Constitutional – Environmental Enhancement Grants Program – North Carolina Constitution

Environmental Enhancement Grants (EEG) funds from Smithfield Foods must be used for environmental enhancement per the 2000 agreement, not exclusively for public schools, and the trial court exceeded its authority in ordering otherwise.

The Court of Appeals reversed the trial court’s judgment and remanded for entry of summary judgment in favor of the Defendants.

This appeal concerned a challenge to North Carolina’s EEG Program, created under a 2000 agreement between the Attorney General and Smithfield Foods. Plaintiff, on behalf of the Randolph County Board of Education, argued that funds paid by Smithfield under the agreement were being unconstitutionally diverted and should be used exclusively for public schools. The trial court granted summary judgment to Plaintiff , declaring that all EEG funds received after July 1, 2019 must be used for public school environmental enhancement. Defendants, the Attorney General, State Controller, and Governor, appealed.

Plaintiff filed suit in Randolph County Superior Court in 2023, asserting declaratory judgment claims against state officials. Defendants moved to dismiss or transfer the case, which the court transferred to Wake County. Plaintiff dismissed claims against the Chief Financial Officer at the Department of Justice and an Office of State Budget and Management employee. After motions for summary judgment were filed, the court denied Defendants’ motion and ruled in favor of Plaintiff.

In the 1990s, hog waste lagoons in eastern North Carolina repeatedly overflowed, causing environmental harm. In response, the Attorney General and Smithfield Foods entered a 2000 agreement requiring Smithfield to commit $50 million to environmental enhancement, paid annually over 25 years. The Attorney General created the EEG Program to distribute these funds for environmental projects, including wetlands restoration, water quality improvement, and habitat conservation. Between 2000 and 2016, over $25 million in grants were awarded under the program.

The New Hanover County Board of Education previously challenged the EEG Program, claiming Smithfield’s payments were civil penalties that must be deposited into the Civil Penalty and Forfeiture Fund for public schools. The North Carolina Supreme Court rejected that claim, holding the payments were not penalties. Later, the General Assembly enacted statutes specifying that cash gifts must be used according to their terms. Smithfield’s payments were deposited into a designated Treasury fund (23606-2204) for environmental enhancement.

On appeal, Defendants argued the trial court erred by granting summary judgment to Plaintiff, contending he lacked standing and that the funds were properly appropriated under the agreement and state law.

The Court of Appeals found Plaintiff had standing as a taxpayer acting on behalf of the school board. However, the court concluded that the trial court erred in holding the EEG funds for 2019-25 must be used exclusively for public schools. The civil penalty and gift clauses of the North Carolina Constitution did not apply because the payments were directed to environmental purposes under the terms of the 2000 agreement. Similarly, the appropriations clause did not require redirection to schools. The court also clarified the trial court’s order could not extend to future funds beyond fiscal years 2024-25.

Reversed and remanded.

Randolph County Board of Education v. Stein (Lawyers Weekly No. 011-009-26, 21 pp.) (Allegra Collins, J.) Appealed from Wake County Superior Court (A. Graham Shirley, II, J.) Davis Hartman Wright, LLP, by R. Daniel Gibson, and Stam Law Firm, PLLC, by Paul Stam, for Plaintiff-Appellee. Attorney General Jeff Jackson, by Deputy Solicitor General James W. Doggett, Special Deputy Attorney General Matthew Tulchin, and Special Deputy Attorney General Laura H. McHenry, for Defendants-Appellants. North Carolina Court of Appeals