by Jon Guze
Senior Fellow, Legal Studies, John Locke Foundation
As Carolina Journal readers know, North Carolina Republicans have raised objections to Gov. Cooper’s Atlantic Cost Pipeline fund.
One of their objections is that Cooper effectively forced the pipeline operators to contribute to the fund as a condition for permit approval. Such extortive “pay-to-play” schemes, they claim, violate federal anti-corruption laws. They also object to the fact that the deal Cooper made with the pipeline operators gives his administration, rather than the General Assembly, the power to decide how the money is spent. The Republicans suggest that this violates the North Carolina Constitution, which grants the legislature exclusive power to appropriate revenue.
Pay-to-play schemes, like the one under scrutiny in North Carolina, aren’t the only way a state can extort funds from private businesses. Lawsuits filed by state attorneys general are an equally effective tool. Both approaches have become commonplace across the country and so have squabbles over who gets to spend the money.
Last month, for example, the Metro News reported a dispute over a bill requiring the West Virginia attorney general to deposit all lawsuit settlement proceeds in the state’s general revenue fund.
“Whatever money is recovered on behalf of the taxpayers of the state should come to this body for expenditure for the citizens of this state,” said Delegate Matthew Rohrbach, R-Cabell, the sponsor of the bill. “It shouldn’t be used by any attorney general for political purposes or self-aggrandizement.”
The issue heated up … this fall after Attorney General Patrick Morrisey announced his office was transferring $1 million to the State Police to hire staff for the crime lab to help clear a case backlog. Questions arose about whether the Attorney General has the authority to appropriate state funds to another agency. …
Morrisey’s office … expressed concern that the proposal would suppress state agencies’ motivations to file suits to recover damages when they are harmed if those wouldn’t receive money from their efforts. [Emphasis added.]
Last week, the Associated Press reported that a similar controversy had arisen in Minnesota:
Republican lawmakers are questioning the structure of an $850 million settlement between the state of Minnesota and 3M Co. that leaves them out of how the money is spent.
3M agreed to pay the money last month, resolving a massive lawsuit alleging damages to natural resources and groundwater in the Twin Cities’ east metro. …
The 11-page agreement between the state and 3M makes clear the “grant” from 3M won’t go to Minnesota’s general fund, but will stay in a remediation fund managed by state agencies and overseen by Hennepin County District Court. …
Republican state Reps. Pat Garofalo of Farmington and Steve Drazkowski of Mazeppa said the state constitution requires legislators to appropriate all money the state spends, yet the court-authorized settlement locks out the Legislature.
“I think we need to take a much deeper exploration,” Drazkowski said. “This does not seem to be consistent with our constitution.”
According to the AP report:
When the settlement was announced in February, Swanson noted it was designed so that the money would specifically target clean-water efforts in the east metro. …
“Minnesota learned a lesson from the tobacco trial, where the settlement money never compensated the victims. Instead, much of the money was sidetracked by the legislature to sell bonds to balance the budget. [Emphasis added.]
In 2011, the state borrowed hundreds of millions of dollars against money from the 1998 tobacco settlement to close a budget gap. Critics then said it was diverting money away from intended programs.
As I have indicated by the use of emphasized text above, there’s an important lesson imbedded in each of these stories.
The lesson embedded in the Minnesota story is that, while enforcing state constitutional requirements regarding the appropriation of funds is all very well, simply transferring control over “extorted” funds from executive branch officers to state legislatures won’t ensure that those funds are used wisely. Easy money often leads to easy virtue no matter who gets to spend it.
The lesson embedded in the West Virginia story is even more important. The biggest problem in all such cases isn’t how the money gets spent; it’s how the money gets raised. Regardless of whether the state demands payment in exchange for permits and other favors or as a settlement in a lawsuit, allowing the state to extort money from private businesses perverts the relationship between the government and the public by turning the former into a predator and the latter into its prey. Predatory government is incompatible with a free society and ultimately leads to ruin: just ask the people of Detroit or Argentina.