John Locke Update / Research Brief

Appropriating the Atlantic Coast Pipeline

posted on in Economic Growth & Development, Economics & Environment, Energy & Environment, Fiscal Insight, Spending & Taxes
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If the governor directs where money goes and for what purpose, is it government spending?

That is just one of a number of questions that arose after Gov. Roy Cooper announced that Atlantic Coast Pipeline (ACP) and its utility partners had agreed, hours after it received regulatory clearance from the Division of Water Quality, to pay $57.8 million into an escrow fund for three purposes specified by the governor. The governor will choose the third-party institution that will hold the escrow account, and there is no indication the plan anticipates going through the normal appropriation process.

Gerry Cohen, former special counsel to the General Assembly, compared this arrangement to Golden LEAF, which provides grants to private organizations from the Master Settlement Agreement between tobacco companies and states. The money for Golden LEAF, however, is appropriated each year by the General Assembly, but Gov. Cooper hopes to have these funds held in a private institution outside the state treasury where he would direct its use through executive order.

Former House Majority Leader Skip Stam considers the payment a fine that should go to public schools according to the state constitution. That may be accurate, even though only a portion of the payment is based on anticipated harms to the environment, with the rest dedicated to economic development and renewable energy projects. Even those funds for the environment are aimed at mitigation and are not considered a penalty. Stam also calls it an “exaction,” which is more like an impact fee than a fine for wrongdoing. If it is a fee instead of a fine, then there is no requirement for the money to go to education.

The agreement also does its best to avoid another section of the N.C. Constitution.  Article V, Section 7 states, “No money shall be drawn from the State treasury but in consequence of appropriations made by law,” that is, by the General Assembly in the state budget. There is also a statutory requirement specifying that the governor must submit his proposed spending plan or revisions to the existing plan to the General Assembly, not by an executive order.

Although the agreement declares, “Nothing in this Memorandum shall be construed as affecting the authorities of any party,” the money trail specifically avoids the normal appropriations process both in the creation of an escrow account and in directing the money through executive order instead of state budget appropriations.

Gov. Cooper is no stranger to overstepping his bounds in directing money from legal agreements, as with North Carolina’s portion of a 2015 multi-state settlement with Standard and Poor’s overinflated mortgage ratings. In that case, as Attorney General, he gave his ideas about how the state should use the $21.5 million payment.

Perhaps the most direct analogy is Gov. Mike Easley’s 2001 attempt, with the General Assembly’s blessing, to shore up the General Fund with $225 million intended for the Teachers and State Employees Retirement System despite prohibitions against misappropriating pension funds. The courts eventually agreed with state employees that the move violated both state and federal constitutions and ordered the funds be repaid.

What gives this agreement between Gov. Cooper and the companies involved in the ACP its particular aroma is its timing. Fridays are widely recognized as the day to dump bad or controversial news, so the Department of Environmental Quality announced approval of the pipeline for water quality regulations. Only later in the day did the Governor’s Office make known its agreement with ACP. Did the pipeline companies agree to pay $57.8 million under threat that they would not get regulatory approval without the payment? Was it a more amicable market transaction that left both parties pleased with the outcome? The digital trail of communications will be interesting to see.

Joe Coletti is Director of Oversight Staff for the NC House Majority. Joe is a former Senior Fellow at Locke. Here, he examined fiscal and tax policy. He previously headed the North Carolina Government Efficiency and Reform initiative… ...

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