Court: Easley wrong in using highway money for budget

To deal with a state economy reeling from the combination of the dot-com bust and the Sept. 11 terrorist attacks, Easley raided various funds in February 2002, seizing $1 billion to help cover a mounting deficit. Included in those funds was $80 million from the Highway Trust Fund.

Two men who helped create the Highway Trust Fund in the late 1980s, former Transportation Secretary Jim Harrington and former state Sen. W.D. Goldston, an Alamance County Democrat, sued over the move, saying money raised through gas taxes that goes into the trust fund is earmarked for specific highway projects.

"They felt the taxpayers were being cheated here," said Dan Boyce, an attorney for Harrington and Goldston.

After getting bogged down in the courts for several years on procedural questions, a Wake County judge last year dismissed the case, ruling that Easley is constitutionally required to maintain a balanced budget, so he had the authority to use highway money in the face of a deficit.

A divided Court of Appeals, however, overturned that decision, ruling that Easley needed legislative approval to to transfer money to the General Fund.

"One cannot deny that a governor acting alone is more efficient and practical in addressing a deficit or any problem. Our constitutional history in government, however, has chosen to employ separate, divided powers to address governance, including the allocation of tax revenue through the budget," Judge Robert N. Hunter Jr. wrote in a decision supported by Judge Barbara Jackson.

"There's a lot of reasons politicians like to shift money, and hopefully this will stop that practice to some degree," said Berry Jenkins, manager of highway and heavy construction for Carolinas AGC, a trade group that represents general contractors and construction firms statewide.

The judges said the transfer of highway money didn't resolve the deficit because it neither reduced spending or increased revenue.

"Temporary halts in expenditures, escrowing of funds awaiting legislative action, furloughs and other similar actions are constitutional because these actions reduce 'total expenditures.' Diverting the Highway Trust Fund to the General Fund and expending the money does not reduce the 'total expenditure' of state government but merely transfers money contrary to the budget appropriation statute," Hunter wrote.

In a dissenting opinion, Judge Linda McGee wrote that such a narrow interpretation of the state constitution would hamstring governors from acting quickly to plug a deficit.

Gov. Beverly Perdue twice took money from other funds last spring to help pay state bills amid a deficit, including the lottery reserve fund, the Clean Water Trust Fund and the public school building and textbook funds.

Bob Orr, a former state Supreme Court justice who now director the North Carolina Institute for Constitutional Law, said he believes Perdue faces a potential lawsuit because of her actions.

"We have actually been looking at that issue," Orr said. "I think this case clearly says she does not have the constitutional authority to do that."

Perdue said she was surprised by the ruling and said she expects it to be appealed to the Supreme Court.

All three appellate judges agreed that a legislative transfer of $125 million from the Highway Trust Fund in 2002 was constitutional.