ATLANTA -- South Carolina's Supreme Court last week ruled that the state legislature acted legally when it used $25 million in gasoline taxes to repay Hurricane Hugo debts.
In a ruling written by Chief Justice David Walker Harwell, the court slapped down a lawsuit challenging the 1992 transfer to the state's general fund of money from a highway trust fund financed with the gasoline taxes.
Harwell said the transfer, which allowed repayment of a $33 million tax-exempt note issue sold in 1990 to cover damages from the 1989 storm, was justified because the South Carolina General Assembly has the "power to appropriate revenues as needed among legitimate government objectives. "
The lawsuit challenging the transfer was filed in Richland County Circuit Court in August 1992 by the South Carolina Policy Council, a Columbia-based foundation. As a result of the suit, Circuit Judge Henry McKellar issued a restraining order on Aug. 19 freezing the transfer of money from the highway fund. Less than a week later, however, another judge denied a request to extend the order.
In its lawsuit, the council charged that the diversion of the money from the state's Strategic Highway Plan for improving Mobility and Safety account was unconstitutional because the fund's purpose is limited to the financing of projects connected with economic development.
The suit also charged that because the transfer to the general fund was illegitimate, the fiscal 1993 budget remained unbalanced, and thus in violation of state law.
Despite last Tuesday's decision, Edward T. McMullen, president of the South Carolina Policy Council. said on Friday that his group would probably ask the court to reconsider its ruling.
"We're very surprised it found that the trust funds aren't sacrosanct, and think there is solid ground for a challenge," he said in an interview.
McMullen said that as a result of the ruling other dedicated state trust funds -- including those for education, tourism, and children -- are now vulnerable to raids from legislators in search of money for the general fund.
"What we have now is trust funds that are really slush funds, and that can be used for anything the legislature desires," he said. "This is wrong."
McMullen noted that in March 1992, state Attorney General Travis Medlock issued an opinion that it was conceivable a judge would uphold a challenge to use of the highway plan's money for anything other than its original purpose.
Rep. Billy Boan, D-Lancaster, a leader of the legislative effort in 1992 to transfer the funds, said he was "pleased and relieved by the ruling."
"The court has affirmed that the general assembly can set priorities for the use of there funds," Boan said in an interview.
House members led by Boan, who is chairman of the Ways and Means Committee, originally pushed to transfer $66 million from the highway plan's fund, but this was later reduced to $33 million in the face of opposition in the Senate.
Gov. Carroll A. Campbell "is comfortable with the ruling because there were unique circumstances that justified the transfer of the highway fund money," said Eddie Gunn, the governor's executive assistant for finance and administration.
"But as a matter of general policy," Gunn said, "Gov. Campbell is not in favor of violating the integrity of trust funds.
In his four-page ruling, Harwell said the state constitution merely requires the legislature to state the intended purpose of the tax. But it does not prohibit the legislature from subsequently amending the purposes of a tax levy and applying the proceeds to a different purpose.
The highway plan's fund, which was set up in 1987, was financed by a three-cent-a-gallon gasoline tax which generates about $70 million a year.
This year the legislature dissolved the highway plan's account, transferring the $150 million that had accumulated into the highway department's general fund.
Besides allowing the use of the $25 million to retire the Hugo debt, the General Assembly in 1992 also permitted about $9 million in interest on the highway plan's account to be diverted to the general fund.
