Judge: State owes schools $748 million

A Wake County judge has just set one of the issues that the next governor and General Assembly will have to address. They'll have the job of figuring out how to come up with nearly three-quarters of a billion dollars for a schools technology fund.

That means gubernatorial candidates Bev Perdue and Pat McCrory should start thinking about how to pay the bill. They didn't create the problem, but one of them will be partly responsible for fixing it.

Superior Court Judge Howard Manning ruled that state agencies owe about $747 million to the state Civil Penalty and Forfeiture Fund. The legislature set up that fund in 1997 to receive the fines and other penalties that state agencies receive for violations of laws and regulations such as parking fines and environmental discharges. The state Constitution directs that fines and penalties must go to schools, but some state agencies were not sending them there. In 1996, Craven County schools sued and won a state Supreme Court ruling that the proceeds must go to schools. The legislature then set up a Civil Penalty and Forfeiture Fund to receive the money and directed that it be paid on a per-capita basis to schools expressly for technology. A 2005 state constitutional amendment reaffirmed that the money must go to schools. The Supreme Court ruled that same year that fines and penalties collected from 1997 to 2005 must be repaid to schools.

The question for Judge Manning was not whether the proceeds go to schools, but how much money the state would have to repay. Both the state and the N.C. School Boards Association ultimately agreed on $768 million; Judge Manning ruled that agencies were entitled to keep part of it as the cost of collecting the fines, but that state agencies owed hundreds of millions to schools. Among the debtors are the N.C. Department of Revenue, $583 million; the Department of Transportation, $104 million; UNC system campuses, $42.4 million; and Employment Security Commission, $18 million.

This is getting to be something of a habit in North Carolina. Courts on several occasions in the last decade have had to prod the state to repay money it diverted from its proper use and spent for other purposes. What's surprising in this case is that the state seemed reluctant to repay what clearly belongs to the schools.

The schools were willing to settle for less, paid over a multi-year period, than Judge Manning has ordered. No one knows how much less, but it's not unreasonable to think it might have been half, maybe even one-third.

Unless the legislature simply ignores Judge Manning's order – an outcome the legislature shouldn't contemplate – the state faces repaying the full amount at a time when tax collections are slowing and the economy is iffy. The state would have been far wiser to recognize the opportunity for a good deal instead of holding out to the bitter end – and trying to come up with hundreds of millions of dollars that taxpayers ultimately will have to pay.