Perdue and Previous Budget Writers Raided Disaster Relief Funds

As one of the most devastating hurricanes in nearly a decade slammed the Carolina coast, few were aware that Gov. Bev Perdue, former Gov. Mike Easley, and the former legislative leadership had raided $65 million from North Carolina’s Disaster Relief Reserve Fund over the past three years. The aggressive seizure of this designated pot of money left the Fund virtually empty and unable to respond to those impacted by the storms.

As the clean up from the destruction wrought by Hurricane Irene in late August continues, victims may be shocked to learn that the state’s disaster relief funding was largely drained by elected officials in several short-sighted attempts to avoid sensible reductions in state government.

During a recent Senate Select Committee on Emergency Preparedness and Response meeting, government officials said the state’s Disaster Relief and Reserve Fund currently stands at only $4 million. With estimates for the state’s cost of Hurricane Irene relief and cleanup coming in at between $30 million and $50 million over the next three years, state lawmakers now must scramble to find scarce taxpayer dollars to make up for the monies raided from the disaster relief fund.

If not for Perdue’s and others shortsighted seizure of the state’s fund designated for disaster relief over the last three years, however, there would be ample funding available for recovery efforts.

North Carolina’s Disaster Relief Reserve Fund was created in 1996, with the stated purpose to “provide necessary and appropriate relief and assistance from the effects of natural disasters.” As recently as fall of 2008 it carried a balance of $97 million. During the last three years, however, the majority of that balance was used, not for assistance and relief for natural disasters, but to help Governors Easley and Perdue as well as the General Assembly leadership minimize state budget reductions and keep government running closer to current levels. Raiding the Disaster Relief Fund was an act of political expediency.

Documents obtained from Fiscal Research and the state Controller’s Office reveal that budget writers raided a total of $65 million from the Disaster Relief Reserve Fund for reasons clearly outside the Fund’s designated purpose.

The first such transfer was authorized in the FY 2008-09 state budget. The onset of the economic recession and the resulting dip in revenue had state budget writers in a panic. In order to avoid making long-overdue and sensible reductions to the rapidly expanding state budget – and to avoid any actions that may alienate a core fundraising base of state employees – state budget writers raided several state trust funds for millions of dollars to transfer to general operation expenditures. The largest of those transfers was $26 million from the Disaster Relief Reserve Fund.

But Perdue was not yet satisfied. Just before the end of the 2008-09 fiscal year, new governor Perdue ransacked another $9 million from the Disaster Relief Reserve Fund on June 24, 2009 to help balance the budget while limiting any spending reductions.

The remaining $30 million transfer from the Fund took place in early 2011 and marked yet another case of Perdue favoring her pet interest groups at the expense of future disaster victims. As the FY 2010-11 state budget was being finalized, state lawmakers were still unsure about hundreds of millions of federal Medicaid dollars they were hoping to receive as an extension of a Medicaid assistance program established by the federal stimulus program. The additional Medicaid funding to the states was set to expire on Dec. 31, 2010, in the middle of most state’s budget year – including North Carolina’s. Most state lawmakers were hopeful the federal government would approve an extension of this funding, but prepared alternative measures in the event the funding didn’t materialize.

In North Carolina, this alternative plan included finding more than $518 million in funds to cover the shortfall of desired federal Medicaid funds. Included in this contingency plan was a $177 million management flexibility reduction, which would instruct most state agency heads to find a reduction of one percent in their budgets. Also included was a $139 million reduction in the annual taxpayer contribution to the state employee pension fund. Other sources for this backup plan incorporated unused lottery prize money, funds from the state’s “rainy day” fund, and $30 million from the Disaster Relief Reserve Fund.

In the end, Congress passed a resolution to extend the federal Medicaid funds to the states, but at a lower rate than anticipated. Thus, North Carolina only needed to dip into a small share of the funds included in their contingency plan. But this process of selecting which funds to use reveals the priorities of Gov. Perdue’s administration. Of eight different pots of money identified in the backup plan, the Disaster Relief Reserve Fund was one of only three funding streams which were fully tapped according to the original plan. Perdue (through her budget director) made a conscious decision to dip very lightly into other funding sources. Of particular note, only $56 million out of a total $316 million in the state retirement contribution reductions and management flexibility reductions included in the original plan were implemented.

In other words, Perdue selectively spared state workers from any significant sacrifice by draining $30 million of the $37 million remaining in the Disaster Relief Fund at the time.

During the budget deficit problems of the last few years, Gov. Perdue and the former General Assembly leadership were loudly criticized for the short-sighted nature of their actions to balance the state budget. Heavy reliance on temporary taxes and federal “stimulus” funding, along with raiding trust funds established for specific purposes, showed a lack of fiscal discipline and an inability to sensibly adjust the size of the state budget. Now we learn, in the wake of a devastating natural disaster, that state leaders like Gov. Perdue shamelessly even raided much-needed funding for disaster victims. The Governor’s actions, along with those of the former General Assembly leadership and Gov. Easley, speak volumes about what and who they consider to be the highest priority. Their unwillingness to curb government growth may cause the storm victims to suffer a second time.