When the General Assembly tells a state agency it can't spend money on a federal-court-mandated program except from specifically appropriated funds, can the agency still move lapsed salary money over to cover a shortfall?

Plain-English summary

The Thomas S. case was a long-running federal class action arising from the State's failure to provide constitutionally adequate care to mentally retarded adults inappropriately confined in NC public psychiatric hospitals. Judge McMillan's 1988 order, affirmed by the Fourth Circuit in 1990, required NC to deliver minimally adequate habilitation and treatment to class members under the supervision of a Special Master. By the 1995-96 fiscal year, funding for the Thomas S. program was a moving target, and DHR faced a real risk that money appropriated for the program would not arrive in time to meet the court's compliance demands.

DHR Secretary C. Robin Britt asked the AG whether N.C. Gen. Stat. § 143-23 let DHR transfer lapsed salaries (salary appropriations that had not been spent because of vacancies) to cover the Thomas S. shortfall. The complication was 1995 Sess. Laws, ch. 324, s. 23.21(b), which said "no State funds shall be expended on placement and services for Thomas S. Class members" except specifically appropriated funds and funds for which class members were otherwise eligible. Read literally, that limit would have blocked the lapsed-salary transfer.

Chief Deputy AG Andrew A. Vanore, Jr. and Special Deputy AG Robert T. Hargett said the transfer was permitted. § 143-23(a1)(3) specifically allows budget transfers "with the approval of the Director of the Budget if the overexpenditure is required by a court." And another 1995 session law (ch. 507, s. 23.23) directed DOJ and DHR to pursue all options to resolve the Thomas S. lawsuit and end Special Master oversight. Reading the two budget provisions together (the canon of in pari materia construction), the AG concluded that a literal reading of ch. 324 s. 23.21(b) would defeat both the obvious purpose of the budget restriction (avoiding federal contempt) and the explicit mandate of ch. 507 s. 23.23. The legislature could not have intended a result that left the State in contempt of federal court for non-payment when a budget transfer mechanism already on the books was available.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Thomas S. litigation has long since concluded, the 1995 session laws cited are not current law, and § 143-23 has been amended in the intervening decades. Modern state agency budget transfers are also governed by current State Budget Act provisions and the practices of the Office of State Budget and Management.

Background and statutory framework

Thomas S. v. Flaherty was filed in 1982 in the Western District of NC, alleging that adults with mental retardation institutionalized at Broughton Hospital and other state psychiatric facilities were being denied minimally adequate habilitation in violation of the Fourteenth Amendment. The case was certified as a class action. Judge James B. McMillan issued an order in November 1988 finding constitutional violations and ordering the State to deliver minimally adequate habilitation. The Fourth Circuit affirmed in May 1990; the United States Supreme Court denied review.

The State established a "Thomas S. section" within the DHR Division of Mental Health, Developmental Disabilities, and Substance Abuse Services to comply with the order. Funding came partly from regular appropriations and partly from special appropriations. For 1995-96, the General Assembly appropriated two million dollars in the expansion budget plus fifteen million dollars in unused prison-match funds, but the prison-match funds were not expected to arrive until January 1996 (if at all). That timing gap created the immediate funding crisis the opinion addresses.

N.C. Gen. Stat. § 143-23(a1)(3) gave the Director of the Budget authority to approve transfers between budget objects or line items when the overexpenditure was required by a court. The AG's reading was simple: a federal class-action injunction was a court order; failure to fund services would expose State officials to contempt proceedings; therefore § 143-23(a1)(3) was the controlling provision.

Common questions

Were the two 1995 session laws really in conflict?

Yes, when read literally. Ch. 507 s. 23.23 told DOJ and DHR to pursue every option to end the litigation, while ch. 324 s. 23.21(b) prohibited use of any state funds for Thomas S. services except those specifically appropriated. The AG harmonized them by treating ch. 324 s. 23.21(b) as a general restriction limited by the more specific § 143-23(a1)(3) court-order transfer authority.

What is "lapsed salaries"?

State agencies budget salary lines for full staffing. When positions are vacant during the year, the unspent salary money becomes "lapsed salaries." Under § 143-23, those funds can in some circumstances be redirected to cover overexpenditures elsewhere in the agency's budget, subject to approval from the Director of the Budget.

Did this opinion authorize unlimited transfers?

No. The AG's reasoning depended on a federal court order requiring the expenditure. § 143-23(a1)(3) by its terms is limited to court-required overexpenditures, and the transfer required Director-of-the-Budget approval.

What happened to the Thomas S. case?

The litigation continued for years after this opinion, with ongoing oversight by Special Master Michael Lottman and successor masters. NC eventually achieved compliance and Thomas S. was wound down. The current state mental health system in NC reflects waves of reform driven by Thomas S. and successor litigation.

Source

• Landing page: https://ncdoj.gov/opinions/use-of-lapsed-salaries-to-fund-budget-shortfall-for-thomas-s-budget/

Citations

• N.C. Gen. Stat. § 143-23
• N.C. Gen. Stat. § 143-23(a1)(3)
• 1995 Sess. Laws, ch. 507, s. 23.23
• 1995 Sess. Laws, ch. 507, s. 27.10A
• 1995 Sess. Laws, ch. 324, s. 23.21
• Carver v. Carver, 310 N.C. 669, 314 S.E.2d 739 (1984)
• Peele v. Finch, 284 N.C. 375, 200 S.E.2d 635 (1973)
• In re Filing by Fire Ins. Rating Bureau, 275 N.C. 15, 165 S.E.2d 207 (1969)
• In re Hardy, 294 N.C. 90, 240 S.E.2d 367 (1978)
• In re Banks, 295 N.C. 236, 244 S.E.2d 386 (1978)
• State ex rel. Commissioner of Insurance v. NC Auto. Rate Administrative Office, 294 N.C. 60, 241 S.E.2d 324 (1978)

Original opinion text

August 17, 1995

Honorable C. Robin Britt, Sr.
Secretary
Department of Human Resources
101 Blair Drive
Post Office Box 29526
Raleigh, North Carolina 27626-0526

Re: Advisory Opinion; Use of Lapsed Salaries to Fund Budget Shortfall For Thomas S. Budget; N.C. Gen. Stat. § 143-23; 1995 Sess. L., c. 507, s. 23.23; 1995 Sess. L., c. 507, s. 27.10A; Sess. L., c. 324, s. 23.21

Dear Secretary Britt:

You asked for an opinion whether N.C. Gen. Stat. § 143-23 authorizes lapsed salaries to be used to fund Thomas S. overexpenditures of the certified budget. Specifically you asked: Does N.C. Gen. Stat. § 143-23 authorize the use of lapsed salaries to fund Thomas S. budgetary shortfalls?

For the reasons set forth below, we conclude that N.C. Gen. Stat. § 143-23 does allow the use of lapsed salaries to fund the Thomas S. budgetary shortfalls.

HISTORY OF Thomas S.

On July 7, 1982 a complaint filed in the United States District Court, Western District of North Carolina alleged that the State had violated the constitutional rights of Thomas S., a mentally retarded adult who was institutionalized at Broughton Hospital. Eventually, the case was certified as a class action. On November 21, 1988, Judge McMillan issued an order in the case. The order was upheld by the U.S. Court of Appeals for the Fourth Circuit on May 20, 1990, and the United States Supreme Court denied review of the case. Judge McMillan, in his order, found that the State had violated the constitutional rights of a particular class of individuals. He defined the class as: Adults who are mentally retarded or who have been treated as mentally retarded and who are or will be inappropriately kept in public psychiatric institutions in North Carolina in conditions violative of their constitutional rights. The Court ordered the State to provide minimally adequate habilitation or treatment for individual class members. In order to assure that the Plaintiffs would receive constitutional treatment, the Court ordered the appointment of a Special Master (Michael Lottman) to oversee compliance and to report to the Court. The Court further ordered Plaintiffs' attorneys to monitor the treatment of the class and to advise the court whether the State is in compliance with the Court order.

To comply with the order, the State of North Carolina developed the Thomas S. section of the Department of Human Resources' Division of Mental Health, Developmental Disabilities, and Substance Abuse Services. In addition to sums appropriated in previous years, the 1995 General Assembly appropriated two million dollars in the Expansion Budget specifically for Thomas S. funding. The General Assembly also appropriated fifteen million dollars in unused prison match funds in the expansion budget that may be available to fund Thomas S. for the provision of services to the Plaintiff Class during the 1995-96 fiscal year. The fifteen million dollar appropriation in the expansion budget, however, will most likely not be available until January of 1996, if at all. If the funds are not available, the shortfall will result in the State being unable to comply with the Court order.

On June 23, 1995, Special Master Lottman, aware of possible budgetary shortfalls, recommended to the Court that the Governor be joined as a party and that the State be ordered to show cause why seventeen million dollars should not be ordered set aside to fund the Thomas S. program. The Master further requested that he and Plaintiffs' attorneys determine when adequate funding for Thomas S. is met and when the set-aside may be returned to State control.

If the Court refuses to order the requested set-aside, the State will have insufficient funds to comply with the order for services and individual State officials may be subject to contempt proceedings for each and every class member unable to be served.

ANALYSIS

1995 Sess. L., c. 507, s. 23.23 [HB 230] states:

The Department of Justice and the Department of Human Resources shall pursue all administrative and legal options necessary to enable the State to resolve the Thomas S. lawsuit in the most expeditious and cost-effective manner possible and to seek elimination of the necessity for oversight by a special master.

Notwithstanding the foregoing, any budgetary shortfall will necessarily result in continued Court intervention and oversight. However, N.C. Gen. Stat. § 143-23(a1)(3) allows transfers between objects or line items in the budget of any department, institution, or other spending agency with the approval of the Director of the Budget if the overexpenditure is required by a court. The transfer of funds from lapsed salaries to the Thomas S. budget would allow compliance with the mandate of 1995 Sess. L., c. 507, s. 23.23.

The question arises whether the provisions of 1995 Sess. L., c. 324, s. 23.21(b) [HB 229] prevent this transfer. 1995 Sess. L., c. 324, s. 23.21(b) provides:

To ensure that Thomas S. Class members are appropriately served, no State funds shall be expended on placement and services for Thomas S. Class members except:

(1) Funds specifically appropriated by the General Assembly for the placement and services of Thomas S. Class members; and

(2) Funds for placement and services for which Thomas S. Class members are otherwise eligible.

The conflict between 1995 Sess. L., c. 507, s. 23.23 and 1995 Sess. L., c. 324, s. 23.21(b) is created because the Department of Human Resources ("DHR") will not be able to move to end oversight if it cannot comply with the Court's order by transferring funds to meet budget shortfalls. In addition, an interpretation that prevents transfer of funds creates an ambiguity and inconsistency within the provisions of 1995 Sess. L., c. 324, s. 23.21(b). The first sentence of that section clearly requires that Thomas S. class members be appropriately served, while the later provisions seem to prohibit DHR from providing these required services if it is interpreted to mean that DHR cannot transfer lapsed salaries to pay for the necessary services.

It is a canon of statutory construction that statutes which are in pari materia, that is, which relate or are applicable to the same matter or subject, although enacted at different times, must be construed together in order to ascertain legislative intent. Carver v. Carver, 310 N.C. 669, 674, 314 S.E.2d 739 (1984). Statutes dealing with the same subject matter must be construed in pari materia, and harmonized, if possible, to give effect to each. Any irreconcilable ambiguity should be resolved so as to effectuate the true legislative intent.

The intent of the legislature controls the interpretation of a statute. Peele v. Finch, 284 N.C. 375, 382, 200 S.E.2d 635 (1973). "A statute must be construed in the light of the purpose to be accomplished." In re Filing by Fire Ins. Rating Bureau, 275 N.C. 15, 34, 165 S.E.2d 207 (1969). A construction which will defeat or impair the object of a statute must be avoided if that reasonably can be done without violence to the legislative language; where possible, the statutes should be given a construction which, when practically applied, will tend to suppress the evil which the legislature intended to prevent. In re Hardy, 294 N.C. 90, 96, 240 S.E.2d 367 (1978).

It is clear that the harm the General Assembly intended to prevent was continued excessive federal court interference in the administration of the State's mental health system. In order to effectuate this legislative intent, DHR must be able to transfer such funds as are necessary to comply with the Court's order.

"…[I]t is a well settled rule of statutory construction that, where a literal interpretation of the language of a statute would contravene the manifest purpose of the statute, the reason and purpose of the law will be given effect and the strict letter thereof disregarded."

In re Banks, 295 N.C. 236, 240, 244 S.E.2d 386 (1978).

"In construing statutes courts normally adopt an interpretation which will avoid absurd or bizarre consequences, the presumption being that the legislature acted in accordance with reason and common sense and did not intend untoward consequences". State ex rel. Commissioner of Ins. v. North Carolina Auto. Rate Administrative Office, 294 N.C. 60, 68, 241 S.E.2d 324 (1978). Any interpretation that would interfere with the State's ability to comply with the court order would result in the State being held in contempt and the possible takeover by the federal court of the Thomas S. program and the State budget. To conclude that DHR is prohibited from using lapsed salaries to fund required Thomas S. services would contravene the manifest purpose not only of House 1995 Sess. L., c. 324, s. 23.21(b) but also of 1995 Sess. L., c. 507, s. 23.23. Such an interpretation would result in an absurd consequence clearly not intended by the General Assembly.

CONCLUSION

Based on the analysis set forth above, we conclude that the Department may use lapsed salaries to fund any shortfall of the Thomas S. budget pursuant to N.C. Gen. Stat. § 143-23.

Andrew A. Vanore, Jr.
Chief Deputy Attorney General

Robert T. Hargett
Special Deputy Attorney General