Cave Creek Unified School District et al. v. State of Arizona

The state is once again refusing to adequately fund education and by doing so, is in violation of its own laws.  This time, the state has failed to update the school funding formula by using all of the inflation adjustments required by Proposition 301, a referendum approved by a majority of Arizona voters.

The Center brought this case in conjunction with the LaSota & Peters law firm to force the legislature to honor Arizona voters' decision to support Arizona's schoolchildren. The Center represents several school districts, the Arizona Education Association, and the Arizona School Boards Association in this case.

In 2000, the Arizona Legislature passed S.B. 1007 and portions of this law were referred to the voters for approval in Proposition 301.  A majority of Arizona voters approved Prop. 301, which requires the legislature to adjust the "base level" education funding formula each year in accordance with inflation.  The "base level" provides all funding for the maintenance and operations of Arizona's schools.  

The legislature's 2010-2011 budget reconciliation bill, however, failed to adjust the "base level" for inflation and in fact, did not provide any increase to the base level at all. The Center's lawsuit alleged that the legislature is not only in violation of its own laws, but that its actions are unconstitutional because Proposition 301 is protected under the Voter Protection provisions of the Arizona Constitution. 

On February 9, 2011, Maricopa County Superior Court Judge Kenneth Mangum ruled that Proposition 301 enacted by Arizona voters in 2000 did not require the Arizona legislature to annually inflate education funding for Arizona’s public schools. Judge Mangum held that Proposition 301 merely states the intention of the voters that an appropriation be made to protect schools from the effects of inflation but the Proposition by itself is not self executing.  He stated that, “the voters cannot require the legislature to enact a law that provides for that appropriation.”  Judge Mangum then held that the Proposition itself did not constitute an appropriation and that, therefore, Proposition 301 amounted to nothing more than a "request" by the people of Arizona that the legislature increase education funding.

On March 8, 2011, the plaintiffs filed an appeal.  In an opinion published January 15, 2013, the Court of Appeals reversed the lower court and held that as a voter approved law, Prop. 301 required the legislature to increase the funding formula to keep pace with inflation.  On May 29, 2013 the Supreme Court granted review but limited its review to a single question:  "Does the Voter Protection Act authorize the voters to require the legislature to increase 'the base level or other components of the revenue control limit' as provided in A.R.S. 15-901.01?" (Order dated May 29, 2013, Arizona Supreme Court No. CV-13-0039-PR.) On September 26, 2013 the Supreme Court answered that question in the affirmative.  The Court issued an opinion that not only affirmed the Court of Appeals decision, it issued an opinion that make it clear that voters have broad legislative powers and voter-approved laws are fully protected from legislative tampering by the Voter Protection Amendment.  The opinion is below. 

The matter was remanded back to the trial court to determine the appropriate remedy.  After extensive briefing by the parties, in a decision dated July 2, 2014 and filed July 11, 2014, Judge Katherine Cooper ordered that the base level funding be reset to the level it would have been if it had been inflated properly over the last five years.  Judge Cooper also ordered that an evidentiary hearing be held on whether the state should be required to pay the money lost in the preceding five years to determine whether school districts could legitimately spend the retroactive amount ($1.3 billion) and whether the state has the money to pay for it.  You can read the decision below.  

The state defendants have appealed Judge Cooper's July 2014 decision regarding base level funding.  In the meantime, Judge Cooper held the evidentiary hearing in October 2014 to determine whether the state should retroactively reimburse Arizona schools $1.3 billion for unpaid inflation adjustments for fiscal years 2011 through 2014.  Shortly after that hearing concluded (but before the Judge issued her ruling) the Court of Appeals asked the parties to enter into mediation with the hope of reaching a settlement agreement.  While the mediation proceeded, everything else in the case was stayed.  Negotiations broke down, however, this past summer and the parties declared an impasse. 

PreviewLegal DocumentsSize
1 CA-CV 11-0256.pdf114.83 KB
CV-13-0039-PR.pdf77.87 KB
Cave Creek v Arizona minute entry.pdf334.9 KB

Case Updates

The Center Supports Proposition 123

We’ve been getting a lot of questions lately about whether the Center supports Proposition 123.  The answer is yes and here’s why. 

 We represent the school organizations and school districts in the inflation funding litigation and participated in the settlement resulting in Proposition 123.  Proposition 123 will put a lot of desperately needed money into schools immediately.  It will provide over $300 million a year to public schools over the next ten years funded in most part by larger withdrawals from Arizona State Land Trust Fund. 

The Trust Fund was established to support public education and that is what this money is going to be spent for.  It has more than enough money in it today to absorb the payments over the next ten years.  In fact, after the end of ten years, it is expected that the Trust Fund will have $6 billion - - even more money than it does today - - and will continue to grow at that point.  We don’t see any point in amassing a huge balance in the Trust Fund when public schools desperately need the money right now.

  At the end of the ten year period, the legislature will still be required to provide annual inflation funding, it just won’t be able to use the Trust Fund.  Instead, it will have to provide those payments from the general fund. 

 While the litigation has resulted in favorable rulings, contrary to what some have said, the courts have not yet ordered the state to pay any particular sum of money.  We would still need to litigate this case for another two to three years before we get to that point. That’s why we settled for most of the funding now as opposed to an uncertain outcome years down the road. 

  If you have any questions about any of this, feel free to call Tim Hogan at 602-258-8850.  

 

PLAINTIFFS SETTLE SCHOOL INFLATION FUNDING CASE

On October 30, Governor Ducey signed legislation enacted by the legislature in special session that settles the school inflation funding case so long as it is approved by voters next May 17.

             Don Peters and the Center represent the Plaintiffs in the lawsuit.  The Plaintiffs include the Arizona School Boards Association, the Arizona Education Association, the Arizona Association of School Business Officials and school districts and individuals.  The lawsuit began in 2010 contending that the legislature had failed to appropriately fund inflation for public schools as required by Proposition 301 which was approved by voters in 2000.  In 2013, the Arizona Supreme Court determined that the legislature must comply with Proposition 301 and remanded the case to the trial court to determine exactly what that meant.  In September 2014, the trial court entered judgment for the Plaintiffs on the base level amount that should be reset and funded going forward.  The legislature appealed that judgment.  The trial court has yet to issue a decision on the amount of back pay, if any, that was owed to the school districts for the years that inflation funding was not paid.

             The settlement provides over $300 million each year over the next ten years for a total of $3.5 billion.  The settlement agreed to by the Plaintiffs and the legislature resets the base level for future funding to 72% of where the Plaintiffs think it should have been and additionally provides $625 million in additional funding to school districts and charter schools over the next ten years.  The inflation funding requirement is permanent and extends indefinitely beyond the ten years. 

             A majority of the funding for the settlement will come from the state land trust.  This is a trust fund that consists of proceeds from the sale of lands deeded to the state when it entered the Union in 1912 as well as earnings from those proceeds that have accumulated over time.  Currently, the balance in the fund is approximately $5 billion and it is distributed at the rate of 2.5% of the previous five year average balance.  The settlement that was approved will increase that distribution for ten years to 6.9% after which it will revert to the current 2.5%.  Without the settlement, it is estimated that the trust fund balance would be approximately $9 billion in ten years.  With the settlement, it is expected that the balance will be reduced to about $6 billion.

             The settlement requires voter approval because it changes certain portions of the Arizona Constitution regarding not only the inflation requirement but also the distribution of the state school land trust.  There will be special election on May 17, 2016 at which voters will be asked to approve or reject the settlement.

            While the settlement does not represent the full amount that we could have achieved under a “best case scenario” had we continued litigation in court, it represents over 90% of the full inflation funding that would otherwise have been paid to public schools over the next ten years.  Given the potential for delay by several years to the conclusion of the litigation and the uncertainty associated with the ultimate outcome, the Plaintiffs determined that it was important to get substantial funding into Arizona schools now as opposed to waiting for an uncertain outcome later.  

Judge Orders State to Reset School Funding Level to Comply with Voter Approved Inflation Funding Requirement

When the Arizona Supreme Court held in September 2013 that as a voter approved law, Prop. 301 required the legislature to increase the funding formula for public schools in order to keep pace with inflation, it remanded the case back to the trial court determine the appropriate remedy.  In a ruling dated July 2, 2014 and filed July 10, 2014, Judge Katherine Cooper ordered that the base level funding be reset to the level it would have been if it had been inflated properly over the last 5 years.  This "reset" represents about $250 million in the first year going forward.  Judge Cooper also ordered that an evidentiary hearing be held on whether the state should be required to pay the money lost in the preceding 5 years, to determine whether school districts could legitimately spend the retroactive amount ($1.3 billion) and whether the state has the money to pay it.  This ruling is a big win for public education!  You can read the decision  here.  

A Big Win for Education!

On September 26, 2013 the Arizona Supreme Court issued its opinion in the inflation funding case and held that the Arizona legislature was required by the Voter Protection Act to comply with the mandates included in Prop. 301, passed by the voters in 2000.  The Court rejected the State's argument that voters do not have the power to enact statutes that direct the legislature to exercise its discretion in a particular manner.  The Court held that the voters have the same power to legislate as the legislature, and that unless the Constitution forbids or limits them, they can exercise that power as they see fit.  Moreover, because the Arizona Constitution limits the legislature's ability to repeal or amend voter-enacted legislation, the legislature must comply fully with such laws unless and until they are repealed by the voters.  This was an important victory for education, but also for Arizona voters! 

Supreme Court to Decide Whether Voters Can Require the Legislature to Increase School Funding

On May 29,2013, the Arizona Supreme Court granted review in the Cave Creek v. Ducey case.  The Court limited its review to a single question: whether the Voter Protection Act allows voters to require the legislature to increase funding for schools.  Oral argument will be held on July 23, 2013. 

Judge Rejects Will of Voters

On February 11, Maricopa County Superior Court Judge Kenneth Mangum refused to order the legislature to take inflation into account when funding public education. Judge Mangum arrived at this ruling even though voters passed Prop. 301 specifically requiring the legislature to do just this. Lead counsel in the case, Don Peters, along with Center Attorney Tim Hogan, believe that the judge got it wrong and vow to appeal. Hogan also adds that if the judge got it right, then the voters were the victims of a "massive fraud" perpetrated by the legislature, which itself put Prop. 301 on the ballot.

Fighting to Maintain Education Funding

The Center was in court on February 9 arguing that the state must adjust its education funding formula every year for inflation. Despite passage of voter-approved Proposition 301, which requires the state to do just this, the legislature has willfully refused to increase education budgets in accordance with inflation.