When a North Carolina school administrative unit gets fined for environmental violations, who gets the money? Does the school get to keep the fine it paid?

Plain-English summary

DEHNR's General Counsel Richard Whisnant asked the AG a circular-money question: when DEHNR collected an environmental civil penalty from a local school administrative unit, the money would normally route through the Article IX, Section 7 school-fund pipeline back to local school units. Could the money go back to the same school unit that had committed the environmental violation? Could any of it?

Special Deputy AG W. Dale Talbert answered no to both questions, and walked through three legal layers to get there.

Article IX, Section 7 applied. The NC Supreme Court had held in Craven County Board of Education v. Boyles, 343 N.C. 87 (1996) that environmental civil penalties are "civil penalties" within Article IX, Section 7. Craven County relied on Cauble v. City of Asheville, 301 N.C. 340 (1980), for the proposition that what matters is "the nature of the offense committed" not "the label attached to the money" or "the collection method employed." The Court also cited State ex rel. Thornburg v. 532 B Street, 334 N.C. 290 (1993), and Mussallam v. Mussallam, 321 N.C. 504 (1988), for the rule that Article IX, Section 7 covers penalties that are "punitive rather than remedial in nature and . . . intended to penalize the wrongdoer rather than compensate a particular party."

The 1997 statutory restructuring. The General Assembly had reorganized the school-fund flow during the 1997 session. Senate Bill 882 was not enacted as a stand-alone bill but its content was rolled into Section 8.20(a) of Senate Bill 352, the 1997 Appropriations Bill. The result was new Article 31A of Chapter 115C, sections 115C-457.1 through -457.3, effective September 1, 1997. § 115C-457.1 created a Civil Penalty and Forfeiture Fund administered by the Office of State Budget and Management. § 115C-457.2 said "[n]otwithstanding any other law, all funds which are civil penalties or civil forfeitures within the meaning of Article IX, Section 7 of the Constitution shall be deposited in the Civil Penalty and Forfeiture Fund." § 115C-457.3 transferred the funds to the State School Technology Fund, administered by DPI, for allocation to local school administrative units based on average daily membership.

The common-law gate. Davenport v. Patrick, 227 N.C. 686 (1947), embodied the principle that a wrongdoer cannot enrich himself by his own misconduct. The AG read that principle as overriding the otherwise-routine ADM-based allocation. A school unit that paid an environmental civil penalty was the wrongdoer; allocating any portion of the penalty back to that unit would let the wrongdoer benefit from the wrong. The AG's instruction: allocate the funds to all eligible local school administrative units, except the offending unit, based on average daily membership.

The pre-September-1, 1997 transition. For environmental civil penalties collected before September 1, 1997, the AG instructed DEHNR to pay the clear proceeds to the State Controller for deposit in the General Fund, not to return them to the offending unit and not to route them through the (not-yet-effective) Civil Penalty and Forfeiture Fund.

Currency note

This opinion was issued in 1997. 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 State School Technology Fund framework and the Civil Penalty and Forfeiture Fund have been amended multiple times since 1997, and Article IX, Section 7 litigation has continued to define what counts as a civil penalty (vs. fee, vs. remedial assessment). Anyone analyzing a current civil-penalty disposition question should check the current text of G.S. § 115C-457.1 through -457.3 and the current civil-penalty case law.

Background and statutory framework

Article IX, Section 7 of the NC Constitution requires that "the clear proceeds of all penalties and forfeitures and of all fines collected in the several counties for any breach of the penal laws of the State, shall belong to and remain in the several counties, and shall be faithfully appropriated and used exclusively for maintaining free public schools." For most of NC's history, that meant local school units received fine and penalty money directly. The 1997 restructuring centralized the flow through a single Civil Penalty and Forfeiture Fund and routed allocations through the State School Technology Fund.

Craven County in 1996 confirmed that environmental civil penalties (assessed under Chapter 143) were within Article IX, Section 7. That created the specific question the 1997 opinion addresses: school units could be both source and beneficiary of these penalties, and the routing question needed an answer.

Davenport v. Patrick in 1947 provided the common-law backstop. The opinion used Davenport to graft a no-self-enrichment exception onto the otherwise-routine ADM allocation. Without that exception, a poorly-behaved school unit could pay an environmental civil penalty in one budget cycle and recover a meaningful chunk of it through the Article IX, Section 7 allocation in the next. The AG closed that loop.

Common questions

Did the AG's no-self-enrichment rule apply outside environmental penalties?

The AG's opinion was about environmental civil penalties specifically, but the Davenport common-law principle has broader reach. Any future civil penalty paid by a school unit and routed through the same Article IX, Section 7 pipeline would face the same analytical question, and the same no-self-enrichment answer.

What about non-school-unit wrongdoers?

The 1997 framework treats those as normal Article IX, Section 7 cases. A civil penalty collected from a private polluter, a municipality, or any non-school entity goes through the Civil Penalty and Forfeiture Fund and gets allocated to all eligible school units by ADM. The no-self-enrichment exception only operates when the wrongdoer is itself a school unit.

Why was Senate Bill 882 important if it wasn't enacted?

Senate Bill 882 was the original stand-alone bill establishing the Civil Penalty and Forfeiture Fund. It died as a stand-alone but its operative provisions were absorbed into Section 8.20(a) of Senate Bill 352 (the Appropriations Bill) and ratified there. The AG cited SB 882 because the legislative history of SB 882 was the primary source for understanding what Section 8.20(a) was designed to do.

What counts as a "civil penalty" under § 115C-457.2?

§ 115C-457.2 captures all funds that are "civil penalties or civil forfeitures within the meaning of Article IX, Section 7 of the Constitution." That phrasing puts the burden of definition back on the constitutional standard. Per Cauble, Craven County, and Thornburg, the test is whether the assessment is punitive rather than remedial and whether the nature of the offense is a breach of the State's penal laws. Cost-recovery assessments, restoration costs, or remedial cleanup orders generally fall outside the definition.

Could a school unit appeal an environmental civil penalty assessment?

Yes, through the normal administrative appeal channels under the relevant environmental statutes (Chapter 143 articles 21, 21A, 21B). The 1997 opinion does not change appeal rights; it changes only what happens to the money after collection becomes final.

How does this interact with the 1997 Raleigh overtime parking opinion?

Both opinions apply Article IX, Section 7. The Raleigh opinion addressed whether decriminalized municipal parking fees fell within Article IX, Section 7 at all (no, because they were not breaches of "penal laws"). This 1997 environmental opinion assumed Article IX, Section 7 applied (per Craven County) and asked the downstream question about who got the money. Different pieces of the same constitutional doctrine.

Source

• Landing page: https://ncdoj.gov/opinions/proper-disposition-of-environmental-civil-penalties-collected/

Citations

• N.C. Const. art. IX, § 7
• N.C. Gen. Stat. § 115C-457.1
• N.C. Gen. Stat. § 115C-457.2
• N.C. Gen. Stat. § 115C-457.3
• Senate Bill 352, Section 8.20(a) (1997 Appropriations Bill)
• Senate Bill 882 (Civil Penalty and Forfeiture Fund Established)
• Craven County Board of Education v. Boyles, 343 N.C. 87, 468 S.E.2d 50 (1996)
• Cauble v. City of Asheville, 301 N.C. 340, 271 S.E.2d 258 (1980)
• State ex rel. Thornburg v. 532 B Street, 334 N.C. 290, 432 S.E.2d 684 (1993)
• Mussallam v. Mussallam, 321 N.C. 504, 364 S.E.2d 364 (1988)
• Davenport v. Patrick, 227 N.C. 686, 44 S.E.2d 203 (1947)

Original opinion text

November 4, 1997

Richard Whisnant, General Counsel
Department of Environment, Health & Natural Resources
Post Office Box 27687
Raleigh, North Carolina 27611

Re: Advisory Opinion — Proper Disposition of Environmental Civil Penalties Collected from Local School Administrative Units

Dear Mr. Whisnant:

Earlier this year you requested our opinion on the proper disposition of environmental civil penalties collected from local school administrative units. We have delayed responding to your request because legislation was pending before the most recent session of the General Assembly which potentially could have affected our response. After careful review of the legislation in question, and for the reasons which follow, we conclude the clear proceeds of environmental civil penalties controlled by Article IX, Section 7 which were collected from offending local school administrative units before September 1, 1997, may not be returned to the offending local units but rather should be deposited into the General Fund. We also conclude the clear proceeds of environmental civil penalties controlled by Article IX, Section 7 which are collected from offending local school administrative units on or after September 1, 1997, may not be returned to the offending local units. However, in compliance with N.C.G.S. 115C-457.1 et seq., these funds should be remitted to the Civil Penalty and Forfeiture Fund, transferred to the State School Technology Fund and allocated to all eligible local school administrative units, except the offending unit, on the basis of average daily membership.

Senate Bill 882, entitled Civil Penalty and Forfeiture Fund Established, proposed to have the clear proceeds of all civil penalties and forfeitures controlled by Article IX, Section 7 deposited into a Civil Penalty and Forfeiture Fund and subsequently transferred to the State School Technology Fund for distribution to local school administrative units on the basis of their average daily membership. Senate Bill 882 was not enacted but rather incorporated into and ratified as Section 8.20(a) of Senate Bill 352, the Appropriations Bill. A copy of Section 8.20(a) is enclosed for your review.

Senate Bill 352 amends Chapter 115C of the General Statutes by adding a new Article 31A consisting of sections 115C-457.1 through -457.3. N.C.G.S. § 115C-457.1 creates a Civil Penalty and Forfeiture Fund administered by the Office of State Budget and Management (OSBM).

N.C.G.S. § 115C-457.2 provides in pertinent part "[n]otwithstanding any other law, all funds which are civil penalties or civil forfeitures within the meaning of Article IX, Section 7 of the Constitution shall be deposited in the Civil Penalty and Forfeiture Fund." New N.C.G.S. § 115C-457.3 requires the funds deposited in the Civil Penalty and Forfeiture Fund to be transferred to the State School Technology Fund, administered by the Department of Public Instruction, and thereafter allocated to local school administrative units on the basis of average daily membership. These provisions were effective September 1, 1997.

In Craven County Board of Education v. Boyles et al., 343 N.C. 87, 468 S.E.2d 50 (1996), the North Carolina Supreme Court held that money paid in settlement of a environmental civil penalty were "civil penalties" within the scope and coverage of Article IX, Section 7. Therefore, it is clear that environmental civil penalties assessed against and collected from local school administrative units are "penalties" within the meaning of Article IX, Section 7. In reaching its decision in Craven County, the Court cited with approval its earlier statement in Cauble v. City of Asheville, 301 N.C. 340, 271 S.E.2d 258 (1980), concluding "it is neither 'the label attached to the money' nor 'the [collection] method employed' but 'the nature of the offense committed' that determines whether the payment constitutes a penalty [controlled by Article IX, Section 7]." 343 N.C. at 91. The Court also cited with approval its earlier decisions in State ex rel. Thornburg v. 532 B Street, 334 N.C. 290, 432 S.E.2d 684 (1993) and Mussallam v. Mussallam, 321 N.C. 504, 364 S.E.2d 364 (1988) which recognized that penalties included within the scope and coverage of Article IX, Section 7 are those which are "punitive rather than remedial in nature and . . . intended to penalize the wrongdoer rather than compensate a particular party."

These judicial decisions defining civil penalties as punishment are significant in that they compel the common law principle prohibiting a wrongdoer from enriching himself as a result of his own misconduct be applied to the distribution of the civil penalties. Under this time-honored principle, it would offend public policy to have any portion of a civil penalty collected from a offending local school administrative unit returned to that unit. See Davenport v. Patrick, 227 N.C. 686, 44 S.E.2d 203 (1947). Therefore, we advise your Department to pay over to the State Controller for deposit in the General Fund the clear proceeds of all environmental civil penalties collected from local school administrative units prior to September 1, 1997. Environmental civil penalties collected by your Department from local school administrative units on or after September 1, 1997, should be deposited into the Civil Penalty and Forfeiture Fund and transferred by OSBM to the State School Technology Fund. However, consistent with the legal conclusions provided herein, the Department of Public Instruction will be advised of our opinion that proceeds from civil penalties or forfeitures collected from a local school administrative unit should not be allocated to the offending unit. Rather, these funds should be allocated to the remaining local school administrative units on the basis of their average daily membership.

I trust this advisory opinion has been responsive to your inquiry. I am taking the liberty of providing a copy of this advisory letter to the Office of State Budget and Management, the State Controller's Office, the State Treasurer's Office, the Department of Public Instruction and counsel for the N.C. School Boards Association.

W. Dale Talbert
Special Deputy Attorney General