This year, Carolina Journal has been reporting on the use of “reserve funds” in the state budget: billions of taxpayer dollars that are appropriated, yet not accounted for in the general fund’s reported totals. The practice has allowed for sizable expansion in the state budget beyond what’s reported in the headlines.
So where is the money going, and how do reserve funds work?
This week, we focus on the Local Project Reserve Fund, a distinct funding vehicle separate from the Economic Development Project Reserve. Though similar, these two reserve funds have some subtle differences.
The Local Project Reserve Fund is primarily for appropriations of small grants to local governments, non-profits, and education systems; while the Economic Development Project Reserve is primarily for appropriations of economic development recruitment activities. Many of the appropriations coming out of this fund were for JDIG projects. Experts have noted that Local Project Reserve Fund appropriations are more similar to the Regional Economic Development Fund.
The Local Project Reserve Fund was created in the 2022 budget and appropriated $80.1 million.
This money was immediately spent on 85 different line items (all non-recurring funds), as laid out in The Joint Conference Committee Report on the Current Operations Appropriations Act of 2022.
Most of this fund’s money goes to local projects, non-profits, senior centers, post-secondary education, K-12 education, historical societies, walking trails, wildlife societies, law enforcement, recreation centers, and local festivals.
Of the $80.1 million appropriated, only $2.3 million was ever actually put into the reserve; the rest was immediately spent. The $2.3 million was finally allocated to the Department of Natural and Cultural Resources.
According to monthly reports from the Office of the State Controller (OSC), this $2.3 million was deposited into the fund in September 2022 and spent by October 2022. The Joint Committee Report shows the projects for which this money was appropriated.
Additionally, most line items on pages F27-F30 are appropriations from this reserve fund.
Among the many line items, $1 million has been earmarked for the Cabarrus County Sheriff’s Office, the Iredell County Sheriff’s Office Mobile Command Unit, and $25,000 to the Forsyth Jail and Prison Ministries.
Additionally, $300,000 was appropriated to Leading Into New Communities (LINC) in New Hanover County. Seven line-item appropriations, out of 85 total, went to New Hanover County. Another example of funds spent in New Hanover County includes $150 million to the Arts Council of Wilmington and New Hanover County (pg D 56). in all, the seven-line items totaled $3.1 million in funds to New Hanover County.
Critically, a significant chunk of these funds has been funneled into two counties — New Hanover County and Cumberland County. Funds for these two counties total $5.6 million out of the $80.1 million, indicating that many counties likely received no funding at all.
In total, Cumberland County received $2.5 million in six different line items. Two of these six appropriations include $100,000 each to the Grays Creek Women’s Club and the Retired Military Association of North Carolina.
The line-item appropriations can be as detailed as the following $1.8 million, a grant broken down and distributed among several local and volunteer fire departments (F 70).
Contrarily, many line-item appropriations can be quite vague, such as the following appropriation of $125,000.
“The Local Project Reserve Fund sounds like a slush fund for pork projects, which is exactly what it is,” Brian Balfour, VP of Research at the John Locke Foundation, told the Carolina Journal. “Projects that should either be funded by local governments, or not at all, receive millions in state taxpayer dollars through this reserve. Making it worse still is the fact that legislators set up a special ‘reserve fund’ to funnel funds through in order to conceal the true amount of money being spent.”
He concluded, “By diverting taxpayer dollars into this fund first, these expenditures don’t count against the General Fund’s bottom line – in a sort of shell game. The process is an affront to transparency and misleads citizens and voters about the true size and scope of their state government.”