A split decision of the North Carolina Court of Appeals to reroute millions of dollars funneled to environmental enhancement projects to the state treasury rules where the money will go, not how or by whom it is to be disbursed.
The court’s decision filed Dec. 15 on where money Smithfield Foods, Inc. pays each year to the state as part of a settlement agreement “leaves a bunch of little things unclear,” said Mary Maclean Asbill, a senior attorney with the Southern Environmental Law Center, or SELC.
The opinion didn’t elaborate,” she said. “It simply said the monies have to be paid into the state treasury or the general fund. It’s not just like tax money or bond money that might go into the general fund. It’s money paid through a specific contract between Smithfield and the attorney general.”
That contract is known as the Smithfield Agreement, the result of a settlement in 2000 between then-Attorney General Mike Easley and the pork giant made in the wake of massive hog lagoon spills responsible for releasing millions of gallons of hog waste into public waterways.
As part of the arrangement, Smithfield and its subsidiaries agreed to pay up to $2 million each year for 25 years to a savings account where the money is held until it is distributed by the attorney general to projects designed to enhance the environment.
After now-Gov. Roy Cooper took the office of attorney general in 2001 he established the Environmental Enhancement Grant, or EEG, Program, which disburses the funds collected under the agreement to nonprofit organizations, academic institutions and government entities for the purposes of conserving, preserving and restoring the state’s environmental and natural resources.
Francis De Luca, former president of Civitas Institute, a Raleigh-based conservative policy organization, filed a complaint in October 2016 alleging the payments made as part of the agreement were civil penalties and, per the state Constitution, the funds should go to county schools. De Luca added the New Hanover County Board of Education as party plaintiff in early 2017.
Since then De Luca removed himself from the case, one that has bounced from court to court and could very well end up back in the state’s highest court.
The latest ruling in this case by the Court of Appeals reverses the state Supreme Court’s April 2020 ruling. The court — one judge dissented — ruled in favor of the attorney general’s office on the grounds that under the Smithfield Agreement the payments did not constitute penalties.
Two of the three appellate court judges reversed that ruling, saying that a law signed by Cooper in 2019 applies to present and future funds paid under the agreement and that the law mandates those funds be deposited into the treasury.
Judge Philip Berger Jr. concurred with Judge John Tyson that the date N.C. General Statute 147-76.1 was signed into law, which was the day before the case was argued in Supreme Court, applies to funds collected through the agreement.
“Our courts have held, ‘[t]he general rule is an appellate court must apply the law in effect at the time it renders its decision,’” the ruling states.
In a separate opinion, dissenting Judge Wanda Bryant concludes, “It is premature for this Court to rule on such a claim before a trial court has done so.”
“In short, neither the trial court, this Court, nor our Supreme Court initially addressed this issue,” she wrote.
Her dissent means that Attorney General Josh Stein can file to have the case sent back to the Supreme Court.
Laura Brewer, the office’s communications director, wrote in an email, “Our office is reviewing the decision.”
“The attorney general’s office, like us, are still digesting it,” Asbill said. “We agreed to circle back after the holiday and figure out our path forward to ensure these funds are used for environmental enhancement.”
The SELC is representing the North Carolina Coastal Federation and Sound Rivers Inc., which joined the case in 2017 in support of the attorney general.
These nonprofit environmental groups are among dozens of organizations that have over the years received grants through the EEG Program.
More than $25 million has been dispersed to more than 100 projects since the program began, according to the attorney general’s website.
Each year, applications submitted for a shot at a grant are reviewed by a panel consisting of representatives from the state’s Department of Justice, Department of Environmental Quality, Department of Natural and Cultural Resources, academic institutions, and conservation-focused nonprofits. That panel recommends to the attorney general which projects to approve.
Grants are awarded between $5,000 up to $500,000.
Grantees must complete projects within three years of receiving an EEG.
In order to qualify for a grant, a project has to meet the goals of the Smithfield Agreement, which includes wetland restoration, land acquisition, stormwater remediation, and restoring and protecting degraded surface waters.
Applications for projects are taken from areas throughout the state, but the attorney general’s office notes, “consistent with the Smithfield Agreement, priority will be given to projects that directly improve the water quality in the Cape Fear, Lumber, Neuse, Tar-Pamlico, and White Oak River Basin.”
Since the program launched, 240 inactive hog lagoons have been closed and more than 23,000 acres of land and wildlife habitats have been restored or conserved. Grants have also been awarded to environmental education and research initiatives.
In 2020, Stein distributed more than $3.5 million to 27 grantees.
Last October, his office announced nearly $3 million will be awarded to 22 grantees.
Projects that will receive funding — more than $540,000 — in the latest round of grants include those designed to protect and enhance the environment in Bladen, New Hanover, Pender and Robeson counties. Another $339,000 is being awarded to projects in Western North Carolina.
Two state-wide research projects will also receive grants. A little more than $100,000 will go to the University of North Carolina Charlotte to research whether per- and polyfluoroalkyl substances, or PFAS, enter surface, groundwater and soil through biosolid land application.
Waterkeepers North Carolina is getting $188,000 to research microplastic pollution in 30 streams and rivers.
And the money goes to …
The state statute signed into law in 2019 “mandates the location and depository where the public money is to be deposited and held,” Tyson wrote.
Funds collected through the agreement – no more than $2 million a year, or $1 per hog in the state – must go into the treasury rather than a private bank account “under the exclusive control and discretion of the Attorney General.”
The ruling changes where the money should be held, but it does not alter the terms of the agreement, a point Tyson addresses.
“The stated purpose of the public funds being used for environmental purposes was not changed by the statute,” he wrote.
Still, the decision leaves room for debate as to which organizations and entities are eligible to receive the funds.
Paul “Skip” Stam, lead attorney for the plaintiff, did not return a call seeking comment.
Stam told Carolina Journal, “The way you can maintain the purpose of the gift for environmental enhancement, and also use it for public schools, would be if the Assembly were to appropriate this for environmental enhancement at public schools,” according to Dec. 16 article.
The court’s opinion dictates only that the money go to the treasury, Asbill said. It does not reclassify the money.
“The part of the agreement that is at issue here is about the monies that are paid,” she said. “It’s the nature of the money that would make it belong to the school system. It’s only fines and forfeitures and penalties that would be distributed to the schools.”