Gov. Mike Easley and others violated the constitution in 2001 by intercepting $225 million headed for state pension funds to help cover a budget shortfall, a Superior Court judge ruled Wednesday.
Easley has defended taking the state's contributions to the pension funds, saying it was his legal duty to balance a budget that was off by $850 million. Some of the money was repaid by the end of the 2001, but $130 million wasn't returned.
Fourteen current and former state workers sued in June 2002, arguing that the decision hindered the financial soundness of the North Carolina Teachers' and State Employees' Retirement System. The transfer didn't delay any pension checks, but opponents worried it set a bad precedent and threatened future cost-of-living raises.
After hearing oral arguments in the class-action lawsuit in February, Superior Court Judge Joseph John agreed that the Easley administration and other state officials violated a state constitution provision requiring that retirement funds be used only for their intended purpose.
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"Our primary goal has been throughout this is to establish as a matter of law that this money is off limits to state government once its been appropriated" for pension funds, said Hardy Lewis, the employees' attorney.
But John rejected requests by the employees to force Easley to return the money he didn't return and permanently bar a governor from appropriating retirement funds for other purposes. Going that far may raise questions of separation of powers between branches of government.
The ruling could be appealed once it's final, possibly in a month or so. The Attorney General's Office said it will review the case once complete. Easley still believes his decisions, the result of a budget emergency, were justified, a spokeswoman said.
"North Carolina has one of the best funded pensions in America, and Gov. Easley will continue to make sure that every retiree gets the benefits that they have rightfully earned," spokeswoman Sherri Johnson said.
The General Assembly has made annual payments to the pension funds to replace the money that Easley took. A $30 million installment _ the fourth of five projected payments _ was included in this year's budget. There still could be $83 million outstanding when interest is included, Lewis said.
Other defendants included State Treasurer Richard Moore, controller Robert Powell and the state retirement system. John declined to force Moore, who runs the pension fund, to penalize the state for failing to hand over the withheld money, as required by law.
Dana Cope, executive director of the State Employees Association of North Carolina, whose group filed a similar lawsuit, said the legal fight isn't about Easley, with whom the group has had a strained relationship.
GOP Gov. Jim Martin also withheld pension money during a 1991 budget crisis.
"It's about establishing a precedent," Cope said.
The retirement systems overseen by Moore's office cover 700,000 active and retired state employees, teachers and local government employees, with assets of $70 billion. Public employees contribute up to 6 percent of their salaries to the retirement system, with the state often matching or even surpassing that amount over the years.
The state constitution says that retirement system funds "shall not be applied, diverted, loaned to, or used by the state, any state agency, state officer, public officer, or public employee."
The money in question was taken before being put into the pension plan.