RALEIGH – It’s fair to say that Mike Easley inherited a fiscal mess from outgoing Gov. Jim Hunt when he took office in early 2001. Hunt had stuffed the state budget full of new programs and obligations that could not be sustained at current tax rates. But it wasn’t fair or proper for Easley to intercept $225 million in funds intended for state employee pension funds to help clean up Hunt’s mess.
I’m not the only one who thinks so. On Tuesday, the three-judge panel of the state court of appeals upheld a lower-court ruling that Easley and other state officials had violated the state and federal constitutions by using the money for reasons other than the state’s contractual obligation to fund pension benefits.
The governor had made a constitutional claim of his own: that his duty to keep the state budget in balance gave him the authority to declare a fiscal emergency and divert the funds. He also argued that the pensions funds were later made whole, so the transfer had been a loan rather than a permanent reduction in required taxpayer funding for the pension system. There was also an attempt to redefine the term “diversion” so that it would not apply here, because the tax money had been intercepted before it ever reached the pension accounts.
The court didn’t buy these arguments, nor should they have. Easley wasn’t compelled by the fiscal hole to breach the inviolability of the pension contribution. “Instead of seeking a tax increase or cuts in other state programs that did not enjoy special constitutional protection,” its opinion properly observes, “defendants diverted the employer contributions to the retirement system. Our court cannot say that this diversion … was reasonable.”
Sure, the other options would have been unpleasant. Easley was already pushing a major tax increase at the time, so adding to it would have been difficult (and unwise, in my view). Closing the budget gap through additional spending restraint, the wisest course, would have required fortitude.
But the state constitution doesn’t give the governor a constitutional excuse not to make unpleasant decisions. It gives him the constitutional duty to make them.
And as for the notion that the fund transfer was merely a loan, why was only the principal returned to the pension system? The state has not paid interest on the money for the time it was kept out of the system’s investment portfolio.
Easley’s judicial spanking just might set a precedent that keeps state officials from blithely ignoring the constitution in the future. But admittedly, I’m often excused of being a Pollyanna.
Hood is president of the John Locke Foundation.