State Treasurer Blisters NCDOT Secretary for Overspending $2 BILLION, Calls for Cooper to Fire

RALEIGH – When it comes to government waste, the Department of Transportation, or ‘DOT’ is one that usually fits the stereotype quite well. Ever come across three guys watching one dig a hole?

That kind of over-commitment of resources, to put it kindly, seems to go all the way to the top of the N.C. DOT which spent nearly $2 billion it didn’t have. All of this while arbitrarily inflating their own salaries and giving no-bid contracts to the governor’s donors, no less. The spending binges were well known enough to warrant a review, so the leaders of the NCDOT paid the high-priced consultants at McKinsey & Company nearly $1 million of your money for advice on how to control spending. You can’t make this stuff up.

As a result, State Treasurer Dale Folwell is calling on Governor Roy Cooper to fire N.C. DOT Secretary James Trogdon. Trogdon’s own salary is the highest in Cooper’s cabinet and 40 percent more than his predecessor’s at $217,980.

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The letter from Folwell describes in detail how profligate, irresponsible, and extralegal the spending was. The comprehensive and damning case laid out by Folwell reveals a smack in the face of every taxpayer in North Carolina.

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From the Office of State Treasurer (emphasis added):

“State Treasurer Dale R. Folwell, today called for Governor Roy Cooper to replace his N.C. Department of Transportation (NCDOT) secretary. NCDOT has spent nearly $7 billion for fiscal year 2019 against revenues of $5 billion for that year. This overspending resulted in NCDOT, not the governor, going to the North Carolina General Assembly (NCGA) and requesting a bailout costing hundreds of millions of dollars. Being treated differently than every other branch of state government and not held to account requires discipline that the leadership at NCDOT has not demonstrated.

In connection with  the nearly $2 billion in overspending, NCDOT made $1.1 billion in “short-term” loans from the Highway Trust Fund (HTF) for the Highway Fund (HF) between April 2018 and April 2019. Under state law, many of the projects funded could not have been paid using HTF funds. Additionally, as required by statute, NCDOT neither sought nor received approval of the State Treasurer to loan the funds from the HTF to the HF. There have been no other loans from the HTF in over 10 years.

“The word ‘trust’ in the Highway Trust Fund implies that taxpayers, rating agencies, and bond holders trust that the money is being used properly,” said Treasurer Folwell. “The lack of oversight at NCDOT is outrageous. We endorse sustainable and predictable funding for transportation projects in North Carolina. Taxpayers, road builders, legislators and rank-in-file NCDOT employees deserve a single source of truth and facts going forward without fear of retribution.”

A clear lack of managerial control has been demonstrated by tens of millions in overspending by every division in NCDOT. Treasurer Folwell sees a clear and urgent need for the Office of State Budget and Management (OSBM) to take over the financial management of NCDOT.

The State and Local Government Finance Division of the N.C. Department of State Treasurer (DST) issued $300 million of Build NC bonds in March and $600 million of GARVEE Bonds in June of this year. The division did this in an expedited manner in response to concerns of members of the NCGA regarding cash flow needs of NCDOT. This is on top of the $1.1 billion improperly transferred from the HTF to the HF. No other state treasurer has issued more transportation bonds, in a shorter period, than Treasurer Folwell.

During the division’s due diligence process for the Build NC bonds, it was discovered by outside counsel that the Treasurer never approved the $1.1 billion in inter-fund loans. In addition, NCDOT failed to provide a detailed schedule for repayment despite two written requests from DST.

“I have full confidence in the subject-matter experts at the Treasurer’s Office, all of whom are from the previous administration,” said Treasurer Folwell. “They’ve been warning me for over a year that NCDOT was writing checks they can’t cash. I would put these subject-matter experts up against anyone, anytime, anywhere.”

In the Build NC series bond offering statement published on June 27, 2019, NCDOT reported future Map Act settlements as immaterial in the Build NC Series 2019 Bond Offering Statement. But a little more than 30 days later, NCDOT Chief Operating Officer Bobby Lewis is reported to have told members of the Board of Transportation that Map Act settlements may exceed $1 billion.

“We cannot trust what we’re being told by NCDOT,” said Treasurer Folwell. “Their mismanagement directly undermines the faith that the rating agencies put in our disclosures and threatens the state’s triple ‘AAA’ bond rating. We should not spend additional taxpayers’ money or put more transportation debt on the backs of North Carolina’s citizens until Governor Cooper fixes this mess.”

On September 11, a report commissioned by OSBM was issued and posted on NCDOT’s website. Taking only six weeks and costing $970,000, the report by NCDOT and McKinsey & Company (although “McKinsey & Company” appears nowhere on the report) concluded the department’s overspending was caused by (1) inadequate cash management, (2) excessive spending on preliminary engineering, and (3) unreimbursed disaster recovery costs. A full, complete and objective audit is called for.

“The NCDOT didn’t know it was speeding; when it was told that it was speeding, it didn’t slow down and, eventually, it didn’t slow down enough,” said Treasurer Folwell. “There were absolutely no consequences; and the General Assembly nor taxpayers should be blamed.”

Treasurer Folwell noted that the hard-working men and women at NCDOT deserve better. He also pointed out the need for sustainable and consistent funding so that the hundreds of road builders can have predictability in projects and capital going forward.

“At the end of the day, these issues are not emotional or political – they’re mathematical,” added Treasurer Folwell.”

 

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