Did NC legislative leaders directing executive branch agencies to disburse Reserve Fund grants violate separation of powers or § 143-16.3?

Plain-English summary

State Auditor Leslie Merritt sent the AG a Report finding that the 2004 Appropriations Act had set up "Reserve Funds" in three Executive Branch agencies (OSBM, DCR, DHHS) totaling about $13.8 million, and that legislative leaders (the President Pro Tempore of the Senate and two Co-Speakers of the House) had effectively directed how the agencies disbursed those funds to specific organizations. The Report raised questions about constitutional separation of powers and about compliance with N.C.G.S. § 143-16.3, which limits expenditure of funds for purposes the General Assembly "considered but not enacted."

The AG's analysis split into a constitutional half and a statutory half.

Constitutional half (separation of powers). N.C. Const. art. I, § 6 declares the legislative, executive, and judicial powers "forever separate and distinct." The NC Supreme Court has applied that principle in cases like State ex rel. Wallace v. Bone, 304 N.C. 591 (1982) (no legislators on Environmental Management Commission), and Advisory Opinion in re Separation of Powers, 305 N.C. 767 (1982) (Joint Legislative Commission approval of Governor's budget transfers violated separation of powers).

But the Report did not point to any law that gave individual legislators legal authority to direct Executive Branch officials in Reserve Fund disbursement. And the AG could not find one. The agencies were not required by law to follow the legislators' directions. The AG concluded that "[i]ndependent actions of individual members of the General Assembly, regardless of the member's position of leadership, do not constitute the exercise of official legislative power triggering constitutional safeguards." On the constitutional question, the process did not violate the separation of powers clause.

Statutory half (§ 143-16.3). § 143-16.3 prohibits expenditure of funds for any "new or expanded purpose, position, or other expenditure for which the General Assembly has considered but not enacted an appropriation." The Report identified eleven grant recipients whose specific line-item funding was in the House or Senate committee reports but deleted from the final Joint Conference Committee Report and Appropriations Act, then funded through Reserve Funds anyway.

The AG read § 143-16.3 against N.C. Monroe Construction Co. v. State, 155 N.C. App. 320 (2002), which had only addressed the statute once and not on point. A literal reading suggested the eleven expenditures violated the statute. But a counter-reading was available: the Reserve Funds themselves were an appropriation, and conference-committee negotiators may have intended that the Reserve Funds substitute for the deleted line items. The AG could not conclude the process clearly violated § 143-16.3, but acknowledged it "likely contravenes the intent of the General Assembly" and recommended clarifying amendments.

The opinion also addressed a Community Development Specialist position created at DCR with $45,000 of Reserve Fund money for former House member Michael Decker, Sr. The Report concluded the position description was tailored for Decker.

The AG's recommendations to the State Auditor for process improvements were notable for a legal opinion: all appropriations should be detailed through committee bills, emergency needs should run through OSBM or Joint Legislative Commission on Governmental Operations review, Fiscal Research should code legislator-initiated appropriations clearly, OSP should limit job creation to Governor/agency/Appropriations Act requests, and reserve-fund recipients should report annually.

The opinion was signed by Attorney General Roy Cooper.

Currency note

This opinion was issued in 2005. 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 NC General Assembly has tightened appropriations procedures multiple times since 2005, and the separation-of-powers line on legislator involvement in executive functions has continued to be litigated. The AG's recommended reforms have been partially implemented through subsequent appropriations acts and Joint Legislative Commission rules. Anyone researching a current Reserve Fund or legislator-directed grant issue should review the latest Appropriations Act and Joint Conference Committee Report practices.

Common questions

Q: At the time of the opinion, was it legal for a House Speaker to tell DCR where Reserve Fund grants should go?
A: The AG concluded it was not illegal under existing law, because the agencies were not legally required to follow the direction. If they had been required to follow, that would have raised serious separation-of-powers concerns.

Q: What about Decker's specially-created position?
A: The Report concluded the position was tailored for Decker. The AG's opinion discussed the process but did not declare the appointment illegal under the law as then written. The AG used the example to support the recommendations for process reform.

Q: Did the AG find any wrongdoing?
A: The AG did not find a clear legal violation but characterized the process as one that "likely contravenes the intent of the General Assembly" in enacting § 143-16.3. The AG recommended clarifying amendments and a series of process improvements.

Q: What were the recommended reforms?
A: Bill all appropriations through the Appropriations committee process or substantive legislation. Route emergency needs through OSBM or Governmental Operations. Have Fiscal Research code legislator-initiated appropriations. Limit OSP job creation to Governor/agency/Appropriations Act requests. Require annual performance and accounting reports from reserve-fund grant recipients.

Background and statutory framework

The constitutional layer:

• N.C. Const. art. I, § 6. Separation of powers.
• N.C. Const. art. II, § 1. Legislative power in General Assembly.
• N.C. Const. art. III, § 5(3). Governor prepares budget; administers enacted budget.

The statutory layer:

• N.C.G.S. § 143-12. Governor submits proposed budget.
• N.C.G.S. § 143-15. General Assembly modifies and enacts.
• N.C.G.S. § 143-16.3. Bar on expenditure for purposes considered but not enacted, subject to Director of the Budget deviation procedure after consultation with Joint Legislative Commission on Governmental Operations.

The leading separation-of-powers cases:

• State ex rel. Wallace v. Bone, 304 N.C. 591 (1982). Legislators cannot serve on Executive Branch commissions.
• Advisory Opinion in re Separation of Powers, 305 N.C. 767 (1982). Joint Legislative Commission approval of Governor's budget transfers violated separation of powers.

The single appellate case on § 143-16.3 (N.C. Monroe Construction Co. v. State, 155 N.C. App. 320 (2002)) held the statute was not violated when OSBM contracted for prison construction before appropriation because funds were appropriated before work began. Limited guidance for the Reserve Funds question.

The AG's careful framing throughout: process suspect, statute ambiguous, intent likely violated, hard violation not provable. Recommendations for legislative cleanup follow.

Citations

• N.C. Const. art. I, § 6 (separation of powers)
• N.C. Const. art. II, § 1 (legislative power)
• N.C. Const. art. III, § 5(3) (Governor's budget duties)
• N.C.G.S. § 143-12 (proposed budget)
• N.C.G.S. § 143-15 (legislative modification of proposed budget)
• N.C.G.S. § 143-16.3 (bar on funding considered-but-not-enacted purposes)
• 2004 Appropriations Act, § 33.2(a) (Reserve Funds incorporation)
• State ex rel. Wallace v. Bone, 304 N.C. 591, 286 S.E.2d 79 (1982)
• Advisory Opinion in re Separation of Powers, 305 N.C. 767, 295 S.E.2d 589 (1982)
• N.C. Monroe Construction Co. v. State, 155 N.C. App. 320 (2002)

Source

• Landing page: https://ncdoj.gov/opinions/review-of-reserve-funds-in-the-2004-2005-revised-certified-budget/

Original opinion text

Best-effort excerpt from the NCDOJ archive page. The full opinion runs significantly longer; the linked source page contains the complete text including additional detail on the Decker position chronology and the recommendations to the Auditor.

September 12, 2005

The Hon. Leslie Merritt
Auditor State of North Carolina
20601 Mail Service Center
Raleigh, N. C. 27699-0601

Re: Advisory Opinion: Review of Reserve Funds in the 2004-2005 Revised Certified Budget

Dear Auditor Merritt:

On June 28, 2005, this Office received from you a report entitled "Review of Reserve Funds in the 2004-2005 Revised Certified Budget" (the Report). This Report contains the findings and conclusions of your office regarding certain Reserve Funds appropriated to the Office of State Budget and Management, the Department of Cultural Resources and the Department of Health and Human Services in the 2004 Appropriations Act, and the subsequent allocation, control and disbursement of those funds by the agencies. The Report states that the investigation was generated by requests from private citizens and elected officials for a review of these Reserve Funds. The Attorney General has received similar requests. This opinion will therefore address certain legal questions which have been generated by the factual findings of the Report.

FACTUAL SUMMARY

The Report states that during the 2004 legislative session a near impasse between the Senate and House of Representatives during the Joint Conference Committee's budget reconciliation negotiations resulted in the establishment of certain reserves for grants ("Reserve Funds") which were included in the final 2004 Appropriations Act. The Joint Conference Committee Report on the Continuation, Expansion and Capital Budget, dated July 17, 2004, designated these appropriations as follows:

(1) Office of State Budget and Management (OSBM): $1,338,382
(2) Department of Cultural Resources (DCR): $9,161,618 and $925,000
(3) Department of Health and Human Services (DHHS): $2,400,000

The Reserve Funds as appropriated were not directed to line item recipients or specifically identified uses. The Report further concludes, through extensive interviews with OSBM, DCR and DHHS management, as well as with legislative staff members and legislators, that control of the disbursement of these grant funds was, as a practical matter, retained and exercised by the legislative leadership. Control was divided between the President Pro Tempore of the Senate ($6,507,500), one Co-Speaker ($4,606,250), and the other Co-Speaker ($2,891,250). Requests for disbursement of grants were generally received by agency officials from legislative staff members.

LEGAL ANALYSIS

A. CONSTITUTIONAL ISSUES

The North Carolina Constitution provides in part: "The legislative, executive, and supreme judicial powers of the State government shall be forever separate and distinct from each other." N.C. Constitution, Article I, § 6. The Report does not reference any law that granted to individual legislators the legal authority to direct Executive Branch officials in the disbursement of Reserve Fund grants. Nor have we identified such legislation. Executive Branch officials were therefore not required by law to distribute grant funds as requested by individual legislators.

Independent actions of individual members of the General Assembly, regardless of the member's position of leadership, do not constitute the exercise of official legislative power triggering constitutional safeguards. The process described in the Report therefore does not raise separation of powers issues under Article 1, § 6 of the Constitution.

B. STATUTORY ISSUES

N.C.G.S. § 143-16.3 reads, in pertinent part:

Notwithstanding any other provision of law, no funds from any source ... may be expended for any new or expanded purpose, position, or other expenditure for which the General Assembly has considered but not enacted an appropriation of funds for the current fiscal period; provided, however, that in the event the Director of the Budget declares that it is necessary to deviate from this provision, he may do so after prior consultation with the joint Legislative Commission on Governmental Operations.

A literal reading of § 143-16.3 suggests that eleven specific line item appropriations included in the Senate or House budget bills, deleted from the final Appropriations Act but later funded from Reserve Funds, were "considered but not enacted" expenditures prohibited by the statute. The analysis is complicated by the Report's further conclusion that, in order to reconcile the budget debate, the funds in question were actually appropriated indirectly through Reserve Funds as a substitute for line item special appropriations.

Under these circumstances we cannot conclude that the process described by the Auditor clearly violated N.C.G.S. § 143-16.3. We acknowledge, however, that the process utilized likely contravenes the intent of the General Assembly in enacting the statute and recommend that appropriate clarifying amendments be considered.

RECOMMENDATIONS

• All state appropriations should be detailed by bills filed and approved through the General Assembly's Appropriations committees, or within substantive legislation, and then included in an Appropriations Act for approval.
• Emergency appropriation needs that fail to meet a bill-filing deadline should be presented to the Office of State Budget & Management for review and subsequent recommendation by professional staff or in public session through the Joint Legislative Committee on Governmental Operations prior to being included in the final budget.
• The General Assembly's Fiscal Research Division should modify legislative committee financial reports to improve disclosure of legislator-initiated appropriations.
• The Office of State Personnel should limit creation of state jobs to the request of the Office of the Governor through a recommended budget, the request of state agencies, or by an action of the General Assembly through the full appropriations process.
• State agencies of any kind which are asked to disburse money through a reserve fund, such as the Tobacco Trust Commission and Health and Wellness Commission, should institute a reporting system that requires performance and accounting standards at least yearly.

Very truly yours,

Roy Cooper