852 S.E.2d 46
N.C.2020Background:
- In March 2017 Governor Cooper proposed budget allocations for three federal block grants (CDBG, SABG, MCHBG) specifying program-level disbursements.
- The General Assembly enacted Session Law 2017-57 (overriding the Governor’s veto) reallocating portions of those block grant funds to different projects and priorities.
- The Governor sued, claiming the federal block grant monies were not in the State treasury (were "custodial") and thus not subject to legislative appropriation, and that the reallocations violated separation of powers and his duty to faithfully execute federal grant conditions.
- The trial court granted judgment on the pleadings for the legislative defendants; the Court of Appeals affirmed.
- The North Carolina Supreme Court (majority) affirmed: it held the block grant funds are within the State treasury and subject to legislative appropriation, and that the reallocations did not violate separation of powers; Justice Earls dissented.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the federal block grant funds are "in the State treasury" and thus subject to legislative appropriation | Cooper: funds are federal, not obtained by state collection, are "custodial" or trust/agency funds and therefore beyond General Assembly appropriation | Legislature: grants name the State as recipient; funds are deposited to State Treasurer and historically appropriated by the legislature, so Article V §7 applies | Held: funds enter State treasury and are "state funds" subject to legislative appropriation |
| Whether the General Assembly’s reallocation violated separation of powers / Governor’s duty to faithfully execute laws | Cooper: Executive administers the grants and must ensure compliance with federal terms; legislature’s reallocation usurps executive authority and impedes faithful execution | Legislature: appropriation is a core legislative policy power; Governor must administer the budget enacted by the General Assembly; no delegation to executive here was frustrated | Held: no separation of powers violation; legislature made policy choices via appropriation and did not unconstitutionally usurp exclusive executive functions |
| Whether North Carolina should adopt a "custodial funds" doctrine (limiting legislative appropriation of federal grants) | Cooper: adopt custodial-fund test (from other states) because Congress left state-level appropriation structure silent; many grants earmark purposes and conditions | Legislature: North Carolina Constitution and statutes (and Gardner) treat funds paid to State Treasurer as public/state funds; prior practice supports legislative appropriation | Held: Court declines to adopt custodial-fund test; no NC constitutional basis for such exception; custodial/agency/trust fund definitions under statutes do not encompass these block grants |
Key Cases Cited
- Gardner v. Bd. of Trs. of N.C. Local Gov’t Emps.’ Ret. Sys., 226 N.C. 465 (1946) (monies paid into hands of State Treasurer by virtue of state law are public funds subject to legislative appropriation)
- State ex rel. McCrory v. Berger, 368 N.C. 633 (2016) (separation-of-powers framework: legislature may not exercise powers constitutionally vested in executive)
- Cooper v. Berger, 370 N.C. 392 (2018) (Cooper I) (executive’s duty to faithfully execute laws includes implementing delegated interstitial policymaking within legislative guardrails)
- Cooper v. Berger, 837 S.E.2d 7 (N.C. Ct. App. 2019) (Court of Appeals decision affirming trial court that block grant funds are subject to legislative appropriation)
- Colo. Gen. Assembly v. Lamm, 738 P.2d 1156 (Colo. 1987) (analysis of federal block grants and discussion of custodial-fund doctrine)
- State ex rel. Sego v. Kirkpatrick, 524 P.2d 975 (N.M. 1974) (holding legislature lacked power to appropriate and control certain federal funds)