North Carolina School Boards Ass'n v. Moore

Citations: 614 S.E.2d 504; 359 N.C. 474; 2005 N.C. LEXIS 694Docket: 569A03

Court: Supreme Court of North Carolina; July 1, 2005; North Carolina; State Supreme Court

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The case involves the North Carolina School Boards Association and multiple county boards of education suing various state officials, including the State Treasurer, State Controller, State Budget Officer, and others, all in their official capacities. The matter was heard by the Supreme Court of North Carolina on July 1, 2005, under case number 569A03. Legal representation for the plaintiffs included Tharrington Smith, L.L.P. and Roberts. Stevens, P.A., while the defendants were represented by the Attorney General's office, among others. Additionally, several professional licensing boards acted as amici curiae, offering support to the defendants. The extensive list of parties reflects the comprehensive nature of the legal challenge, indicating significant implications for education and state governance in North Carolina.

The Court is examining the implementation of Article IX, Section 7 of the North Carolina Constitution, which mandates that funds related to county school systems, including penalties and forfeitures, be dedicated exclusively to maintaining free public schools. Key issues include whether certain payments to state agencies are being improperly diverted to the General Fund instead of being allocated to local counties, the applicability of Article IX, Section 7 to funds from environmental violators for Supplemental Environmental Projects, and the constitutionality of a statutory scheme directing civil penalty proceeds to the State Civil Penalty and Forfeiture Fund rather than to the counties where collected. Additionally, the Court is considering whether civil penalties levied on local school systems should be returned to them. 

The North Carolina School Boards Association and several county school boards initiated this legal action in December 1998, seeking summary judgment on these issues. The trial court ruled in favor of the plaintiffs in December 2001, but the defendants appealed. The Court of Appeals affirmed some aspects while reversing others, specifically rejecting the trial court’s view that the General Assembly's distribution plan for these funds was unconstitutional. It concluded that Article IX, Section 7 is not self-executing and requires legislative action for enforcement, which the General Assembly has fulfilled through the enactment of specific statutes that align with the constitutional intent.

The Court of Appeals upheld the trial court's decision that certain payments to state agencies must be distributed to public schools under Article IX, Section 7, specifically affirming payments from the Department of Transportation for overweight vehicle fees and lapses in insurance coverage. However, the court reversed the trial court's ruling on several other payments, determining they are not subject to Article IX, Section 7. These include payments for tax compliance failures, unemployment insurance contributions, traffic and parking violations at university campuses, library material issues, unauthorized substance dealings, and licensing non-compliance. The court's analysis classified payments as either punitive, which benefit public schools, or remedial, which remain with the collecting agency. Additionally, the court addressed whether payments by environmental violators for Supplemental Environmental Projects (SEPs) in lieu of civil penalties were subject to Article IX, Section 7. Citing precedent, the court ruled that such payments are punitive and thus must be allocated to public schools.

The Court of Appeals addressed the handling of civil penalties paid by local public school systems to state agencies, affirming that such payments fall under Article IX, Section 7. The court determined that funds paid as civil penalties should not be returned to the schools, citing public policy that prohibits a wrongdoer from benefiting from their misconduct. Consequently, these penalties must remain with the collecting state agency.

The court also upheld the trial court's application of a three-year statute of limitations, as stated in N.C.G.S. 1-52, for claims related to penalties already collected, rejecting the defendants' argument for a one-year limitation under N.C.G.S. 1-54(2). The dissenting judge agreed with the classification of penalties as remedial or punitive but contended that specific vehicle weight penalties should be considered remedial and thus not allocated to public schools, as they serve to compensate the state for roadway damage. The dissent also suggested that penalties from school boards should go to the Civil Penalty Fund as per Article IX, Section 7, while advocating for a similar analysis of payments made by other entities. Notably, the defendants did not challenge the three-year statute of limitations, effectively abandoning that argument for appellate consideration.

Plaintiffs and defendants contest certain determinations made by the Court of Appeals regarding payments to state agencies and their classification under Article IX, Section 7. Both parties agree on the governing precedent but differ in its application. Plaintiffs assert that civil penalties for violating state penal laws are punitive and should be directed to public schools. In contrast, defendants contend that penalties meant to compensate the state for losses beyond normal operating costs do not fall under Article IX, Section 7.

The case Mussallam v. Mussallam established two categories of funds under Article IX, Section 7: (1) all penalties and forfeitures accruing to the state, and (2) fines for breaches of criminal laws, which must be used for school purposes. The court clarified that "penal laws" refer to laws imposing monetary payments for violations, which are punitive and not compensatory. The court found that monetary payments classified as penal accrue to the state irrespective of their designation as penalties, forfeitures, or fines or whether the proceedings are civil or criminal. The court ruled that a forfeited civil appearance bond intended to punish non-appearance fell within the first category and rejected the plaintiff’s claim to the proceeds, emphasizing that the distinction hinges on whether the penalty is punitive or compensatory.

In *State ex rel. Thornburg v. House, Lot*, the North Carolina Supreme Court addressed the handling of proceeds from the sale of a house forfeited under the state's RICO Act. It clarified that constitutional provisions regarding penalties and forfeitures apply only to those accruing to the state, allowing a private company to sue for violations under the statute. The court distinguished between two previous cases: in *Katzenstein*, it was established that suits for penalties could be made by private entities, while in *Hodge*, the statute required actions to be taken in the name of the State. The court emphasized that proceeds from RICO forfeitures must be directed to the public school fund and that all sales of forfeited property must yield proceeds to the State Treasurer. Although prior decisions suggested that the terminology surrounding fines and penalties was not crucial, this language was relevant when assessing whether an assessment was a fine or penalty in various legal contexts. The court reiterated that the label applied to a payment (fine or restitution) does not determine its nature; rather, it is the substantive context that matters, particularly regarding damages incurred by state or local agencies. The court ruled that conditions imposed in a suspended sentence cannot include financial obligations for law enforcement.

The trial court must ascertain whether a payment qualifies as restitution, requiring evidence that it compensates an aggrieved party for damages; otherwise, it is governed by Article IX, Section 7. The terminology used by legislative bodies or judges does not dictate the legal interpretation, as determining legislative intent relies primarily on the statute's plain language. The critical determination hinges on whether a "civil penalty" serves a punitive or remedial purpose, with "remedial" defined as providing a remedy. This assessment necessitates a review of the specific statutory penalties in question.

In the case at hand, payments collected by the Department of Revenue for late filings, underpayments, and noncompliance with North Carolina tax provisions are asserted by plaintiffs to be incorrectly deemed outside Article IX, Section 7 by the Court of Appeals. The Court of Appeals improperly referenced federal case law concerning the Fifth and Eighth Amendments, which classified tax additions as remedial. However, state statute interpretation does not align with federal interpretations. The state's statutes use the term 'penalties' for payments related to tax noncompliance, indicating a punitive intention rather than a remedial one.

N.C.G.S. 105-163.8(a) establishes that withholding agents who fail to withhold or pay required income taxes are subject to penalties outlined in Article 9 of the relevant chapter. N.C.G.S. 105-163.15(a) mandates the Secretary to assess penalties for individuals underpaying estimated taxes, calculated at the applicable annual rate on the underpayment period. N.C.G.S. 105-163.41(a) specifies that corporations underpaying estimated taxes must face additional tax penalties. N.C.G.S. 105-236 details various penalties, including a 5% penalty for failure to file a return (increasing monthly to a maximum of 25%), a 10% penalty for failure to pay tax due (minimum of $5), a 10% penalty for negligent non-compliance, and a 50% penalty for fraud-related deficiencies. Defendants argue that penalties under N.C.G.S. 105-236 are classified as 'additional tax' and include penalties and interest, referencing federal cases related to Helvering v. Mitchell. However, the court remains unconvinced that treating penalties as additional taxes indicates they are remedial. N.C.G.S. 105-241.1(a) requires the Secretary to notify taxpayers of any tax due and the basis for assessments, distinguishing between the principal tax, interest, and penalties for assessment and collection purposes, supported by the precedent set in Holt v. Lynch.

Defendants' reliance on Mitchell to argue that penalties are intended to safeguard government revenue and reimburse investigation costs is rejected. Interest on late tax payments serves to compensate for the loss of use of funds during delinquency. Article IX, Section 7 allows retention of collection costs up to 10% of penalties collected. In Shore v. Edmisten, the court ruled that general investigation and prosecution costs cannot be deemed 'remedial' under Article IX, Section 7, clarifying that restitution is only justified for specific damages beyond normal operating costs. Consequently, penalties under Chapter 105 are deemed payments for tax noncompliance and are subject to Article IX, Section 7.

Regarding the Unauthorized Substances Excise Tax, plaintiffs argue the Court of Appeals incorrectly ruled that collected funds were not mandated for public schools under Article IX, Section 7. This excise tax applies to controlled substances and illicit liquor, with varying rates based on the substance. Dealers must pay the tax within 48 hours of receipt and receive a revenue stamp to signify payment. Importantly, dealers' identities remain confidential, and information gathered cannot be used for criminal prosecution, except for violations of Article 2D. Once paid, no additional tax is owed on the same substance even if handled by other dealers. The Secretary of Revenue is authorized to impose penalties and interest for late payments of the excise tax.

Plaintiffs assert that, under the Court's interpretation of 'penal laws' in Mussallam, the tax in question constitutes a penalty as defined by Article IX, Section 7. They reference criteria from Dep't of Revenue v. Kurth Ranch and Lynn v. West to evaluate whether the tax is punitive in nature. The Court disagrees, clarifying that Article 2D's purpose is to levy an excise tax for revenue generation for law enforcement and the General Fund, and does not grant immunity from criminal prosecution for illegal substance possession. A prior ruling on the North Carolina Controlled Substance Tax established that this tax is not a penalty and does not preclude criminal prosecution under the Double Jeopardy Clause. The Court of Appeals previously determined that this tax lacks the 'unusual features' deemed significant by the Supreme Court in Kurth Ranch, noting it does not require arrests nor is it levied on confiscated property. The tax is characterized as a remedial measure to ensure taxation on illicit drug activities. The Court reaffirms that the unauthorized substances tax is not a penalty as defined by Article IX, Section 7, while acknowledging that penalties for late payments are treated as penalties and allocated to public school systems in accordance with the same article.

Monies collected by the Board of Trustees of the Consolidated University of North Carolina Campuses for traffic and parking violations, as governed by N.C.G.S. 116-44.4(h), are contested regarding their allocation to the Civil Penalty Fund. The plaintiffs argue that the Court of Appeals incorrectly determined that these funds do not accrue to the Civil Penalty Fund. The North Carolina Constitution grants the General Assembly the authority to legislate for the management of public higher education institutions. N.C.G.S. 116-44.4 allows university trustees to create ordinances for traffic and parking regulation, with two enforcement mechanisms: (1) infractions punishable by a monetary penalty, and (2) civil penalties collectible through civil action. All parties agree that penalties under the first category are subject to Article IX, Section 7, while the disposition of civil penalties under the second category remains in dispute.

The Court of Appeals ruled that civil penalties collected under section 116-44.4(h) are intended for remedial purposes related to parking and traffic management rather than punitive measures against violators. The court deemed the statute constitutional under Article IX, Section 8. The defendants contend that the penalties collected are not civil penalties for violations of state laws and thus do not fall under Article IX, Section 7, but rather serve to compensate the institutions for lost revenue, asserting that the civil penalties are remedial in nature. They argue that this characterization is supported by statutory restrictions on the use of the collected funds.

In the case of Cauble v. City of Asheville, the City argued that voluntary payments for parking meter violations were civil penalties, not fines, and thus belonged to the City rather than the public schools. The court clarified that the distinction between fines and civil penalties does not depend on labels or the presence of criminal prosecution but rather on the nature of the offense and the municipality's collection method. The University’s choice to classify penalties for traffic ordinance violations as civil does not alter the nature of the offenses committed. The defendants contended that the intended use of the payments under N.C.G.S. 116-44.4(m) made them remedial rather than punitive. However, the court emphasized that the essential factor is whether the civil penalty serves a punitive purpose or compensates for loss. It concluded that the penalty aimed to deter future violations and penalize violators for offenses such as illegal parking. The defendants referenced the U.S. Supreme Court's decision in United States v. Halper, which evaluated whether civil penalties were punitive or remedial based on their relation to actual damages. The court noted that while Halper acknowledged some flexibility in determining damages, it also stated that there are limitations on how the funds can be used to maintain their remedial classification, as established in Shore v. Edmisten, which found that defendants should not bear the State's overhead costs associated with prosecution.

Parking penalties under section 116-44.4(m), with the exception of subdivision (1), are not considered legitimate remedial purposes according to Article IX, Section 7. While subdivision (1), which aims to defray the costs of administering parking ordinances, could be viewed as a legitimate purpose, it does not qualify as 'remedial' due to existing provisions under 115C-457.2 that already encompass these costs. The 'actual costs of collection' can be deducted from the total collected funds. Consequently, civil penalties under N.C.G.S. 116-44.4(h) are deemed punitive and must be allocated to the Civil Penalty Fund. The court notes that plaintiffs did not challenge the constitutionality of N.C.G.S. 116-44.4 but questioned the allocation of penalties to a trust account under N.C.G.S. 116-44.4(m). The authority of campus boards to impose fees for various services is not contested; however, the collection of civil penalties under N.C.G.S. 116-44.4(h) is affirmed to belong to public schools as dictated by Article IX, Section 7, leading to the reversal of the Court of Appeals' decision.

Regarding library fees charged by university trustees for loss, damage, or late return of materials, plaintiffs argue that the Court of Appeals incorrectly ruled these fees are not subject to Article IX, Section 7. The North Carolina General Statutes outline the university's mission to serve societal needs through teaching and learning, and N.C.G.S. 116-33 empowers boards of trustees to develop library collections essential for this mission. The Court of Appeals concluded that these fees are primarily remedial and determined that the statute was enacted under Article IX, Section 9, which requires the General Assembly to provide higher education at minimal cost. This provision is seen as separate from Article IX, Section 7, leading to the conclusion that statutes under Article IX, Section 9 are not bound by Article IX, Section 7's requirements.

The Court affirms the Court of Appeals’ ruling that library fees are not governed by Article IX, Section 7, which pertains to punitive statutes requiring monetary payments for violations. The statute in question does not explicitly authorize the library fees; however, fees for lost or damaged materials are based on replacement costs plus a $25 fee for reacquisition and recataloging, indicating a remedial purpose to compensate for damages caused by users. Late fees for overdue books are also categorized as remedial, compensating for additional costs incurred by the institution to maintain sufficient materials for all users. Unlike punitive parking fines, library users initially benefit from free borrowing privileges and can renew items, positioning late fees as user fees rather than penalties. Consequently, the Court concludes that these library charges are not subject to Article IX, Section 7, and thus does not address related arguments concerning Article IX, Section 9. 

Additionally, regarding the North Carolina Department of Transportation (DOT) fees for axle weight violations, the Court of Appeals majority ruled these penalties, assessed for unlawful conduct, should fund public schools. In contrast, a dissenting opinion argued that these penalties are compensatory for highway damage caused by overweight vehicles, classifying them as remedial rather than punitive and asserting they should support the Highway Fund for road maintenance.

Defendants appealing to the Court argue that penalties for overweight vehicles are either reimbursement for damages or a tax, but the Court disagrees. Vehicle weight is determined by the empty weight plus the heaviest load, as per N.C.G.S. 20-88. Vehicles exceeding their declared weight incur axle-group penalties under N.C.G.S. 20-118(e), based on the excess weight, with penalties assessed against vehicle owners or registrants. Defendants claim the Court of Appeals erred by deeming their actions unlawful under N.C.G.S. 20-115, suggesting this statute applies only to drivers, not owners. They also argue that since violations of N.C.G.S. 20-118 are not classified as criminal infractions, the penalties are not punitive. The Court counters that N.C.G.S. 20-115 applies to both drivers and owners, and the nature of penalties under Article IX, Section 7 includes both civil and criminal implications. Moreover, the Court finds defendants' assertion that the civil penalty is remedial lacks merit, as there is no evidence linking the penalty scale to highway repair costs. The penalties reflect the violation's severity, and funds from penalties go into the Highway Fund, which is used for various purposes beyond just repairing roads damaged by overweight vehicles.

Restitution under Article IX, Section 7 is upheld only when damages are explicitly quantified, as established in Shore, 290 N.C. at 633-34. The court dismisses the defendants' claim that the licensing and registration fee in N.C.G.S. 20-88 (a) constitutes a tax, noting that the statute does not describe it as such. Defendants' reference to N.C.G.S. 20-97 fails to support their argument, as it does not classify registration fees as taxes. The statutes referenced by defendants (N.C.G.S. 20-88, 20-85, and 20-87) pertain to fees, specifically outlined in Part 7 of Article 3, which concerns "Title and Registration Fees." Section 20-85 (b) specifies that most collected fees go to the Highway Trust Fund, contrasting with tax allocations under N.C.G.S. 20-97. The reliance on Helvering v. Mitchell is deemed inappropriate since that case addressed tax penalties under the Internal Revenue Code in relation to criminal punishment, which does not apply here. The penalties under N.C.G.S. 20-118(e) are categorized as civil penalties intended to punish violations of motor vehicle weight laws, confirming legislative intent to penalize harmful conduct rather than merely safeguard state revenues. Consequently, payments under N.C.G.S. 20-118(e) are subject to Article IX, Section 7 and are designated for public schools. Additionally, the court has accepted a discretionary review regarding whether civil penalties collected under N.C.G.S. 20-309(e) due to insurance lapses fall under Article IX, Section 7. Section 20-309(e) outlines that upon notification of insurance lapse, vehicle owners must either certify financial responsibility or pay a $50 civil penalty to retain their vehicle registration.

Section 20-309(e) mandates that insurers notify the Division of the termination of a financial responsibility policy within twenty business days. Failure to do so results in a civil penalty of $200, assessed by the Commissioner of Insurance if no good cause for the delay is shown. The defendants claim that the $50 civil penalty for lapsed coverage is voluntary, but this is contradicted by subsequent language in the statute indicating it is mandatory. If the owner does not certify the termination, their vehicle registration is revoked for thirty days unless the registration plate is surrendered, and a restoration fee of $50 plus registration fees is required for re-registration. The purpose of the $50 penalty is to enforce compliance with financial responsibility laws for vehicle operation in North Carolina. 

Defendants argue that the penalties against insurers are remedial due to the Financial Responsibility Act's intent, but this claim is rejected. The court has previously established that the civil penalty is the sole sanction for failing to notify the DMV of policy terminations. Moreover, defendants did not demonstrate that the penalties compensate for specific damages to the state or individuals. It is concluded that the penalties under N.C.G.S. 20-309(e) are public funds designated for public schools, aligning with Article IX, Section 7. 

Additionally, regarding collections by the Employment Security Commission (ESC) for overdue employer contributions and related penalties, the trial court originally ruled these funds were also subject to Article IX, Section 7. Although defendants contested this ruling, they failed to argue this point in the Court of Appeals, leading to abandonment of the assignment of error. The plaintiffs further included additional penalties from the ESC for failure to file wage reports in their claims.

The trial court did not evaluate the relevance of Article IX, Section 7 to section 96-9 (a)(7), limiting the case to the statutory provisions considered by the trial court and the Court of Appeals. The Court of Appeals agreed with defendants that N.C.G.S. 96-10 categorizes employers' contributions to the Unemployment Insurance Fund as a "tax" and regarded penalties under this section as "additional taxes." It concluded that these "additional taxes" are remedial, referencing a U.S. Supreme Court decision. However, all parties concur that payments to the Employment Security Commission (ESC) should be treated similarly to those to the Department of Revenue for tax compliance failures. The disagreement lies in their classification under Article IX, Section 7. Plaintiffs argue these payments are penalties for statutory violations and should benefit public schools, a view supported by the summary. The statute distinctly describes employer contributions as "contributions," not taxes, despite some statutes using "tax" and "contribution" interchangeably. The General Assembly has explicitly designated these payments as penalties, including a ten percent additional penalty for overdue taxes and late filing penalties. Interest on late contributions is assessed separately and is designated for the Special Employment Security Administration Fund, which supports various administrative enhancements. The statute does not indicate that the penalties are remedial or intended to protect the integrity of the Unemployment Insurance Fund; rather, they serve to penalize noncompliance, thus not transforming these penalties into remedial taxes.

Penalties collected under N.C.G.S. 96-10 are deemed subject to Article IX, Section 7, and must benefit public schools, leading to a reversal of the Court of Appeals' decision on this matter. However, the Court of Appeals correctly determined that payments collected by state agencies and licensing boards for late license renewals or late fee payments are not subject to Article IX, Section 7. The Court reasoned that these payments are intended to reimburse agencies for additional operational costs rather than to impose punitive measures, as indicated by the small amounts specified in the authorizing statutes.

The case involves payments to four licensing boards: the North Carolina Board of Cosmetic Art Examiners, the North Carolina State Bar, the State Board of Examiners of Electrical Contractors, and the State Board of Examiners of Plumbing, Heating, and Fire Sprinkler Contractors. Each board is authorized to impose late fees for renewals and reinstatements. Specifically, the Plumbing Contractors Board previously charged a penalty for late renewal, which has since been reclassified as an administrative fee. The use of the term "fee" indicates legislative intent for these payments to be remedial rather than punitive.

The court emphasized that the true penalties are revocation or suspension of licenses for noncompliance, rather than the late fees themselves, which are administrative charges meant to cover collection costs. Evidence indicates that late fees often do not fully offset the expenses incurred by the boards in their collection efforts. Consequently, these fees are not punitive and thus not subject to the provisions of Article IX, Section 7.

Defendants assert that payments made to the Department of Commerce and the Department of Environment and Natural Resources for late submissions and fees are remedial in nature. However, these issues were not addressed by the Court of Appeals, and defendants did not seek discretionary review, making them outside this Court's consideration per N.C. R.App. P. 16(a). 

On discretionary review, defendants challenge the Court of Appeals' affirmation of the trial court's ruling regarding payments by environmental violators to fund Supplemental Environmental Projects (SEPs) as part of civil penalty settlements, arguing these payments should not be subject to Article IX, Section 7. They also contest the ruling on funds from the City of Kinston for a specific SEP aimed at establishing a water resources training program. The North Carolina Department of Environmental Quality (DENR) has the authority to impose civil penalties under various environmental statutes, with proceeds directed to the Civil Penalty and Forfeiture Fund. A 1998 DENR memorandum introduced an alternative enforcement mechanism permitting a portion of penalties to fund SEPs, which are intended to provide environmental benefits. Defendants maintain that since SEP payments are voluntary, made to a third party, and intended for remedial purposes, they should not be considered state funds subject to Article IX, Section 7.

Defendants contend that the Court of Appeals misinterpreted the ruling in Craven Cty. Bd. of Educ. v. Boyles, arguing it was applied too broadly. However, the court disagrees, clarifying that the Craven County case involved a board of education seeking to recover funds paid by Weyerhaeuser Company to the Department of Environment, Health and Natural Resources as part of a settlement after the company was penalized for air pollution violations. The settlement specified that these payments were not to be seen as penalties. 

The court ruled that the nature of the payment, not its label or method of collection, determines whether it constitutes a penalty under Article IX, Section 7. The payments made by the City of Kinston in the current case were similarly determined to be punitive, as they were linked to a civil penalty for violating water quality laws. While the payments were made to a third party under a Supplemental Environmental Project (SEP), this did not change their punitive nature, as they resulted from an environmental violation.

The court emphasized that the constitutional requirement mandates that civil penalty proceeds be directed to the Civil Penalty and Forfeiture Fund, and no statute or judgment can divert these funds elsewhere. The Secretary of DENR’s authority to remit penalties does not negate this requirement. The court further noted that even though DENR's policy suggests SEP payments are not punitive, the court's precedent indicates that the terms used by DENR and violators are not determinative of the payment's nature. Thus, payments related to SEPs remain punitive despite claims of being remedial.

Defendants argue that the Supplemental Environmental Project (SEP) is remedial rather than punitive, referencing a previous ruling where a penalty's classification does not change based on the violator’s settlement agreement. They assert that under Article IV, Section 3 of the North Carolina Constitution, the Department of Environmental Quality (DENR) Secretary possesses quasi-judicial powers necessary for the agency's environmental protection mission, and that using the SEP to remit penalties aligns with this purpose. However, this argument was not presented in the Court of Appeals and cannot be raised for the first time in this Court, as established in Pue v. Hood. The Court of Appeals' decision that funds for the SEP, including payments from the City of Kinston to Lenoir Community College, fall under Article IX, Section 7 is affirmed.

Furthermore, plaintiffs contend that the Court of Appeals incorrectly upheld the General Assembly's statutory framework for the distribution of funds collected under Article IX, Section 7, asserting that the legislature's control over these funds is limited. The General Assembly established the Civil Penalty Fund under N.C.G.S. 115C-457.1, which consists of proceeds from civil penalties and forfeitures collected by state agencies and designated for the County School Fund. The Fund, managed by the Office of State Budget and Management, is exclusively for maintaining free public schools. The statute mandates that all civil penalty and forfeiture proceeds be deposited into this Fund, with only the actual collection costs deducted. Additionally, the legislature defined the distribution process of these funds, directing transfers to the State School Technology Fund, allocated to counties based on average daily membership.

Funds allocated to local school administrative units must be used to implement each system's technology plan or as specified by the General Assembly. The statutory framework outlined in N.C.G.S. 115C-457.1 through -457.3 does not violate Article IX, Section 7 of the North Carolina Constitution. The Court distinguishes between self-executing constitutional provisions, which require no legislative action for enforcement, and those that do. Article IX, Section 7 is not self-executing and requires legislative clarification, particularly regarding what constitutes "clear proceeds" from penalties. As such, the General Assembly's specified implementation is constitutional unless it contradicts the provision's language or purpose. The Court grants significant deference to legislative acts, only declaring them unconstitutional when there is a clear constitutional prohibition. A broad interpretation of the Constitution is favored to understand its purpose and scope. Article 31A of Chapter 115C is seen as detailing the broader mandates of Article IX, Section 7, which mandates that the proceeds from penalties are to support public schools. Plaintiffs argue that the phrase "shall belong to and remain in the several counties" implies that these funds must remain in the county of origin and be controlled by local school boards. However, the Court finds that the phrase does not mandate such confinement, indicating an intent for the funds to be distributed among the "several counties" in North Carolina rather than remaining in a single county.

The General Assembly has complied with Article IX, Section 7 of the Constitution by directing funds to the Civil Penalty Fund, which are then returned to county school systems. Plaintiffs argue that the General Assembly violated the mandate by allocating these funds to the Technology Fund for local school technology plans. However, the court finds that implementing technology plans falls within the broad scope of the provision, and the General Assembly has the legislative authority to allocate these funds as it sees fit, as there is no explicit constitutional restriction on their use.

The Court of Appeals' affirmation of the constitutionality of sections 115C-457.1 through -457.3 is upheld. Additionally, the plaintiffs contest the Court of Appeals' decision that civil penalties paid by public school systems should not be returned to the Civil Penalty Fund and that a specific $11,000 payment by the Edgecombe County Board of Education to the Department of Environmental and Natural Resources (DENR) should remain with DENR instead of being allocated to the Civil Penalty Fund. The court agrees with the plaintiffs, reversing the Court of Appeals' decision on this matter.

The Court of Appeals did not consider whether the civil penalties were punitive or remedial as per the Mussallam analysis. Instead, it cited public policy preventing a wrongdoer from benefiting from their misconduct. The dissenting opinion acknowledged the public policy against unjust enrichment but argued that not all schools should be penalized for the actions of one school system.

The ruling clarifies that the distribution of funds from civil penalties collected from local public school systems does not penalize other school systems for the wrongdoing of one. Instead, the offending school system is excluded from the calculation of fund distribution among the remaining schools. The dissenting opinion suggests that only the eligible school systems should receive funds, excluding the one that committed the wrongdoing. However, the court emphasizes that according to Article IX, Section 7 of the North Carolina Constitution and relevant statutes (N.C.G.S. 115C-457.1 through -457.3), all civil penalty funds must be allocated to the Civil Penalty Fund for distribution to all public schools, without exceptions for schools that have committed violations. The court notes that public policy issues are for legislative determination, and since the General Assembly did not provide exceptions in the distribution scheme, all civil penalty funds must be remitted to the Civil Penalty Fund and distributed statewide as mandated. The court affirms in part and reverses in part the Court of Appeals' opinion, remanding the case for further proceedings consistent with this ruling. Justice NEWBY did not participate in the decision. Additionally, it notes the amendment to Article IX, Section 7 effective January 1, 2005, which allows the General Assembly to allocate civil penalty proceeds to a state fund for public schools, but this amendment does not apply to the current litigation initiated on December 14, 1998.