837 S.E.2d 7
N.C. Ct. App.2019Background
- Governor Roy A. Cooper sued after the 2017 General Assembly (Session Law 2017-57) altered his recommended allocations of three federal block grants: Community Development Block Grant (CDBG), Maternal and Child Health Block Grant (MCHBG), and Substance Abuse Block Grant (SABG).
- The Governor amended his complaint to challenge those appropriations, arguing the federal funds are not within the State treasury/appropriations power and that the reallocations interfered with his constitutional duty to "take care that the laws be faithfully executed" and to administer the budget.
- The Legislative leaders moved to dismiss; the trial court concluded the federal block grant funds are deposited into accounts controlled by the State Treasurer and are therefore public funds in the State treasury subject to appropriation by the General Assembly.
- The trial court rejected the Governor’s "custodial funds" theory and found no as-applied violation of the Governor’s execution or budget-administration duties; it entered judgment for defendants and certified the order under Rule 54(b).
- The Court of Appeals reviewed de novo and affirmed: federal block grant funds awarded to North Carolina are subject to appropriation by the General Assembly and the Governor failed to show a plain-and-clear constitutional violation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the federal block grant funds "in the State treasury" and thus subject to Article V, §7 appropriation? | Cooper: Only money raised by the State (taxes, fines, penalties) qualifies; federal block grants are not State-treasury funds. | Berger: The grants are paid into accounts maintained by the State Treasurer and therefore become public/state funds subject to appropriation. | Held: Funds are received and deposited by the State Treasurer and are within the State treasury; subject to legislative appropriation. |
| Do federal statutes or regulations prohibit state legislative appropriation of these block grants? | Cooper: The statutory/regulatory scheme (and award to specific state agencies) reflects congressional intent to vest allocation control in the executive. | Berger: Congress did not prohibit state legislative appropriation; federal law is generally silent and leaves the question to the states. | Held: No congressional prohibition; Congress left appropriation authority to states. |
| Are the Block Grants "custodial funds" held in trust and thus constitutionally exempt from appropriation? | Cooper: Block grants are custodial (held to accomplish federal purposes) and should be administered by the Governor/agency outside the appropriation process. | Berger: North Carolina law and practice treat block grants as State funds for appropriation; the Budget Act’s statutory characterization does not create a constitutional custodial exception. | Held: Court rejected a constitutional "custodial funds" exception; statutory budget classifications do not remove funds from appropriation. |
| Did the General Assembly’s reallocations violate the Governor’s duty to faithfully execute the laws or to administer the budget (as-applied)? | Cooper: The reallocations interfere with executive implementation and administration of programs funded by the grants. | Berger: The Governor failed to allege or forecast evidence showing the reallocations prevent faithful execution or administration; legislative appropriation is within its power. | Held: Governor failed to show a plain-and-clear constitutional encroachment; claims dismissed. |
Key Cases Cited
- Gardner v. Bd. of Trs. of N.C. Local Gov’t Employees’ Ret. Sys., 226 N.C. 465 (1946) (money in Treasurer’s hands becomes public/state funds subject to appropriation)
- Garner v. Worth, 122 N.C. 250 (1898) (discussion of Treasurer’s role and legislative control of public funds)
- In re Separation of Powers, 305 N.C. 767 (1982) (Supreme Court declined to resolve block-grant appropriation question without fuller record)
- State ex rel. McCrory v. Berger, 368 N.C. 633 (2016) (standard for de novo review of constitutional questions; presumption of constitutionality)
- Colo. Gen. Assembly v. Lamm, 738 P.2d 1156 (Colo. 1987) (surveyed federal block grants and concluded states decide appropriation under their constitutions)
- Shapp v. Sloan, 480 Pa. 449 (1978) (held federal block grant funds were subject to state legislative appropriation)
- Anderson v. Regan, 53 N.Y.2d 356 (1981) (applied State appropriation requirement to federal funds to preserve legislative accountability)