ROY A. COOPER, III, individually and in his official capacity as GOVERNOR OF THE STATE OF NORTH CAROLINA v. PHILIP E. BERGER, in his official capacity as PRESIDENT PRO TEMPORE OF THE NORTH CAROLINA SENATE; TIMOTHY K. MOORE, in his official capacity as SPEAKER OF THE NORTH CAROLINA HOUSE OF REPRESENTATIVES; CHARLTON L. ALLEN, in his official capacity as CHAIR OF THE NORTH CAROLINA INDUSTRIAL COMMISSION; and YOLANDA K. STITH, in her official capacity as VICE-CHAIR OF THE NORTH CAROLINA INDUSTRIAL COMMISSION
No. 315PA18-2
IN THE SUPREME COURT OF NORTH CAROLINA
Filed 18 December 2020
On discretionary review pursuant to
Daniel F. E. Smith, Jim W. Phillips, Jr., and Eric M. David, for plaintiff-appellant Roy Cooper, Governor of the State of North Carolina.
Nelson Mullins Riley & Scarborough LLP, by D. Martin Warf and Noah H. Huffstetler, III, for defendants-appellee Philip E. Berger and Timothy K. Moore.
K&L Gates LLP, by Matthew T. Houston and Zachary S. Buckheit, for amicus curiae North Carolina Chamber Legal Institute.
Joshua H. Stein, Attorney General, by Ryan Y. Park, Solicitor General; James W. Doggett, Deputy Solicitor General; and Daniel P. Mosteller, Special Deputy Attorney General, for amicus curiae State of North Carolina.
The issue before us in this case is the extent to
I. Factual Background
A. Substantive Facts
In March of 2017, plaintiff-appellant Roy A. Cooper, III, acting in his capacity as the duly-elected Governor, submitted a recommended budget to the General Assembly in which he suggested that funds derived from three specific federal block grant programs be spent in a particular manner. More specifically, the Governor recommended (1) that monies received from the Community Development Block Grant (CDBG) program be spent in such a manner that $10,000,000 would be allocated to “Scattered Site Housing” projects, $13,737,500 would be allocated to “Economic Development” projects, and $18,725,000 would be allocated to “Infrastructure” projects; that monies received from the Substance Abuse Block Grant (SABG) program be spent in such a manner that $29,322,717 would be allocated to projects related to “Substance Abuse Treatment for Children and Adults“; and that monies received from the Maternal and Child Health Block Grant (MCHBG) program be spent in such a manner that $14,070,680 would be allocated to projects related to “Women and Children‘s Health Services.”
On 22 June 2017, the General Assembly adopted Senate Bill 257, which approved a state budget for the 2017–2019 biennium. Although the Governor vetoed Senate Bill 257, the General Assembly overrode the Governor‘s veto, so that the legislation in question became law as Session Law 2017-57. In its approved budget, the General Assembly redirected approximately $13,000,000 in funds derived from the CDBG program, $2,200,000 in funds derived from the SABG program, and $2,300,000 in funds derived from the MCHBG program to projects selected by the General Assembly. More specifically, Session Law 2017-57 redirected funds derived from the CDBG program to “Neighborhood Revitalization” projects and away from “Scattered Site Housing,” “Economic Development,” and “Infrastructure” projects; redirected funds derived from the SABG program to “Competitive Block Grant” projects and away from “Substance Abuse Treatment Services for Children and Adults” projects; and redirected funds derived from the MCHBG program to a “Perinatal Strategic Plan Support Position” project and the “Every Week Counts” project and away from “Women and Children‘s Health Services” projects.
B. Procedural History
1. Trial Court Proceedings
On 26 May 2017 the Governor filed a complaint against defendants Philip E. Berger, in his official capacity as President Pro Tempore of the North Carolina Senate; Timothy K. Moore, in his official capacity as the Speaker of the North Carolina House of Representatives; and two additional defendants, in their capacities as officials of the North Carolina Industrial Commission.1 In his original complaint, the Governor challenged the constitutionality of two state session laws and
On 16 March 2018, the Governor filed a motion seeking the entry of summary judgment in his favor with respect to two of the claims asserted in his amended complaint, including his challenge to the constitutionality of the enacted state budget and the reallocation of the monies derived from the CDBG program, the SABG program, and the MCHBG program. On 19 March 2018, the legislative defendants filed a motion seeking the entry of judgment on the pleadings in their favor with respect to the same claims.
On 4 April 2018, the pending motions came on for hearing before the trial court. On 9 April 2018, the trial court entered an order granting the legislative defendants’ motion for judgment on the pleadings and dismissing the relevant claims as set forth in the amended complaint on the grounds that the disputed block grant funds were “designated for the State of North Carolina [to] be paid into the State treasury” and that, in accordance with
2. Appellate Proceedings
In seeking relief from the order before the Court of Appeals, the Governor argued that the General Assembly did not have the authority to appropriate the relevant block grant funds by passing Session law 2017-57 on the theory that the funds in question were not contained “within” the State treasury. After conceding that, in accordance with the North Carolina State Constitution, money entering the State treasury can only be appropriated in accordance with legislation adopted by the General Assembly, such as the state budget, the Governor argued that the block grant funds at issue in this case never entered the State treasury. As support for this contention, the Governor relied upon this Court‘s decision in Gardner v. Bd. of Trustees of N.C. Local Governmental Employees’ Ret. Sys., 226 N.C. 465, 468, 38 S.E.2d 314, 316 (1946), which described the “State treasury” as “[m]onies paid into the hands of the state treasurer by virtue of a state law” (emphasis added). According to the Governor, the block grant funds at issue in this case were raised and appropriated by federal, rather than state, law and should, for that reason, be treated as “custodial funds” that are “beyond the legislative power of appropriation.” Arguing in reliance upon the Colorado Supreme Court‘s decision in Colo. Gen. Assembly v. Lamm, 700 P.2d 508, 524-25 (Colo. 1985) (Lamm I), the Governor asserts that custodial funds are monies that are “not generated by tax revenues” and have been “given to the state for particular purposes,” a set of circumstances that places them outside the reach of the General Assembly‘s appropriation power and makes them subject to executive branch, rather than legislative branch, control.
On the other hand, the legislative defendants argued that the named recipient of the relevant block grant funds was “the State of North Carolina” and that, “[a]s such, the funds come into the State treasury and are properly subject to legislative appropriation, pursuant to Article V, Section 7(1) of the North Carolina Constitution,” which provides that “[n]o money shall be drawn from the State treasury but in consequеnce of appropriations made by law.” As a result, the legislative defendants urged the Court of Appeals to affirm the trial court‘s order.
In affirming the trial court‘s order, the Court of Appeals began by analyzing the history and purpose of federal block grant programs. According to the Court of Appeals, the federal government had expanded the number of block grants over time on the
The Court of Appeals rejected the Governor‘s contention that the relevant block grant monies were not part of the State treasury on the theory that Gardner actually expanded the types of funds deemed to be held within the State treasury rather than limiting the сontents of the State treasury to monies stemming from “taxes, fines, or penalties” raised pursuant to state law. See Gardner, 226 N.C. at 467, 38 S.E.2d at 316. In addition, the Court of Appeals noted that the block grant funds at issue in this case did, as a technical matter, “enter into the hands of the State Treasurer by virtue of a State Law” given the statutory mandate that:
[a]ll funds belonging to the State of North Carolina, in the hands of any head of any department of the State which collects revenue for the State in any form whatsoever, and every institution, agency, officer, employee, or representative of the State or any agency, department, division or commission thereof . . . collecting or receiving any funds or money belonging to the State of North Carolina, shall daily deposit the same in some bank, or trust company, selected or designated by the State Treasurer, in the name of the State Treasurer.
The Court of Appeals agreed with the legislative defendants that the named recipient for the block grants was “the State of North Carolina” rather than the Governor or any state executive agency and concluded that “[t]he fact that specific State agencies are tasked with administering each Block Grant does not render those agencies the sole beneficiaries or allocators to the exclusion of the rest of the State.” Cooper II, 837 S.E.2d at 20. Finally, the Court of Appeals declined to hold that the relevant block grant funds constituted “custodial funds” or “agency funds” for purposes of
On 7 January 2020, the Governor filed a notice of appeal from the Court of Appeals’ decision pursuant to
II. Substantive Legal Issues
A. Positions of the Parties
1. Governor‘s Arguments
In seeking to persuade us to reverse the Court of Appeals decision, the Governor begins by contending that the Court of Appeals erred by determining that the block grant funds at issue in this case were “within the State treasury” and rejecting his assertion that
As additional support for this argument, the Governor relies upon
The proceeds of all lands that have been or hereafter may be granted by the United States to this State, and not otherwise appropriated by this State or the United States; all moneys, stocks, bonds, and other property belonging to the State for purposes of public education; the net proceeds of all sales of the swamp lands belonging to the State; and all other grants, gifts, and devises that have been or hereafter may be made to the State, and not otherwise appropriated by the State or by the terms of the grant, gift, or devise, shall be paid into the State Treasury and, together with so much of the revenue of the State as may be set apart for that purpose, shall be faithfully аppropriated and used exclusively for establishing and maintaining a uniform system of free public schools.
The Governor further contends that the Court of Appeals erred by interpreting Gardner in such a manner as to find that funds enter the State treasury by virtue of
The Governor argues that the absence of any federal statutory language allowing state legislatures to appropriate the block grant funds indicates that Congress did not intend for state legislatures to exercise such authority. See Alcoa S.S. Co. v. Fed. Mar. Comm‘n, 348 F.2d 756, 758 (D.C. Cir. 1965) (stating that, “[w]here Congress has consistently made express its delegation of a particular power, its silence is strong evidence that it did not intend to grant the power“). In addition, the Governor directs our attention to In re Separation of Powers, 305 N.C. 767, 772, 295 S.E.2d 589, 592 (1982), which he describes as recognizing that the 1982 General Assembly was uncertain as to whether it had the authority to enact legislation that would delegate decision-making authority relating to federal block grant monies to a twelve-member legislative committee. In an advisory opinion provided by this Court, its members suggested that the enactment of such a statute would likely be unconstitutional before declining to decide whether the General Assembly was authorized “to determine how the [block grant] funds will be spent” given that the briefs and the other materials submitted for the Court‘s consideration “contain[ed] very little, if any, information about the grants, their purposes, for whom they are intended, and the conditions placed on them by Congress.” 305 N.C. at 778, 295 S.E.2d at 595.
Secondly, the Governor argues that the General Assembly‘s appropriation of the relevant federal block grant funds violates the separation of powers provision of the State constitution,
Thirdly, the Governor cites decisions from six other jurisdictions holding that the state executive branch exercises control of monies provided by the federal government to the exclusion of the state legislative branch and urges this Court to find that the relevant block grant funds are “custodial funds” not subjeсt to state legislative appropriation. According to the Governor, “custodial funds” are those which have been appropriated by a federal statute specifying (1) “the purposes the state is directed to accomplish with the money,” (2) “the manner in which the purposes are to be accomplished,” and (3) “the restrictions placed on use of the funds by the federal government.” Lamm II, 738 P.2d at 1173. Although the Governor acknowledges that decisions from the highest state courts in four other jurisdictions have held that monies derived from the federal government are subject to legislative appropriation, he argues that we should not find these decisions to be persuasive on the grounds that “[a]pplication of the overly broad constitutional rules” applied in those cases “would distort North Carolina law.”
In seeking to persuade us to affirm the Court of Appeals’ decision, the legislative defendants begin by arguing that Congress, rather than making the relevant federal block grant monies subject to state executive branch control, “left the issue of state legislative appropriation of federal block grants for each state to determine,” citing Cooper II, 837 S.E.2d 7, 19 (quoting Lamm II, 738 P.2d at 1169), and that the relevant federal statutes make the State, rather than any executive branch agency or official, the named recipient of the relevant grant funds, citing
In addition, the legislative defendants contend that the Court of Appeals correctly interpreted Gardner as expanding, rather than limiting, the definition of the funds that are contained within the State treasury. According to the legislative defendants, this Court held in Gardner “that general funds derived from general taxation and funds coming into the hands of the State Treasurer by virtue of a State law . . . can be disbursed only in accordance with legislative authority,” with Gardner providing no support for any contention that there is a category of state funds that is outside the General Assembly‘s appropriation authority. Similarly, the legislative defendants argue that
In the legislative defendants’ view, the State constitution provides that the State Treasurer‘s duties “shall be prescribed by law,”
The legislative defendants also argue that the General Assembly is the policy-making branch of government, with the appropriation of funds ultimately being a policy decision, citing Rhyne v. K-Mart Corp., 358 N.C. 160, 169–70, 594 S.E.2d 1, 8–9 (2004) (stating that “the General Assembly is the policy-making agency because it is a far more appropriate forum than the courts for implementing policy-based changes to our laws“). Although this Court did hold in Cooper I that the Governor should be free to “implement the policy decisions that executive branch agencies subject to his or her control are allowed, through delegation from the General Assembly, to make,” this holding does not allow the Governor to make policy decisions that are outside of “the guardrails set by the General Assembly” in delegating its policy-making authority. Cooper I, 370 N.C. at 415 n.11, 809 S.E.2d at 112 n.11 (noting that the use of the phrase “the Governor‘s policy preferences” should “not be understood as suggesting that [a state executive agency] has the authority to make any policy decision that conflicts with or is not authorized by the General Assembly, subject to applicable constitutional limitations“).
Finally, the defendants argue that the cases from other jurisdictions upon which the Governor relies that posit the existence of a category of “custodial” funds should not be deemed controlling in this case given that
B. Analysis of the Parties’ Positions
1. Standard of Review
According to well-established North Carolina law, this Court reviews constitutional questions using a de novo standard of review. McCrory, 368 N.C. at 639, 781 S.E.2d at 252 (citing Piedmont Triad Reg‘l Water Auth. v. Sumner Hills, Inc., 353 N.C. 343, 348, 543 S.E.2d 844, 848 (2001)). “In exercising de novo review, we presume that laws enacted by the General Assembly are constitutional, and we will not declare a law invalid unless we determine that it is unconstitutional beyond a reasonable doubt.” Id. (citing Hart v. State, 368 N.C. 122, 131, 774 S.E.2d 281, 287–88 (2015)). “All power which is not expressly limited by the people in our State Constitution remains with the people, and an act of the people through their representatives in the legislature is valid unless prohibited by that Constitution.” State ex rel. Martin v. Preston, 325 N.C. 438, 448–49, 385 S.E.2d 473, 478 (1989). “The presumption of constitutionality is not, however, and should not be, conclusive,” with an act of the General Assembly being subject to invalidation if it offends a specific constitutional provision beyond a reasonable doubt. Moore v. Knightdale Bd. of Elections, 331 N.C. 1, 4, 413 S.E.2d 541, 543 (1992). On the other hand, if a statute passed by the General Assembly complies with the requirements of the state and federal constitutions, it must be upheld. See Town of Boone v. State, 369 N.C. 126, 130, 794 S.E.2d 710, 714 (2016) (noting that the North Carolina constitution “is in no matter a grant of power” and that “all power which is not limited by the Constitution inheres in the people, and an act of a State legislature is legal when the Constitution contains no prohibition against it“) (quoting Lassiter v. Northampton Cty. Bd. of Elections, 248 N.C. 102, 112, 102 S.E.2d 853, 861 (1958)).
2. Federal Block Grant Programs
As an initial matter, we note that the federal block grant programs at issue in this case constitute “allocations of sums of money from the United States Government to the various states,” the use of which “is largely left to the discretion of the recipient state” as long as that use falls within the broad statutory requirements of each grant.2 Legislative Research Comm‘n By & Through Prather v. Brown, 664 S.W.2d 907, 928 (Ky. 1984). The three block grants at issue in this case were created by means of the Omnibus Budget and Reconciliation Act of 1981 (OBRA),
had been the case with monies derived from federal categorical grant programs, while giving the recipient states less control over the relevant grant funds than was afforded in connection with federal “revenue-sharing” funds.3 Cooper II, 837 S.E.2d at 13 (quoting Robert Jay Dilger & Eugene Boyd, Cong. Research Serv., R40486, Block
In advising Congress with respect to the enactment of OBRA, the United States Comptroller General opined that the categorical grant system inhibited the involvement of state legislatures in administering the monies in question and recommended that “these Federal constraints on state legislative involvement be removed.” Report to the Congress by the Comptroller General of the United States, GGD-81-3 (Dec. 15, 1980), https://www.gao.gov/products/GGD-81-3. In addition, the Comptroller General found that “the absence of [state] legislative involvement adversely affect [ed] federal interests” by diminishing the recipient state‘s
accountability to the federal government given the absence of legislative oversight of state executive actions and recommended that OBRA “not be construed as limiting or negating the powers of the state legislatures under State law to appropriate federal funds.” Id. at iii. However, Congress declined to “include in OBRA the comptroller general‘s recommendation that would have required state legislative appropriation of the OBRA block grants” and, instead, left “OBRA [] silent regarding the authority of state legislatures to appropriate federal block grant funds.” Lamm II, 738 P.2d at 1160.
As the record reflects, North Carolina has been receiving funds pursuant to the three relevant federal block grants at issue in this case since those programs were created in 1981. Throughout that time, the General Assembly has appropriated the funds on an annual basis through the enactment of state budget legislation. See, e.g., 1981 N.C. Sess. Laws Ch. 1282 § 6. In 2017, the proceeds made available by block grant programs and other federal grants made up 28.4% of North Carolina‘s total budget. Federal Aid to State and Local Governments, Center on Budget and Policy Priorities (Apr. 19, 2018), https://www.cbpp.org/research/state-budget-and-tax/federal-aid-to-state-and-local-governments.
The CDBG program is administered at the federal level by the United States Department of Housing and Urban Development (HUD), with its stated purpose being, among other things, “to eliminate blight, to conserve and renew older urban areas, to improve the living environment of low- and moderate-income families, . . . to develop new centers of population growth and economic activity,” and to provide “decent housing and a suitable living environment and expanding economic opportunities” for persons of low and moderate income.
At the state level, the CDBG program is administered by the North Carolina Department of Commerce, which applies to HUD for an award of CDBG funds, with the State‘s application being required to include “Consolidated Plans,” “Annual Action Plans,” and “Analyses of Impediments to Fair Housing Choice” which detail how the monies awarded pursuant to the program will be spent in compliance with federal law. After HUD has reviewed and approved the State‘s application and the accompanying plans submitted by the Department of Commerce, the Department of Commerce is required to submit a disbursement request to HUD associated with a specific project expenditure, at which point HUD remits the relevant funds to a “[Department of Commerce] account held by the Department of [the] State Treasurer.”
The MCHBG program is administered at the federal level by the Department of Health and Human Services (DHHS), with its stated purposes being, among other things, to provide access to quality health services for mothers and children, “to reduce infant mortality and the incidence of preventable
In North Carolina, the MCBHG program is administered by the North Carolina Department of Health and Human Services, which applies to the federal DHHS for an award of block grant funds. After the federal DHHS has approved the State‘s application, the North Carolina DHHS submits a “draw down” request for funds, which are then deposited by the federal DHHS into an account held by the State Treasurer. After the North Carolina DHHS obtains access to the MCBHG funds, it disburses the funds in question to a subdivision within the agency or to a third party for use in compliance with the governing statute. The federal DHHS conducts regular audits to ensure that the North Carolina DHHS is administering the MCBHG program in accordance with the applicable provisions of federal law.
The SABG program is also administered at the federal level by the federal DHHS, with its stated purpose being to provide “community mental health services for adults with a serious mental illness and children with a serious emotional disturbance.”
3. Specific Legal Claims
a. State Constitutional Spending Rules
The appropriations clause of the North Carolina State Constitution provides that “[n]o money shall be drawn from the State treasury but in consequence of appropriations made by law, and an accurate account of the receipts and expenditures of State funds shall be published annually.”
through their elected representatives in the General Assembly, had full and exclusive control over the allocation of the state‘s expenditures. See Id. at 154 (noting that early Americans were “acutely aware of the long struggle between the English Parliament and the Crown over the control of public finance and were determined to secure the power of the purse for their elected representatives“); see also White v. Worth, 126 N.C. 570, 599-600, 36 S.E. 132, 141 (1900) (Clark, J., dissenting) (stating that “[t]his power of the legislature over the public purse is the most essential one in the system of a government of the people by the people, and its abandonmеnt under any pretext whatever can never with safety be allowed“). As a result, the appropriations clause “states in language no man can misunderstand that the legislative power is supreme over the public purse.” State v. Davis, 270 N.C. 1, 14, 153 S.E.2d 749, 758 (1967).
As has already been noted, the North Carolina Constitution specifically provides that “[t]he legislative, executive, and supreme judicial powers of the State government shall be forever separate and distinct
The North Carolina budgetary process is further outlined in the State Budget Act, which defines “state funds” as “[a]ny moneys including federal funds deрosited in the State treasury except moneys deposited in a trust fund or agency fund as described in [N.C.]G.S. [§] 143C-1-3” and directs that “[n]o State agency or non-State entity shall expend any State funds except in accordance with an act of appropriation and the requirements of the Chapter.”
The Secretary of each State agency that receives and administers federal Block Grant funds shall prepare and submit the agency‘s Block Grant plans to the Director of the Budget. The Director of the Budget shall submit the Block Grant plans to the General Assembly as part of the Recommended State Budget.
While noting that federal grant money has long comprised a substantial portion of North Carolina‘s budget, the Governor attempts to distinguish the block grant funds at issue in this case by categorizing them as “custodial funds.” In support of this contention, the Governor directs our attention
Admittedly, some categories of funds are exempt from the state budgetary process as a statutory matter, including educational funds described in
According to the Governor, the block grant funds at issue in this case are “custodial funds” as defined in
In addition, the federal block grant monies at issue in this case are not custodial funds as was the case with respect to the lien against state funds that was before the Vermont Supreme Court in Button‘s Estate v. Anderson, 112 Vt. 531, 28 A.2d 404 (1942), which held that the payment of certain attorney‘s fees that were owed from the State of Vermont to the estate of a deceased lawyer did not require an appropriation from the state legislature given that the attorney‘s estate was the equitable owner of the funds and that a state statute “exempt[ed] funds held by the State in trust from the requirement that no moneys shall be paid out of the treasury except upon specific appropriation.” Id. at 531, 28 A.2d at 409-10. In reaching this conclusion, the Vermont Supreme Court held that the monies owed to the attorney‘s estate were subject to the “trust fund exception” to the constitutional provision requiring state funds to be appropriated by the legislature, which
appl[ies] only to such funds, the equitable as well as the legal rights to which are in the State. . . . That the Legislature has apparently recognized this intent is indicated by its exemptions of trust funds and rebates heretofore referred to from its acts requiring appropriations before payment. Although the legal title to the whole fund no doubt is in the State, the petitioners have equitable rights to that portion of the same which represents their fee. This part in all еquity and good conscience belongs to them. They have earned it and should
receive it. This portion of the fund never legally and equitably belonged to the State as part of its public funds for, at the latest, when received, the lien attached to it and remains upon it so that it is held by the State subject to the same.
Id. at 531, 28 A.2d at 410. Although the Governor argues in reliance upon this decision that “not all funds received by the State are part of the State treasury” and that the General Assembly should not be allowed to appropriate “custodial” funds as that term is used in Button‘s Estate, the federal block grant funds at issue in this case do not, in our opinion, implicate the “trust fund exception” given that the State holds the “equitable,” as well as the “legal,” rights to the block grant monies in question in this case.
In the same vein, we are not persuaded that this Court‘s decision in Gardner creates a category of funds that is owned by the State while remaining outside the State treasury and beyond the reach of the General Assembly. In reliance upon Gardner, the Governor argues that, in order to be part of the State treasury and subject to the General Assembly‘s appropriation authority, monies must be “obtained under the power of the state to enforce collection” and “placed in the hands of the state treasurer to be handled by him in accordance with the provisions of a state law.” Gardner, 226 N.C. at 467, 38 S.E.2d at 316. In our view, the Governor‘s argument overlooks the fact that nothing in our decision in Gardner suggests that only money “obtained under the power of the state to enforce collection” ever enters the State treasury.
In Gardner, this Court considered a statute thаt precluded state employees from becoming members of the Local Governmental Employees’ Retirement System in the event that they received benefits from another retirement system that drew its funds “wholly or partly . . . from the treasury of the State of North Carolina.” Id. at 466, 38 S.E.2d at 315 (quoting
[m]onies paid into the hands of the state treasurer by virtue of a state law bеcome public funds for which the treasurer is responsible and may be disbursed only in accordance with legislative authority. A treasurer is one in charge of a treasury, and a treasury is a place where public funds are deposited, kept and disbursed.
Id. As a result, rather than limiting the definition of “state treasury” to a location in which the public funds raised by the state‘s own tax and other revenue-generating measures are collected and maintained, our decision in Gardner expanded the definition of the State treasury to include any funds received by the State Treasurer in accordance with a state law regardless of the capacity in which those funds are being held.
In addition, we are not persuaded by the Governor‘s contention that the Court of Appeals’ reference to
As an initial matter, we do not, for the reasons set forth above, read Gardner as holding that the State treasury consists of nothing more than the proceeds of state taxes, penalties, fines, and other rеvenue-generating devices. In addition, we do not believe that
After a careful review of the relevant legal authorities, we have been unable to find any provision of the North Carolina State Constitution that creates a category of money that might possibly include the federal block grant monies that lies outside the State treasury or the General Assembly‘s appropriation authority. The General Assembly enacted the state budget embodied in Session Law 2017-57 in accordance with
b. Separation of Powers
As we have already noted, the North Carolina State Constitution contains
We have examined whether the General Assembly has unconstitutionally attempted to interfere with the authority of the executive branch to faithfully execute the law in several relatively recent cases. In State ex rel. McCrory v. Berger, this Court held that the General Assembly had violated the separation of powers clause when it enacted a statute giving itself the authority to appoint a majority of voting members to three state commissions, each of which were determined to be “executive in character,” given that they were responsible for executing various state environmental laws by promulgating oil and gas rules, issuing mining permits, and deciding whether surface coal ash impoundments should be closed. 368 N.C. at 645-47, 781 S.E.2d at 256-257. In reaching this result, we reasoned that the Governor needed to have “enough control” over these executive commissions in order to fulfill his constitutional duty to faithfully execute the laws and that the relevant statutory provisions impermissibly impaired his ability to do so by preventing him from appointing a majority of the commissions’ members, restricting him from removing any of the members in the absence of a showing of cause, and allowing the commissions to operate outside of his supervision and control. Id. at 646, 781 S.E.2d at 256-57. Similarly, in State ex rel. Wallace v. Bone, this Court held that the enactment of a statute appointing sitting legislators to an executive agency charged with issuing permits and investigating issues arising from the administration of air and water pollution laws constituted an impermissible encroachment upon the Governor‘s authority to see that the laws were faithfully executed. 304 N.C. 591, 608-09, 286 S.E.2d 79, 88-89 (1982). In reaching this conclusion, the Court noted that the enforcement of environmental laws bore no relation “to the function of the legislative branch of government, which is to make laws.” Id. at 608, 286 S.E.2d at 88. As a result, this Court has not hesitated to step in to preclude impermissible violations of the separation of powers and faithful execution clauses in appropriate instances.
In urging us to determine that this case involves a separation of powers violation, the Governor asserts that this Court‘s decision in Cooper I establishes that the “faithful execution” clause found in
Although the Court did refer to the Governor‘s “interstitial” policymaking authority in the course of invalidating the statutory provisions governing the Bipartisan State Board, the authority to which we referred in Cooper I was delegated to, rather than inherently possessed by, the Governor. In other words, our decision in Cooper I held that, having delegated “interstitial” discretionary authority to make policy decisions to the executive branch rather than making those policy decisions itself, the General Assembly was not then entitled to “impermissibly interfere” with the manner in which the Governor opted to execute the authority that had been granted to the executive branch by the General Assembly. Id. at 422, 809 S.E.2d at 116. In the present instance, however, the General Assembly has not delegated the authority to determine how the relevant federal block money should be spent to anyone; instead, it made the underlying policy decisions itself by appropriating the monies made available to the State through the relevant federal block grant programs through the enactment of legislation establishing the annual state budget. As a result, nothing in Cooper I provides any support for the Governor‘s state constitutional separation of powers claim.
In addition, the Governor argues that his duty to faithfully execute the laws includes an obligation to ensure that the monies received by the State from the relevant federal block grant programs are spent appropriately on the theory that his duty to faithfully execute the laws “includes not only the execution of state laws, but also the responsibility to enforce federal laws and regulations.” In other words, the Governor argues that his obligation to ensure that the distribution of federal block grant monies satisfies “the requirements and conditions” of the federal statutes leaves “no room” for appropriation of the funds in question by the General Assembly. Although the Governor‘s argument has some surface appeal, it overlooks the fact that nothing in the relevant federal statutory provisions prescribes the manner in which each individual state must determine how the relevant federal block grant monies are distributed. Instead, the applicable federal statutes leave that issue for determination under state law. And, as we have already established, the North Carolina State Constitution provides that the appropriation authority lies with the General Assembly rather than with the Governor. See Rhyne, 358 N.C. at 169-70, 594 S.E.2d at 8-9 (determining that the General Assembly was the “appropriate forum” for implementing policy changes given that it was “well equipped to weigh all the factors surrounding a particular problem, balance competing interests, provide an appropriate forum for a full and open debate, and address all of the issues at one time” (cleaned up)).
Finally, the Governor relies upon the decision of the Court of Appeals in Richmond Cty. Bd. of Educ. v. Cowell, 254 N.C. App. 42, 803 S.E.2d 27 (2017), in support of his separation of powers argument. In that case, the Court of Appeals held, as a general proposition, that the General Assembly is required to “appropriate funds” and the executive branch is responsible for implementing the relevant legislative decision by disbursing the money in accordance with the General Assembly‘s instructions. 254 N.C. App. 422, 423, 803 S.E.2d 27, 29 (2017). In addition, the Court of Appeals stated that “[a]ppropriating money from the State treasury is a power vested exclusively in the legislative branch” and that the judicial branch lacked the authority to “order State officials to draw money from the State treasury.” Id. at 426-27, 803 S.E.2d at 31. Similarly, while the executive branch does have the authority under the relevant provisions of
c. “Custodial Funds”
Finally, the Governor urges us to adopt the “custodial fund” test that has been adopted in several other jurisdictions, citing six cases in which the appellate courts in other states have found that federal grant money was not subject to the state legislature‘s appropriation authority. See Lamm I, 700 P.2d at 524-25 (Colo. 1985); Opinion of the Justices to the Senate, 375 Mass. at 854, 378 N.E.2d at 436; In re Okla. ex rel. Dep‘t of Transp., 646 P.2d at 609-10; State ex rel. Sego v. Kirkpatrick, 86 N.M. 359, 370, 524 P.2d 975, 986 (1974); Navajo Tribe v. Ariz. Dep‘t of Admin., 111 Ariz. 279, 528 P.2d 623 (1974); Tiger Stadium Fan Club v. Governor, 217 Mich. App. 439, 553 N.W.2d 7 (1996). However, as the Governor candidly notes in his brief, there are other decisions around the country that reach a different result and the decisions upon which he relies were rendered under constitutional provisions and traditions that differ from those that exist in North Carolina. In light of our inability to find anything in the language or history of the
III. Conclusion
Thus, for the reasons set forth above, we hold that the Court of Appeals did not err by upholding the trial court‘s decision to grant the legislative defendants’ motion for judgment on the pleadings and to dismiss the two claims that are at issue in this case. As a result, the Court of Appeals’ decision is affirmed.
AFFIRMED.
Justice EARLS dissenting.
By this appeal, the Governor seeks to do something which should not be controversial: to ensure that funds applied for by state executive agencies and obtained through federal programs are spent consistently with the applications for those funds. The Governor, having obtained federal funds through three block grant programs, submitted a proposed budget which sought to direct those funds in compliance with the State Budget Act. See
The Governor, through state executive agencies, administers all three of the federal block grants at issue in this case. Those programs are the Community Development Block Grant (CDBG) program, the Substance Abuse Block Grant (SABG) program, and the Maternal and Child Health Block Grant (MCHBG) program. Cooper v. Berger, 837 S.E.2d 7, 10 (N.C. Ct. App. 2019) (Cooper II). Each program is administered at the state level by an executive agency. The CDBG program is administered by the North Carolina Department of Commerce (DOC). The MCHBG and SABG programs are both administered by the North Carolina Department of Health and Human Services (NC DHHS).
All three of the block grant programs work similarly. In each case, the state executive agency administering the program applies to its federal counterpart and requests funding. In each cаse, the funds are held by the
Significantly, in each case the executive agencies administer the federal block grant programs pursuant to either state or federal legislative enactment. For example, DOC‘s administration of the CDBG program is pursuant to discretionary authority laid out in the statute that describes its functions. See
Against this backdrop, the General Assembly‘s diversion of a portion of the block grant funds toward its own priorities was an unconstitutional encroachment on the Governor‘s authority, in violation of the separation of powers principles laid out in our constitution. “The legislative, executive, and supreme judicial powers of the State government shall be forever separate and distinct from each other.”
Here, the disposition of the block grant funds is firmly within the Governor‘s authority to determine. The Governor is required by our constitution to “take care that the laws be faithfully executed.”
The Governor, then, is required to give effect to the federal and state laws pertaining to the federal block grants, and the General Assembly viоlates the separation of powers when it either (a) attempts to usurp that role, or (b) prevents the Governor from implementing policy decisions which are granted to executive branch agencies by statute. The General Assembly has done both. For each of the federal block grants, discretionary spending decisions are delegated to the Governor. As to the CDBG program, DOC is explicitly authorized to “apply for and accept grants from the federal government” and to use those grants “in order to accomplish the Department‘s purposes.”
For each program, it is the Governor‘s duty to ensure compliance with the law. However, by subverting the Governor‘s funding priorities where discretion is placed in the executive, and by obstructing the Governor‘s ability to ensure that expenditures match requests, inhibiting compliance with the reporting requirements of the federal programs, the General Assembly both frustrates the Governor‘s “ability to preclude others from forcing [him] to execute the laws in a manner to which [he] objects” and the Governor‘s “ability to affirmatively implement the policy decisions” allowed through statutory enactment. See Cooper I, 370 N.C. at 415, 809 S.E.2d at 112.
By contrast, the disposition of these funds is not within the General Assembly‘s authority. The General Assembly‘s supreme authority over the public purse derives from (current) Article V, Section 7, of the North Carolina State Constitution, which states that “[n]o money shall be drawn from the State treasury but in consequence of appropriations made by law.”
The state treasury consists of funds obtained by the state pursuant to its collection powers. Gardner v. Bd. of Trs., 226 N.C. 465, 467, 38 S.E.2d 314, 316 (1946) (stating that money is part of “the treasury of the state” where it “is obtained under the power of the State to enforce collection, and is placed in the hands of the State Treasurer to be handled by him in accordance with the provisions of a State law“). In Gardner, we considered whether a city policeman was eligible to join the Local Governmental Employees’ Retirement System. Id. at 466, 38 S.E.2d at 315. At the time, state law excluded from that retirement system persons receiving retirement allowances from “funds drawn from the treasury of the State of North Carolina.” Id. We concluded that the police officer, who was receiving retirement benefits funded partly by a two-dollar charge appended to every criminal conviction, id. at 467, 38 S.E.2d at 315, could not belong to both retirement systems. Id. at 468, 38 S.E.2d at 316. Central to our analysis was our observation, referring to the conviction-funded retirement system, that “[t]he money is obtained under the power of the State to enforce collеction, and is placed in the hands of the State Treasurer to be handled by him in accordance with the provisions of a State law.” Id. at 467, 38 S.E.2d at 316. It was of no moment, we determined, that the funds were not “derived from general taxation.” Id. Instead, because the funds were collected “by virtue of a State law” and came “into the hands of the State Treasurer,” they were part of the state treasury. Id.
The funds at issue in this case, of course, were not “obtained under the power of the State to enforce collection.” See id. Instead, they were requested by state executive branch agencies and received directly from the federal government. As a result, they are outside of the General Assembly‘s appropriations power because they were not part of the state treasury.
The majority fundamentally misunderstands our decision in Gardner, claiming that the decision expanded the definition of state treasury to include any funds held by the state. This interpretation ignores that all of the funds in Gardner, which we held were part of the state treasury, were collected pursuant to state law. Gardner, 226 N.C. at 467, 38 S.E.2d at 315. The distinction in Gardner was between funds collected pursuant to the general taxing power and funds collected pursuant to other state law. Id. at 467, 38 S.E.2d at 315-16. All funds “obtained
The idea that some funds held by the state are not subject to the legislative appropriations power is enforced in our state constitution. For example, article IX, section 6 exempts from the General Assembly‘s appropriation power “grants, gifts, and devises” which have been “made to the State” and have been “appropriated . . . by the terms of the grant, gift, or devise.”
Moreover, the status of the block grant funds as “custodial funds” is affirmed by the “information about the grants, their purposes, for whom they are intended, and the conditions placed on them by Congress.” See In re Separation of Powers, 305 N.C. 767, 295 S.E.2d 589 (1982). As noted previously, the block grant funds are held, not in state accounts, but by the federal government until they are ready to be used. The record evidence indicates that they then pass through the state executive agency on their way to their ultimate recipient, the subgrantee. Of particular significance is the fact that the federal government exercises substantial oversight over the block grant funds. For example, in February 2017, HUD wrote to DOC to express concern that CDBG funds were being spent in accordance with the plan that DOC had sent to HUD. Similarly, Congress requires that funds issued from the MCHBG program be spent consistently with the funding application submitted by NC DHHS.
Such a result does not give the executive branch unlimited authority over all federal funds. The majority notes that block grant programs and other federal grants made up 28.4% of the state budget in 2017. However, where Congress specifically delineates legislative authority over federal funds, the General Assembly has an independent basis for exercising power over them—the terms of the grant require it. In that case, there is no need for the legislature to resort to its constitutional authority over the treasury.
The conclusion that these particular funds are not part of the state treasury is consistent with the outcomes reached by a number of our sister courts. For example, the constitution of the State of Colorado provides that “[n]o moneys in the state treasury shall be disbursed therefrom by the treasurer except upon appropriations made by law, or otherwise authorized by law, and any amount disbursed shall be substantiated by vouchers signed and approved in the manner prescribed by law.”
Similarly, the constitution of New Mexico provides that “money shall be paid out of the treasury only upon appropriations made by the legislature.”
The majority dismisses these precedents as not relevant on the ground that “[t]hese decisions were rendered under constitutional provisions and traditions that differ from those that exist in North Carolina.” This facile rationale fails to explain why the statement in our constitution that “[n]o money shall be drawn from the State treasury but in consequence of appropriations made by law“,
The particular federal block grants at issue in this case are appropriately subject to the discretion of the executive. In reaching the opposite conclusion, the majority ignores our precedent defining the extent of executive authority in the face of delegated authority from our state and federal legislatures, misinterprets our prior caselaw regarding the limits on legislative authority, and ignores the guidance of other courts who have faced this same issue. While doing so, the majority permits the legislature to upset settled expectations between this state and the federal government about how the block grant programs will be used and threatens the independence of the separate branches of government in this state. I therefore respectfully dissent.