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NC court order threatens executive branch power over funds

By Gary D. Robertson, Associated Press

A North Carolina Court of Appeals panel’s ruling threatens the ability of elected executive branch leaders in the state to control non-tax dollars without legislative permission.

The panel’s majority ruled this week that Democratic Attorney General Josh Stein had to deposit money paid annually by Smithfield Foods as part agreement reached in 2000 over hog waste and any residual into the state’s coffers.

The money — up to $2 million annually provided by Smithfield — had been held in a private bank account for use in distributing grants designed to enhance the state’s environment. Democratic attorneys general — now-Gov. Roy Cooper and Stein — have selected grant recipients based on a panel’s recommendations.

In April, the state Supreme Court ruled 6-1 that the Smithfield payments are not civil penalties, leaving the Smithfield arrangement intact. As such, the justices wrote, the money is not required to be spent on public schools, as the state constitution would otherwise require. The New Hanover County school board, a plaintiff in a lawsuit that began in 2016, had argued the money had to be earmarked for schools.

But a November 2019 law approved by the Republican-controlled legislature directed that all cash gifts and donations to the state or for the state’s benefit “shall be deposited into the state treasury.” While the General Assembly decides how money in the treasury is spent, last year’s law says such gifts still must be used in line with the donor’s agreed-to purpose.

The Court of Appeals panel reviewed the lawsuit again in light of the state Supreme Court decision and the 2019 law. Department of Justice lawyers representing Stein told the court in September that it had completed moving all of the payments since July 2019 to the treasury.

Judge John Tyson, writing the majority opinion released Tuesday, agreed that “the statute clearly mandates these are public funds, they belong to the taxpayers of this State, and are required” to be put into the state treasury.

Judge Phil Berger Jr. agreed with Tyson. Judge Wanda Bryant wrote a dissenting opinion, saying how the 2019 law affects the Smithfield funds is a matter for a trial court to determine. The state Supreme Court would be obligated to hear the case again if requested because it was a split decision.

Paul Stam, an attorney representing the school board, praised Tuesday’s decision, which he said could affect up to $12 million in payments from Smithfield. The 25-year agreement originally penned by then-Attorney General Mike Easley, Smithfield and several of its subsidiaries, will end in the mid-2020s.

Stein spokesperson Laura Brewer said the Justice Department was reviewing Tuesday’s opinion. The Court of Appeals did not say specifically whether Stein still has authority to distribute the Smithfield funds even when they’re now in state coffers.

Stam contends that should the ruling stand, the legislature would have control over how the payments are spent as long as they address environmental enhancement.

“The AG will no longer be able to operate what is in effect a slush fund,” Stam, a former Republican state House leader, said in an interview. Stam said the money could address environmental improvements at schools.

The 2000 deal came a year after Hurricane Floyd caused dozens of hog waste pits to overflow. Smithfield also had paid one of the largest water-quality fines in state history after waste spills at two hog operations.

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