Arizona court rules governor can use school trust fund account for education

By Howard Fischer
Capitol Media Services
PHOENIX -- The next governor of Arizona won't have to first get congressional approval before raiding a special school trust fund account, the state Court of Appeals has ruled.
In a new ruling, the judges did not address the question of whether Gov. Doug Ducey acted illegally in pushing through Proposition 123 in 2016. Michael Pierce had argued the action, tapping the trust fund until 2025 to supplement tax dollars for public education, had not first obtained permission from Congress.
The judges said -- and Pierce conceded -- that a provision in 2019 federal legislation effectively ratified what Ducey did, albeit retroactively.
What the appellate court would not do is issue a ruling sought by Pierce that the next governor could not make future raids on the fund, after the Prop 123 money runs out in 2025, without doing it right: getting that congressional approval first. That issue, the judges said, will have to be litigated if and when the next governor attempts such a maneuver.
Proposition 123 was Ducey's plan deal with a 2013 Arizona Supreme Court ruling that the state had ignored a 2000 voter-approved mandate to increase state aid to schools annually to keep pace with inflation.
Ducey, who took office in 2015, declined to increase taxes to comply with that ruling. Instead he came up with a plan to tap into a special trust funds that consists of the money the state earns from the sale and lease of about 10 million acres of land Arizona was given by the federal government through the Enabling Act when it became a state in 1912.
About eight million acres remain.
Under normal circumstances, the beneficiaries of the trust -- in this case, public schools -- would get 2.5% of what is there.
Ducey's proposal, approved by voters at a special election in 2016 by a 51-49% margin, boosted that to 6.9% in a move the governor said would funnel an extra $3.5 billion into schools over a 10-year period.
Michael Pierce sued, contending that any change in the distribution required Congress to first amend the Enabling Act. There also was the fact that, in boosting withdrawals through 2024, it would leave less in the trust at that point than if the formula were not changed.
Ducey disagreed.
He eventually did get congressional approval, though only after Pierce sued. And once that happened, a federal appeals court dismissed the case as moot.
Pierce, unsatisfied, went to state court saying that still left the question of what happens when the extra money runs out.
Maricopa County Superior Court Judge John Hannah said the original challenged conduct -- Ducey proceeding with the fund transfers without congressional approval -- did cease when federal lawmakers acted. But he said a claim becomes moot "only if the relevant events make it absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.''
And that, Hannah said, is not the case here.
"The facts here do not clearly show that Arizona state officials are unlikely to try again to change the distribution formula without congressional consent,'' the judge wrote.
In fact, Hannah said, the reverse may be a more realistic scenario.
Legislative budget staffers figured that once the Prop 123 funds run out, state aid to schools will drop by about $237 million a year.
Hannah said the Arizona Constitution makes it "very difficult'' to raise taxes to make up for the lost revenues, give that it would take a two-thirds vote of both the House and Senate as well as gubernatorial consent. That, said Hannah, leaves a future version of Proposition 123 -- and its increase in taking more money from the school trust fund -- as "the most obvious alternative.''
"The agreed-upon facts demonstrate a real possibility that the same thing will happen again,'' Hannah wrote, issuing an order prohibiting further tapping of the fund unless and until Congress acts first.
Appellate Judge Angela Paton said that was a mistake.
It starts, she said, with the fact that Ducey eventually did get Congress to approve Proposition 123. That, said Paton, makes any debate about the current diversion of funds legally moot.
And what might happen in the future, the judge said, is for the moment pure speculation.
"Absent a presently illegal enactment, whether the state plans in the abstract to pass and enforce a future change to distribution formulas is precisely a set of fact that may or may not arise in the future that our courts should avoid adjudicating,'' she wrote for the unanimous three-judge panel. She said the whole question "rests upon contingent future events that may not occur as anticipated, or may not occur at all.''
Andrew Jacob, representing Pierce, said the ruling is disappointing because it leaves unresolved the ultimate question of whether a future governor has the power to tap the trust fund.
"What's going to happen now is the schools are going to be caught short and they're going to have to do planning'' for losing some of the money they get now in case the next governor chooses to try a similar maneuver without going to Congress. "They're going to have the same kind of legal trouble.''
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