RALEIGH – Howdy Manning, the omnipresent if not quite omnipotent Superior Court judge involved in so many recent political disputes in Raleigh, just ruled that the state must pay nearly $750 million to North Carolina public schools in civil fines and forfeitures that, according to the state constitution, should have been earmarked for public education over the past decade.
In response, House Speaker Joe Hackney, a Chapel Hill Democrat, questioned the wisdom of the state school-boards association filing the constitutional claim in the first place. “I could never understand why they chose to go to court,” he said.
Hackney is absolutely right. But so was Manning’s decision.
The problem, you see, does not appear to be in his adjudication of the lawsuit. The state constitution clearly say that “all penalties and forfeitures” are to be earmarked for public education. After the Supreme Court ruled in 2005 that the state had failed to direct all civil-penalty collections into the schools, it came to Manning to enforce the ruling with a specific order. Perhaps one might quibble with the math or the timing, but Manning basically had no choice but to order the state to transfer the funds.
The true problem is that the constitutional provision in question is silly. It doesn’t have any real meaning in modern governmental budgeting, as the comments of Hackney and Senate Majority Leader Tony Rand indicate. They have no intention of simply appropriating $750 million out of the state’s rainy-day funds to satisfy the court order. Instead, they say at least some of the money will come out of what the General Assembly would have been appropriating to public schools from general state revenues.
There is no constitutional mandate on lawmakers to devote any particular share of the state’s General Fund on public schools. Indeed, the constitution invests them with the authority to appropriate most state tax collections as they see fit. So if all fines and forfeitures must be earmarked for public schools, lawmakers are entirely within their rights to redirect other state revenues to Medicaid, prisons, or other state functions.
During a similar debate about the potential net fiscal effect of creating Mike Easley’s odious “Education Lottery,” some legislators promised that they would enact a “maintenance of effort” law to preclude the lottery money from supplanting tax money that would otherwise have been spent on schools. But today’s General Assembly can’t enact a budget law that prevents a future General Assembly from rewriting it. Only another constitutional provision would have sufficed, and even then it’s not easy to see how it would have been enforced. How can we know for sure the amount of tax money that would have been appropriated in the absence of lottery funds (or civil fines, for that matter)? Changing fiscal and economic conditions would invalidate a simple extrapolation of past spending.
Revenue earmarking only makes sense when the state programs it finances are separate from the General Fund. For example, most state taxes derived from the sale of cars and motor fuels are earmarked for the transportation budget. We know that these taxes don’t supplant General Fund financing of highway construction because there is no General Fund financing of highway construction.
Within the General Fund, however, the net effect of earmarking exists only in the minds of legislative leaders. Would education spending have been $750 million higher over the past decade if the state had fully complied with the constitution’s earmarking provision? Unlikely. Instead of spending the $750 million in civil penalties on non-education programs, lawmakers would have earmarked the money for the public-school fund and then spent $750 million in supplanted tax revenues on the same non-education programs.
It would have been, roughly speaking, a wash. That’s why Hackney and Rand are reacting with mild puzzlement to the lawsuit, and aren’t signaling a sudden fiscal emergency in response to the decision.
On this issue, the state constitution needs a rewrite. If the goal is to guarantee a certain minimum level of state funding for public schools, a provision earmarking fines doesn’t accomplish it. Mind you, I’m not advocating a different constitutional provision. I’d rather leave the creation of the annual operating budget to elected representatives, and just excise the earmarking language altogether. But one way or another, it would be wise to bring the language of the constitution into compliance with rationality and reality.
Hood is president of the John Locke Foundation.