Governor should manage transportation department, treasurer says

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RALEIGH — The N.C. Department of Transportation shouldn’t manage its own finances, N.C. Treasurer Dale Folwell says.

The transportation department overspent by about $2 billion, and Folwell is calling for a shakeup in department management. He wants the governor to sack N.C. Transportation Secretary James Trogdon and strip financial management from the DOT. The N.C. Office of State Budget and Management should take over the DOT’s finances, he suggested.

“The DOT was speeding; it was spending money too quickly. When they were told they were speeding, they didn’t slow down,” Folwell said Tuesday, Nov. 5, in his monthly “Ask Me Anything” teleconference. “The result of that is that taxpayers, road contracts, and the roads themselves are harmed by this lack of accountability and cash management.”

The treasurer and the secretary are arguing over what blew a roughly $2-billion hole in the DOT’s 2019 budget — shoddy management, or a perfect storm of hurricanes and lawsuits.

Under state law, NCDOT must keep at least 7.5% of its revenue in the bank. That’s roughly $282 million, according to a report commissioned by the OSBM. In the past decade, the department’s cash reserves never dipped that low. They hovered above $1 billion until 2018, when the legislature approved the Build N.C. bonds.

The legislature allowed the DOT to borrow $300 million each year for the next decade — but the department can only access the Build N.C. bonds if it has less than $1 billion in “average month-end cash balance for the first three months in the calendar year.”

The department’s cash reserves plunged to $432 million in September. The department did, however, get an additional $900 million in bonds between March and June of this year.

Folwell says DOT embarked on an irresponsible spending frenzy and landed itself in a mess. The DOT blames natural disasters and unexpected developments in the litigation over the state’s repealed Map Act, which let the NCDOT grab private land mapped for future roads.

In July 2018, a judge blocked the DOT from taking property without a court decision. The decision spurred the DOT to settle as many cases as possible. In the previous five years, the DOT had settled some five cases. After the ruling, that number jumped toward 400 cases, Trogdon said.

“That meant a lot of projects were going to be stalled,” Trogdon told Carolina Journal. “The only way we could get closure on lots of those cases was to settle. Waiting for the court case process to play out was not helpful for anyone in the state.”

But settling hundreds of cases racked up costs the department failed to foresee, Trogdon said. With the unexpected natural disasters, the lawsuits drained the department’s budget.

But the report doesn’t seem to tally with that theory, says Joe Coletti, John Locke Foundation senior fellow.

The report shows a large, nearly uniform jump in spending in every division of the DOT. Disasters accounted for $246 million, but the “culture of cash” also racked up $262 million in overspending.

The report identified a push to overspend, saying that “after recent pressure to reduce cash balances, divisions uniformly overspent.” Coletti blames the overspending on the department’s desire to qualify for the Build N.C. bonds.

“It was a deliberate attempt to spend down and not worry about the repercussions,” Coletti said. “They didn’t worry about cash. They looked for how to spend.”

Trogdon called the report a “snapshot” that can’t accurately account for the long-term nature of DOT spending.

Part of that overspending included $1.1 billion in loans from the Highway Trust Fund to the Highway Fund between April 2018 to April 2019. The department effectively shifted money meant for construction to the fund for maintenance.

Folwell is calling the loans unprecedented, arguing the department hasn’t taken out loans from the HTF for more than 10 years. He says he never approved the loans from the HTF, as required by statute.

“The governor needs to manage his DOT,” Folwell said. “The people who build the roads need to be world-class at what they do, but the people who control the [finances] need to be in a separate department under the governor called Office of State Budget and Management.”

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