News: CJ Exclusives

Slush Funds Survive Party Change

Neither Perdue nor GOP leaders abandon DOT Contingency Fund projects

For at least two decades, North Carolina’s transportation secretary, Senate president pro tem, and speaker of the House have controlled equal shares of a Department of Transportation “Contingency Fund” that is spent on projects that are reviewed but not evaluated critically by DOT engineers.

The practice has been characterized by various state officials as problematic, shrouded in secrecy, lacking accountability, and being an end run around the legislature. On at least two occasions, its backers, when questionable expenditures from the fund have been reported in the media, have promised to discontinue the practice. An attorney general’s opinion makes clear that the executive branch simply could refuse to continue the practice, but still it survives.

The decision to tap the contingency fund (now amounting to $15 million a year) is discretionary and not based on safety considerations or any other objective criteria. Meantime, DOT has a backlog of more than $16 million in projects that have been flagged as safety priorities by DOT engineers. They have not been completed for lack of funding.

DOT records obtained by Carolina Journal show former Senate President Pro Tem Marc Basnight, D-Dare, personally authorized at least $50 million for nearly 800 projects over his 18-year tenure as Senate leader. Basnight may have retired in January, but the fund remains active, and his successor, Sen. Phil Berger, R-Rockingham, has continued to tap it.

One of Basnight’s 800 projects received funding after he retired. On Nov. 17, two weeks after Democrats lost control of the Senate, Basnight instructed the DOT to spend $350,000 for walkway improvements and lighting fixtures within the Elizabethan Gardens, a privately owned tourist attraction in his hometown of Manteo. DOT engineers signed off on the project, and the DOT board gave final approval in February.

When informed of the project, Berger told CJ it should not have been approved. But Berger defends his ability to conduct the same discretionary spending. “I think the process is an appropriate process for us to engage in,” Berger said, defending an expenditure of $24,000 from his Contingency Fund account to improve a private dirt road in Gaston County.

DOT Secretary Gene Conti maintains the discretionary accounts, even though state law doesn’t require him to do so. Department spokeswoman Greer Beaty told CJ she could not explain when, how, or why the two legislative leaders each were given operational control of one-third of the fund.

The legislators’ discretionary accounts are a small part of the DOT’s annual $3 billion budget. But letting lawmakers request payment for projects that have not undergone independent review undermines DOT’s guidelines and priorities.

The practice also conflicts with the principle of separation of powers spelled out in the North Carolina Constitution. The governor, through various executive branch departments including DOT, is responsible for administering the budget enacted by the General Assembly. Individual lawmakers are not supposed to dip into funds that are under executive branch control.

To date, DOT has not allocated any money from the account of House Speaker Thom Tillis, R-Mecklenburg, though some projects are being considered. Spokesman Jordan Shaw said Tillis credits former Speaker Joe Hackney, D-Orange, with instituting some oversight procedures in the House. Before any project receives funding, Tillis believes there must be transparency, the project must be worthy and necessary, and it must be related to transportation. “There won’t be any Elizabethan Gardens. There has to be some type of framework from this point forward in how this works,” Shaw said.

The budget language authorizing the current $15 million appropriation states: “The Contingency Fund may be used for rural or small urban highway improvements and related transportation enhancements to public roads and public facilities, industrial access roads, and spot safety projects as approved by the Secretary of Transportation” (emphasis added).

DOT internal operating guidelines go further: “The President Pro Tempore of the Senate, the Speaker of the House, and the Secretary of Transportation sponsor projects from this fund.” The $15 million is divided evenly among the three, and DOT keeps a fund ledger with a separate column for each.

While some Contingency Fund projects may improve safety, they are not evaluated thoroughly by DOT engineers. Even so, DOT has a backlog of 152 projects valued at $16,861,160 in the Spot Safety Program. Spot Safety projects have been reviewed by DOT engineers and flagged as priorities. The current year appropriation for Spot Safety is $9.1 million.

Gov. Bev Perdue was not familiar with the role of legislative leaders in the program when CJ brought it to the attention of her staff in mid-March. For this story, spokeswoman Chrissy Pearson issued the following statement:

“The General Assembly members are the DOT’s bankers — they approve this fund’s appropriation, request the monies and receive a full report on projects prior to construction. Gov. Perdue has already taken the politics out of the DOT Board and put professionals in charge of making data-driven decisions on the state’s road money. If the General Assembly would like to follow suit, Sec. Conti will certainly be able to reallocate that money into other important projects.”

Asked if Perdue had considered ordering Conti to cease maintaining accounts for Berger and Tillis, Pearson said, “The governor believes the General Assembly needs to initiate that change.”

Basnight’s garden

The Elizabethan Gardens, opened in 1960, were created to honor the Elizabethan heritage of Roanoke Island and serve as a memorial to Sir Walter Raleigh’s legendary lost colony of 1587. 



They are located outside the Manteo city limits, adjacent to “The Lost Colony” Waterside Theatre and the Fort Raleigh National Historic Site. The operator of the site is the Elizabethan Gardens Inc., a nonprofit subsidiary of the Garden Club of North Carolina. The gardens occupy a 10-acre tract leased from the Roanoke Island Historical Association.

The gardens are open to the public and adult admission is normally $8 a person. Annual revenue of approximately $600,000 comes from admissions, gift shop sales, and facility rental for weddings.

In September 2008, the Dare County Board of Commissioners passed a resolution asking Basnight, Rep. Tim Spear, D-Washington, and the DOT for funding to enhance the facility by improving walkways at the gardens. Some of the walkways are brick, but almost a mile of paths is covered in pine straw. Dare County is not responsible for the funding, design, or operation of the garden.

In November 2008, Basnight coordinated $250,000 in DOT funding for the project. He contributed $100,000 from his Contingency Fund, Speaker Joe Hackney provided $100,000 from his, and DOT Secretary Lyndo Tippett offered the remaining $50,000. DOT engineers and the DOT board approved the spending.

A detailed plan was not developed until October 2010. It involves removing the pine straw along 3,000 feet of walkways and installing pea gravel bound together with a polymer product. The result will be a solid but porous surface. The estimate for the walkway improvements is $129,000. The planned ground lighting system is estimated to cost another $585,000, bringing the total project to $714,000.

On Nov. 17, 2010, Basnight wrote Conti, asking DOT to approve an additional $350,000 of his discretionary funds for the project. The following day Elizabethan Gardens Executive Director Carl Curnutte sent Basnight’s office the cost estimates.

DOT Chief Operating Officer James Trogdon, the chief engineer, and the division engineer signed off on the project by Jan. 6. The DOT Board approved the project at its Feb. 3 meeting. On Feb. 14, DOT State Highway Administrator Terry Gibson signed an agreement with the Elizabethan Gardens to reimburse as much as $600,000 for improvements.

No construction has taken place, but DOT has reimbursed the gardens for about $20,000 of design work.

Berger’s dirt road

Berger recently directed DOT to fund the first project from his account. “I hereby authorize the Department of Transportation to allocate $24,000 from the Pro Tem Contingency Fund for a project request made by Kathy Harrington to match DOT monies and provide necessary repairs to Homesly Road in Mount Holly, Gaston County,” Berger wrote in a letter to the DOT’s Trogdon on March 7.

DOT has received several inquiries in recent years about paving Homesley (or Homesly) Road, a quarter-mile dirt road on private property about 6 miles northeast of Gastonia in Gaston County. The most recent request was in 2008 from Homesley Road resident Sandra Brittain.

Before DOT could consider paving the road, it would need to be brought up to minimum state standards. Due to the road’s poor condition, DOT District Engineer Gary Spangler estimated the cost would be $48,000. Funds for paving would be additional, but the state would cover the entire cost.

The DOT’s guidelines in his division are to commit $2,000 per home served for the project. With only seven homes on the road, Spangler calculated that DOT would pay $14,000. “Given the limited maintenance funding that we have, the Division has to set reasonable levels of funding and prioritize all of our work activities. Therefore, we would not recommend adding it to the state system due to excessive cost, unless the property owners were willing to make up the difference,” he wrote Brittain in August 2009.

Brittain took her case to then-Sen. David Hoyle, D-Gaston. After consulting with DOT, Hoyle wrote to her in October 2009, concluding: “There is nothing else that I can do as the Department of Transportation sets the criteria for paving of roads, therefore, in order to get this road paved now, it will need to go by the present guidelines.”

In March 2010, Brittain appealed to Perdue directly. “If you will help us, I promise you — we will not forget your kindness. Please, Please, Please help us. We will never forget it,” she wrote. Perdue’s office sent Brittain’s plea for help to DOT.

Conti asked staff to add another five homes located on side dirt roads to the house count, bringing the total to 12 and DOT’s commitment to $24,000. The remainder would have to be paid by the residents. “It will be the responsibility of the residents to provide the additional funds,” Conti wrote Brittain in April 2010.

Hoyle didn’t run for another term and was succeeded by Republican Kathy Harrington. Early this year, Brittain requested assistance from Harrington in improving the road. Harrington then asked Berger for his help. On March 7, Berger asked DOT for $24,000 from his Contingency Fund. Approval by DOT engineers and the Board of Transportation will follow, as these are mere formalities.

Berger said in the coming year he expects the fund to continue, most likely with a smaller appropriation. In defending the Contingency Fund program, Berger said the process needs transparency, objective criteria, and full disclosure. “The procedure is in place, so if a member has an issue, and it is requested by a unit of local government, then it is the sort of thing that can address needs that fall through the cracks,” he said.

When asked about this project, Berger told CJ he thought Gaston County had issued a resolution of support for it. But he was mistaken. The operating guidelines only require local government support if the project funding exceeds $150,000. The project file obtained by CJ contained no such resolution.

Spot Safety

The Spot Safety Program pays for traffic signals, turn lanes, guardrails, regarding, and other measures to enhance safety. In recent years, the annual appropriation has been around $9 million, though the backlog exceeds $16 million. Contingency Fund money can be used for Spot Safety projects. Requests for funding come from DOT engineers, highway patrolmen, private citizens, and local government officials. Accident and injury data are gathered to prioritize projects.

One example is a $225,000 project in Charlotte to convert single-lane approaches to exclusive left-turn lanes and through-right lanes on Lancaster Highway at the intersection of Lullingstone Road. Another is a $51,000 Wake County project to install a traffic signal at the intersection of N.C. Highway 98 and Stoney Hill Road.

Separation of powers

Discretionary funds parked in executive branch agencies but controlled by legislative leaders caught media attention in 1997 when CJ first revealed that Basnight and Republican House Speaker Harold Brubaker had arranged privately for $21 million to be set aside in the state budget office. Each lawmaker would control 45 percent of the money. Gov. Jim Hunt would control 10 percent for his role in handling the grants.

Basnight and Brubaker quietly directed money to their favorite projects outside the normal state budget process. The process was the subject of numerous news stories and critical editorials, leading Basnight to back off. “Somehow or other, you’ve got to help these areas in the state that need the money,” Basnight told The News & Observer in February 1997. “But it shouldn’t be left in my hands to decide or Brubaker’s hands to decide.”

That didn’t stop Basnight from doing it again. In March 2005, The News & Observer, CJ, and several other news organizations reported that Basnight, and Co-Speakers Richard Morgan and Jim Black diverted more than $20 million from the budgets of various state agencies overseen by Gov. Mike Easley to be spent according to the three legislative leaders’ wishes. Editorials again condemned the process, and Basnight admitted it was a mistake.

The practice led to a critical report by State Auditor Les Merritt indicating that the funding of 11 specific projects may have been illegal and that the principle of separation of powers from the N.C. Constitution may have been violated. Merritt asked Attorney General Roy Cooper to make those determinations.

“It is clear that the manner in which state money was directed is problematic for its secrecy, its lack of accountability, and its end-run around the legislative process,” Cooper wrote.

But in an advisory opinion, Cooper’s chief deputy Grayson Kelley concluded that the separation of powers had not been violated because the General Assembly never passed a law allowing legislators to exercise direct control of the discretionary funds. Executive branch officials, Kelley wrote, were “not required by law to distribute grant funds requested by individual legislators.” Even so, Kelley added, “The extent to which the General Assembly can enact laws which interfere with the Governor’s administration of the budget without violating the separation of powers principle, however, has not been clearly delineated by our courts.”

At the time, Merritt said time constraints prevented his office from reviewing the DOT Contingency Fund process. CJ’s efforts to get Cooper and Kelley to address the DOT Contingency Fund were unsuccessful.

Don Carrington is executive editor of Carolina Journal.