Earlier this year, the Carolina Journal reported 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 headline numbers. This has allowed sizable inflation in the state budget, while keeping the headline budget number at a more acceptable level.
So where is the money going, and how do reserve funds work?
Carolina Journal is examining some of these “reserve funds” to share how they work. This week, we focus on the Regional Economic Development Reserve Fund.
“The Regional Economic Development Reserve is a newly created fund through which taxpayer dollars will flow to finance corporate welfare schemes,” wrote Brian Balfour, VP of Research at the John Locke Foundation. “Similarly, the Economic Development Project Reserve was created in 2021. Combined, these two ‘reserves’ receive nearly $2 billion in fiscal year ’24, but this funding is not counted in the General Fund.”
The Regional Economic Development Reserve fund was appropriated $1.25 billion in the fiscal year 2024 budget.
While, according to the latest cash watch report the fund currently has a balance of $4.65 million, deposits will likely be made throughout the year as tax revenues are collected.
“Unfortunately, it seems as if reserve funds are becoming a permanent part of the budget landscape,” Dr. Robert Luebke, Director of the Center for Effective Education at the John Locke Foundation, told the Carolina Journal. That’s not a good thing. It distorts the budget process by giving many districts what they want instead of what they really need.”
The Joint Conference Committee Report on the Current Operations Appropriations Act of 2023 contains an itemized and detailed list of each appropriation in the fund.
Some of the appropriations include a more detailed description of what the money will be funding and how much will be going towards each item under the appropriation.
Many of these appropriations go toward counties or cities to be used at their discretion, or with a vague appropriation indicated, such as “infrastructure” or “capital improvements.” Another large portion of these appropriations goes toward schools and education purposes. However, the money is often designated for athletic programs instead.
According to a report from the John Locke Foundation, out of $1.25 billion in “reserve funds,” $75 million went towards schools and educational organizations. Ten percent of that $75 million were grants for community projects in schools or community organizations partnering with schools. Seven percent went into grants supporting schools’ academic, cultural, and historical programming, including post-secondary institutions.
According to the report, “The remaining 83 percent ($62 million) was appropriated for upgrades and capital expenses (e.g., athletic fields, lighting, stadiums, and locker rooms) for school or district athletics programs.”
Another chunk of these special appropriations is going towards things like law enforcement, fire departments, and volunteer fire departments. Experts have criticized funding these endeavors using “reserve funds.”
“The Regional Economic Development Reserve is blatantly a pork slush fund,” Balfour told the Carolina Journal in an email. “State taxpayers should not be on the hook for admittedly localized projects. While some of the projects may seem unobjectionable, like volunteer fire departments or local law enforcement, those items should be the purview of local governments.”
In the wide open area of economic development, many funding items can safely be deemed “pet projects.” Some examples include $50,000 to the American Asian Foundation for the Carolinas or $50,000 to the Charlotte Dragon Boat Association.
“Many of the appropriations from this reserve fund are pet pork projects – local projects for which legislators can brag about ‘bringing home the bacon,’” continued Balfour. “It’s part of a corrupt, politicized scheme. The controller of the reserve funds can entice legislators by offering them up a slice of taxpayer pie in exchange for votes, while the legislator can buy votes from their constituents by bragging about the shiny new object they delivered to their district on the backs of state taxpayers.”
The 2023 committee report includes far too many “special appropriations” (F40-F115) to list each one here; it contains 75 pages of alphabetized line-item appropriations.
The House has proposed setting aside an additional $550 million in the budget proposal (pg 9) for fiscal year 2025, which the House proposed earlier this summer. This $550 million has been a point of contention between the House and the Senate. Sen. Phil Berger, President Pro Tempore, R-Guilford, said he thought he heard a “faint oink” when he said that.
“I don’t know if the House has said what that is for, but I suspect it’s for all sorts of lower projects,” said Sen. Berger.
Typically, the monies appropriated to reserve funds are one-time, non-recurring payments earmarked for local government and infrastructure projects other than water or sewer.
Red more about how Reserve Fund work, here. Follow for more Reserve Fund spotlights as Carolina Journal looks out for North Carolina’s taxpayers.