Governor--budgetary powers--suspension of payments to local governments
Summary judgment in favor of defendant-Secretary of Revenue was affirmed where
defendant relied on an Executive Order in suspending payments to local governments of local
government tax reimbursements and local government tax-sharing funds. The North Carolina
Constitution clearly gives the Governor a duty to balance the budget and prevent a deficit, that
must be done through expenditures, and expenditures are here interpreted to be payments,
disbursements, allocations, or otherwise, budgeted to be paid out of State receipts within a fiscal
period. Separation of powers was not violated because the Governor was exercising powers
constitutionally committed to his office, and language in the Constitution limiting the use of
taxes to stated special objects is directed toward the General Assembly.
N.C. Const. art. III, §
5(3).
Boyce & Isley, P.L.L.C. by G. Eugene Boyce, R. Daniel Boyce
and Philip R. Isley, for plaintiff-appellants.
Attorney General Roy Cooper, by Chief Deputy Attorney General
Grayson G. Kelley, Special Deputy Attorney General John F.
Maddrey, and Special Deputy Attorney General Norma S. Harrell
for defendant-appellee.
ELMORE, Judge.
Plaintiffs appeal an order granting a motion for summary
judgment in favor of defendant. Plaintiffs argue that the trial
court erred when it failed to determine that defendant violated the
doctrine of separation of powers. For the reasons stated herein,
we affirm. On 5 February 2002 during a state budget crisis, the Governor
issued Executive Order 19, entitled “Classroom Protection and
Orderly Budget Administration Given State of Fiscal Emergency.”
Within the order, the Governor noted that Article III, Section 5 of
the North Carolina Constitution required him to continually survey
the collection of revenue. He also determined that the estimated
receipts for the fiscal year would not exceed the estimated
expenditures, thus resulting in a deficit. After noting that a
previous reduction in state agency expenditures was not going to be
enough to prevent a deficit, the Governor, by his order, sought to
“effect the necessary economies in State expenditures to prevent
the deficit from occurring.” Exec. Order No. 19 (2002). Among
other measures, this order directed defendant, the Secretary of
Revenue, to halt expenditures for capital improvements, further
reduce expenditures throughout state agencies, and withhold funds
appropriated to local governments.
Based on the order directing him to suspend payments to local
governments, defendant withheld two types of funds: (1) local
government tax reimbursements and (2) local government tax-sharing
funds. The local government tax reimbursements consisted of
property tax exemptions and taxes on inventories of manufacturers,
retailers, and wholesalers. The local government tax sharing funds
were derived from sources such as piped natural gas taxes, taxes on
utilities, and alcoholic beverage taxes. The total amount withheld
by defendant from these funds was $210,906,602.00. Nevertheless,
Executive Order 19 stated that the funds would be paid to localgovernments, “if possible, after determination that such funds are
not necessary to address the deficit.” Id.
Plaintiffs, a group of counties and municipalities in North
Carolina, filed suit in September 2002 seeking a writ of mandamus
to compel defendant to issue the funds. Specifically, plaintiffs
alleged that the Secretary was required to distribute the funds to
local governments pursuant to chapter 105 of the North Carolina
General Statutes. On 29 January 2004, after hearing arguments from
the parties on their cross-motions for summary judgment, the trial
court granted defendant's motion for summary judgment.
Plaintiffs concede that there is no material fact at issue in
this case, but argue that the trial court incorrectly applied the
law. Plaintiffs assert that defendant did not have the authority
to withhold local government tax funds. Defendant, on the other
hand, argues that he was authorized to withhold the funds based on
Executive Order 19. Thus, the issue presented in this case is
whether the Governor exceeded his authority under the North
Carolina Constitution by issuing Executive Order 19.
Article III of the North Carolina Constitution establishes the
executive branch of the government and gives the Governor certain
budgetary duties. Section 5 provides that in addition to preparing
a budget for the General Assembly, the Governor is authorized to
administer the budget enacted by the General Assembly. N.C. Const.
art. III, § 5(3). Following the grant of authority to administer
the budget, the Constitution provides that:
[t]he total expenditures of the State for the
fiscal period covered by the budget shall notexceed the total of receipts during that
fiscal period and the surplus remaining in the
State Treasury at the beginning of the period.
To insure that the State does not incur a
deficit for any fiscal period, the Governor
shall continually survey the collection of the
revenue and shall effect the necessary
economies in State expenditures[.]
Id. (emphasis added). This provision clearly places a duty upon
the Governor to balance the budget and prevent a deficit.
Plaintiffs contend, however, that this provision does not give the
Governor authority to withhold the funds in question, thus making
Executive Order 19 constitutionally invalid. We disagree.
This Court has previously interpreted the word “expenditure”
in Boneno v. State, 54 N.C. App. 690, 284 S.E.2d 170 (1981).
There, plaintiffs argued that contractual obligations, in
particular road construction contracts, should constitute an
expenditure within the meaning of that term. We held that an
expenditure occurs when funds are disbursed, not when they are
encumbered by contract. This Court further determined that only
those expenditures in excess of receipts would violate Article III,
Section 5 of the North Carolina Constitution. Id. at 691, 284
S.E.2d at 171. In accord with that decision, here we interpret
expenditures to be payments, disbursements, allocations or
otherwise, that are budgeted to be paid out of State receipts
within a fiscal period. It is these expenditures that the Governor
must effect to balance the budget against the expected or
anticipated receipts within that same period.
Under the circumstances in this case, the Governor issued
Executive Order 19 in order to prevent expenditures fromunbalancing the state budget. A failure to exercise his duty under
the Constitution via Executive Order 19 would have resulted in a
deficit, a state of budgetary crisis that is precisely what Article
III, Section 5(3) of the North Carolina Constitution prohibits.
Furthermore, Executive Order 19 did not violate the separation
of powers doctrine, as plaintiffs suggest. A violation of the
separation of powers doctrine occurs when one branch of state
government exercises powers that are reserved for another branch of
state government. Ivarsson v. Office of Indigent Def. Servs., 156
N.C. App. 628, 631, 577 S.E.2d 650, 652 (2003). Implicit in the
duty to prevent deficits is the ability of the Governor to affect
the budget he must administer. See, e.g., Advisory Opinion In re
Separation of Powers, 305 N.C. 767, 295 S.E.2d 589 (1982) (noting
that the Governor's constitutional duty to balance the budget was
paramount to the General Assembly's desire to control major budget
transfers). In this case, the Governor exercised powers that were
constitutionally committed to his office without invasion on the
legislative branch's power.
Plaintiffs argue that despite the Governor's authority,
defendant violated Article V, Section 5 of the North Carolina
Constitution. This section provides that “[e]very act of the
General Assembly levying a tax shall state the special object to
which it is to be applied, and it shall be applied to no other
purpose.” N.C. Const. art. V, § 5 (emphasis added). Plaintiffs
contend that defendant violated this provision by taking fundsallocated for local governments and using them for other purposes
that the General Assembly did not authorize.
But nothing about Article V, Section 5 of the Constitution
suggests that it is directed at the Governor and his duty to
“effect the necessary economies in State expenditures.” N.C.
Const. art. III, § 5(3). Rather, the special objects language is
directed at the General Assembly. We do not read these two
provisions of the Constitution in conflict.
Other jurisdictions that have faced similar determinations are
in accord with our decision. For instance, in Michigan Ass'n of
Counties v. Department of Management & Budget, 345 N.W.2d 584
(Mich. 1984), the Governor of Michigan reduced local government
revenue-sharing funds pursuant to a state constitutional duty to
balance the budget. Upon review, the Michigan Supreme Court
determined that the funds were expenditures that the Governor had
the authority to control and, as a result, dismissed the challenge
to the Governor's actions. Id. Similarly, in New Eng. Div. of the
Am. Cancer Soc'y v. Comm'r of Admin., 769 N.E.2d 1248 (Mass. 2002),
the Governor of Massachusetts prevented a shortfall by eliminating
expenditures for smoking prevention and multiple sclerosis
programs. The Supreme Judicial Court of Massachusetts held that
the Governor had the authority to eliminate the funds and had not
violated the separation of powers. Id.
As a result of the foregoing, we determine that Executive
Order 19 was a constitutional exercise of the Governor's authority. Thus, defendant's actions in reliance on that order were not in
error.
Affirmed.
Chief Judge MARTIN and Judge McCULLOUGH concur.
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