The North Carolina Legislative Building in Raleigh. Credit: Elizabeth Ouzts / Energy News Network

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A political dispute has prevented the Tar Heel State from awarding any funds from its Volkswagen settlement share. 

North Carolina officials are sifting through dozens of clean transportation projects that could be funded with the state’s first cut of the Volkswagen settlement, with plans to announce winners later this month.

But winning with the administration of Gov. Roy Cooper, a Democrat, is only half the battle. Thanks to a controversial budget law, award recipients won’t get funded unless and until the Republican General Assembly greenlights their proposals.

For nearly three years, Cooper and Republican leaders have jockeyed for control of North Carolina’s $92 million share of the Volkswagen windfall, designed to be spent in three phases. Lawmakers, who contend they should have final say over the money, are prevailing so far.

The power struggle has put the Tar Heel State behind its neighbors and most states around the country — which have already begun building networks of electric vehicle charging plugs, buying electric school and transit buses, and funding other projects that promise cleaner air.

It’s not a zero-sum game, said Nick Nigro, founder of Atlas Public Policy, which tracks state spending and advises them to use the Volkswagen money for advanced technology like electric vehicles rather than “newer, less crappy diesel.” According to the company, 36 states have already begun issuing grants through the settlement.

“If North Carolina doesn’t get a lot of awards out the door [this quarter],” Nigro said, “it doesn’t mean they won’t get an electric bus when they want it.” Still, he added, “It’s in the state’s best interest to get going. The sooner the better.” 

But Stan Cross is less zen. The co-founder of Asheville-based electric vehicle charging station company Brightfield Transportation Solutions worries companies may grow impatient with the delay and uncertainty.

“This is only Phase I, and we’ve got two more phases after this one,” said Cross, who now directs electric transportation policy for the Southern Alliance for Clean Energy. “If folks lose confidence in the process, the Volkswagen settlement may not realize its full potential to reduce emissions and improve air quality.” 

A power struggle over funds

For six years, more than a dozen Volkswagen diesel models used manipulative computer software to pass tailpipe emissions inspections while spewing up to 40 times the legal limit. Once caught, the automaker agreed to a massive legal settlement that includes $3 billion for state governments.

In each state, an agency designated by the governor must create a plan to spend its share of the windfall. The agency submits that plan to the settlement’s trustee, which can only dole out the money for certain projects to curb emissions from diesel vehicles.

Not long before a crucial deadline, Cooper designated his Department of Environmental Quality to determine how North Carolina would spend its allocation. In Phase I, the agency envisions spending $31 million converting diesel school and transit buses to cleaner models, installing electric vehicle charging stations around the state, and replacing on and off-road diesel equipment. 

Legislative leaders have expressed no objection to that blueprint, but they’ve long wrestled with the governor over ultimate control of the money needed to execute it. In 2017, the General Assembly adopted language stipulating that none of it could be spent until it was appropriated through the state’s normal budget process.

Cooper vetoed the budget that year but was overridden. Claiming the language — and other restrictions on funds that didn’t come from state taxpayers — intruded on his executive power, he sued and lost in the Wake County Superior Court in April 2018. He appealed and the case is still pending.

That summer, after the Superior Court ruling, lawmakers tightened restrictions on the Volkswagen money further, a move critics worried could disqualify the state from receiving the funds altogether. While legislators adjourned without addressing those fears, some began considering possible amendments for the 2019-20 budget. 

Still, Republican leaders in the General Assembly weren’t convinced the language was that damaging, and the governor wouldn’t agree to drop his lawsuit over it — along with other budget matters — in exchange for a legislative fix. After last year’s “long” legislative session, the 2018 provision remained intact. It states: “no funds by may be expended under the Plan … until the General Assembly has appropriated [them].” 

A larger stalemate over the budget short-circuited the typical appropriations process. Operating mostly on the state’s 2018-19 spending plan, lawmakers passed a series of stopgap measures to ensure the state would get some federal grants in the fiscal year ending June 2020. But none included the first round of Volkswagen spending.

(In November, lawmakers placed even more guard rails on Cooper’s ability to direct money not collected from state taxpayers. Legislative leaders told the Raleigh News & Observer the limits were in reaction to the controversial environmental mitigation trust fund the governor had negotiated with Atlantic Coast Pipeline developers; Cooper said the restrictions could also threaten the Volkswagen monies. The language was part of a disaster relief bill that passed easily and the governor ultimately signed it into law.)

Waiting on legislative approval

Despite the legislative controversy, last August North Carolina officials secured a small amount of Volkswagen money. The $329,000 will be matched with federal funds under the Diesel Emissions Reduction Act to install pollution control devices on two passenger trains that run between Charlotte and Raleigh.

The trustee granted the award with no explanation or elaboration, according to an Energy News Network public records request. But — despite a suggestion from officials last summer to the contrary — the application’s success didn’t give the Cooper administration confidence it could ask the trustee for other funds without legislative approval.

The North Carolina Department of Environmental Quality, spokesperson Zaynab Nasif said in an email, “will not submit a funding request to the trustee until there is approval for a budget appropriation for Volkswagen funding.” In other words, the Phase I grants would need to be spelled out in the state’s 2020-21 budget or in a separate appropriations bill.

The uncertainty creates a problem for electric vehicle charging station companies and other businesses who worked with cities, schools, and the like to craft Phase I proposals, Cross said. “Those companies are now enduring a protracted sales cycle because of this hold up,” he said. “Time and resources were already spent but revenue is not flowing.”

‘Businesses need the revenue’

Lawmakers reconvene for their 2020 short session in April. While anything’s possible, most observers think a full-blown budget is unlikely: Cooper and Democrats want to expand Medicaid and raise teacher pay nearly 9%; Republican lawmakers do not but lack the votes to override the governor’s veto from last year.

A stand-alone appropriations bill appears more likely, especially once project recipients are selected and stakeholders are vested. “That would create a constituency for getting something passed,” said Cassie Gavin, the chief lobbyist for the North Carolina chapter of the Sierra Club. 

Still, she cautioned that other apparent consensus items — such as land and water conservation funding — have languished despite broad support. “Things that seem noncontroversial aren’t always that way inside the building,” she said.

For Cross, the action plan for lawmakers is clear: “The General assembly should pass another mini-budget bill to allocate and release the Volkswagen settlement money, as they’ve been doing with other priorities,” he said. “Applicants deserve to have their projects funded. EV drivers need the chargers, and EV businesses need the revenue.”

Elizabeth Ouzts

Based in Raleigh, North Carolina, Elizabeth Ouzts has covered the state’s clean energy transition for the Energy News Network since 2016. She has also produced features for Environmental Health News and SEJournal, the news magazine of the Society of Environmental Journalists. A former communications director for the nonprofit Environment America, Elizabeth brings over two decades of environmental and energy policy experience to her reporting.