By Mitch Kokai, Carolina Journal

It was a bombshell that has yet to explode.

An attorney arguing recently before North Carolina’s highest court made a startling accusation. He accused the state’s attorney general of working with the governor’s budget officials to bypass government rules for spending taxpayer money.

The amount of money at issue represented just a small sliver of the state treasury. But the case could have implications for a larger fight involving more than $1 billion.

The attorney who raised the objection, Paul “Skip” Stam, represents the New Hanover County Board of Education in a lawsuit against A.G. Josh Stein. Stam is a former Republican leader in the N.C. House of Representatives. He’s also a board member for the John Locke Foundation, which oversees Carolina Journal.

The dispute between the school board and the attorney general focuses on Stein’s control of a particular pot of money. That money, up to $2 million per year, flows to state government from hog production giant Smithfield Foods and its subsidiaries.

The state Supreme Court already has rejected arguments that the money amounts to a penalty. With the “penalty” label, state law would have required the funds to head to public schools. Instead, funds from Smithfield have been treated as a gift to the state. Stein has used the “gifts” to fund an environmental grant program under his control.

In 2019, three years after the legal dispute over hog farm proceeds started, state lawmakers approved a law requiring that any “cash gift or donation” flow directly to the state treasury. Once there, the money should be subject to the General Assembly’s appropriations process. None of it should be spent until lawmakers approve a law allowing it.

During a Nov. 9 argument before the N.C. Supreme Court, Stam told justices that the disputed money in his case has been deposited in the state treasury since 2019.

What followed that statement should have raised eyebrows.

“Since we filed our brief, it’s now $6 million, but minus $1.2 million that the A.G. has somehow extracted from the treasury by inexplicable mechanism used through the Office of State Budget and Management,” Stam said.

“The attorney general has been taking that money out of the treasury,” Stam said. “The last I found out from OSBM, they’d already taken $1.2 million, which explains why in their early brief they said, ‘Well, it doesn’t matter who wins because we’re going to keep doing what we did anyway.'”

“I thought the treasury was like Fort Knox, and you had to have a key to get in, and the key was an appropriation bill,” he added. “But, apparently, OSBM and the attorney general have figured out another way in.”

In a court filing in the case, Stam contends Stein’s state Justice Department has been “requisitioning” funds, as evidenced by reports from the N.C. Department of State Treasury Banking Operation Section. Stam has heard no explanation for the requisitions. They do not appear tied to any legislation approved by the General Assembly over the last two years.

While Stein’s environmental grants won’t break the state’s bank, it’s the precedent that proves troubling. If an executive branch official can draw funds from the treasury without legislative authority in this case, it could open the door to similar actions in the future.

Of most immediate concern is the executive branch’s willingness to transfer $1.7 billion related to a recent court order for school funding. A retired Union County judge has called for that large chunk of money to be transferred from the treasury to the N.C. Department of Public Instruction, Department of Health and Human Services, and the University of North Carolina System. The money is tied to an $8 billion, multiyear school funding plan developed by a San Francisco-based consultant.

The governor, attorney general, State Board of Education, and plaintiffs in a 27-year-old court case all accept the plan. Their problem? The General Assembly has not endorsed it. Lawmakers had no substantive role in developing the plan. Nor have they approved a budget bill that would permit the spending.

That’s a constitutional problem. As recently as December 2020, the state Supreme Court ruled, 6-1, that legislators maintain control over state government spending.

“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,'” wrote Justice Sam “Jimmy” Ervin IV. “In light of this constitutional provision, ‘[t]he power of the purse is the exclusive prerogative of the General Assembly,’ with the origin of the appropriations clause dating back to the time that the original state constitution was ratified in 1776.”

“In drafting the appropriations clause, the framers sought to ensure that the people, through their elected representatives in the General Assembly, had full and exclusive control over the allocation of the state’s expenditures,” Ervin added.

“As a result, the appropriations clause ‘states in language no man can misunderstand that the legislative power is supreme over the public purse.’”

Plenty has changed since Ervin wrote those words 11 months ago. But officials in N.C. state government still cannot spend money over the legislature’s objections.

That’s why Stam’s recent bombshell should help explode any spending plans that attempt to bypass the General Assembly.

Mitch Kokai is senior political analyst for the John Locke Foundation.