http://carolinajournal.com/cjradio/ to find a station near you or to learn about the weekly CJ Radio podcast.)
Kokai: So first of all, let’s talk about this case. This stems back from the early days of the Easley administration. North Carolina faced a big budget crunch and he [Gov. Easley] decided to take some money out of this fund that is supposed to fund highway projects. What was it about this that made your clients say, “No, we can’t go along with this, we’re going to sue”?
Boyce: Well, in 1989, there was a movement in the Legislature and throughout North Carolina to do something about the highway system. Jim Harrington was then Secretary of Transportation. Jim was a Republican in the Martin administration. And along with him it was Sen. Bill Goldston, and Bill’s a Democrat. And the two of them combined to promote, throughout the state, public interest in something being done ultimately by the Legislature about the condition of the highways and the then plans for construction for urban loops on seven of the major cities around the state. Jim and Bill went throughout the state holding public hearings and promoting public interest and thus ultimately legislated interest into something being done. Their proposal was to increase the tax on gasoline and on other highway uses, such as license plates and some of the other things that motorists have to have in operation of a vehicle on the highways. They went about the state promising people that if they would go along with this particular tax that their money would be protected in a trust fund, ultimately the Highway Trust Fund.
There are two funds. One is a highway fund, which is appropriated money for highways. But then there is a special highway trust fund. The public agreed, apparently, and the legislators, following the will of the public, ultimately agreed, and legislation was passed in the 1989 General Assembly that established the Highway Trust Fund, a fund that dedicated these new highway-use taxes specifically to name the roads to reconstruction and construction, and to specific urban loops. And the idea was, that money was dedicated. It would not be used for anything else. That’s why it was called a trust fund, and that’s why it was set aside in the state treasurer’s office as a fund separated apart from all other public money.
Kokai: And what the governor did early on was take the money out of that trust fund.
Boyce: Yes. Eleven, 12 years later, in 2001, there came a time, another time, in the evolving economic cycles which we’ve always experienced, a problem in 2001. The problem was, in the biannual budget, one year of the biannual budget, there came to be not enough money coming in to pay for the appropriations that the Legislature had authorized. In other words, we were about to spend more money than we had, and North Carolina has always operated under a strict balanced budget system, which system ultimately became a mandate of the people in the constitution that the budget should always be balanced. The constitution says the total expenditures for the fiscal period governed by the budget shall not exceed the total receipts. And so the problem was, that was going to be violated. The receipts were not equal to the appropriated expenditures, and the constitution has a provision as to what should be done when that occurs.
Kokai: And the governor did not, in your view — and the view of your clients — go along with what the constitution says he should do.
Boyce: Yes. The constitution provision is very simple. Let me back up to when the Highway Trust Fund tax bill was passed. It was in strict accordance with another provision of the constitution —Article V, Section V — which says, “Every act of the General Assembly levying a tax shall state a special object to which it is to be applied.” And it goes further, saying, “and it shall be applied to no other purpose.” Simple language which means if you’re going to tax us, government, you’ve got to tell us what it’s for. And once we pay that tax, you’ve got to use if for what you told us it was for. That’s my word, but that’s what the constitution says it means.
So what does the governor have to do, well, the constitution tells him exactly what he has to do. It says, and I quote from the Article III, Section V, “to ensure that the State does not incur a deficit for any fiscal period the governor shall continually survey the collection of the revenue,” which was done. And it goes on to say, “and the governor shall effect the necessary economies in the State expenditures.” That’s the specific language that the lawsuit involves. To my clients, and to me as their attorney, and based on my study of the history of the constitution, that simply means, if you don’t have enough money coming in, you cut expenditures, you cut expenses. That’s what people do, that’s what families do, and that’s what the people in the constitution said the government and the governor must do — effect the necessary economies in the state expenditures.
Well, that was not done. And what happened was, instead of cutting spending, the executive branch, the governor, in one fell swoop, with one sheet of paper called an executive order, began reaching out and creating additional revenue for the general fund instead of cutting expenditures of the general [fund]. He reached out and began grabbing from other sources, one of which was an $80 million grab from the Highway Trust Fund. Money was taken out of trust without authority and in violation of the constitution, and that’s what this case is all about. He did two other things in 2001 regarding the city and county budget and regarding the retrospective tax that was imposed on one of the income tax brackets.
Kokai: This case has been moving through the courts and has had some ups and downs, but the Supreme Court offered some good news to your clients.
Boyce: Yes. The lower courts, the trial court and the Court of Appeals, or at least the Court of Appeals — the trial court was indefinite about it — the Court of Appeals said that Sen. Goldston and Mr. Harrington, although they were taxpayers, they bought gasoline, they had license plates, they paid this tax, and they had gone about the state promising people what would be done, that they didn’t have the right to even bring the lawsuit contesting how their money, and your money, and my money, and all motorists who had used the public highways, how our money was being spent. Although the constitution says it can’t be applied to any other purpose, the Court of Appeals said you don’t have standing. And that is more of a federal legal doctrine than a state, so we asked the Supreme Court to review that. And they did. And they came down with a very appropriate decision that oh, yes, it’s taxpayer money, and it’s got to be spent for the purpose for which it was collected. And the constitution says it shall be applied to no other purpose. Pretty simple language in my opinion, but that’s what the case is going back to the trial court for — us to put on all of our evidence to confirm what the constitution in simple words does say.
Kokai: Now, we’ll be following this case it moves forwards, but one final question for you. Just in general, this court ruling, how is this going to be helpful for taxpayers in the future as they look at laws and decide that they don’t believe they’re constitutional? Does this ruling on standing mean good news for people who want to file a suit like that?
Boyce: It means excellent news for all taxpayers because this provision of the constitution that I’ve cited — Article V, Section V — has never been interpreted before. This is the first opportunity the courts will have to say that. In my opinion. it means what it says. But in any event, the court will say exactly what it means, and if it means something else, we’ll be told. But if it means what we say it means, that is a boon to every taxpayer, because when the government takes our money, they’ve got to spend it in a proper way. and the taxpayer has a right to go into the court and challenge that expenditure if the taxpayer thinks it’s wrong.