Rumery et al. v. Baier
The Arizona Supreme Court has struck down as unconstitutional the legislature's attempt to use state trust land proceeds to fund the State Land Department. In 2009, the legislature passed a bill funneling state trust land proceeds, which formerly went straight to fund education, into administrative costs. The Center has successfully challenged that bill and as a result these dollars will be put back where they belong.
House Bill 2014 allows up to 10% of state trust land proceeds - $10 million per year - to be used for administrative costs of running the State Land Department.
This, however, is illegal because Arizona's Constitution specifically requires state trust land proceeds to be deposited into the state's permanent school land trust to benefit Arizona schools.
In February 2010, the Center filed a lawsuit on behalf of two school teachers and the Cartwright Elementary School District challenging the legislature's bill which, had it been allowed to remain law, would have taken away $10 million last year and $10 million this year from Arizona's public school children.
Up until House Bill 2014, no legislature since statehood had ever attempted to take money away from the permanent school land trust and yet Arizona's current legislative leadership has been anxious to get at this money for some time.
In 2000, the legislature placed a so called state trust land reform provision on the ballot to amend the Arizona Constitution to allow the legislature to do exactly what they did in House Bill 2014. This is proof that the legislature knew it could not divert state trust land proceeds under Arizona's existing Constitution.
In light of this knowledge, it is beguiling that the Arizona legislature went ahead with House Bill 2014 even though its 2000 ballot measure did not pass.
On October 1, Maricopa County Superior Court Judge Gary Donahoe ruled that House Bill 2014 violated the Arizona Constitution. In his ruling, Judge Donahoe strictly interpreted the Arizona Constitution's provision stating that whenever any monies "shall be in any manner derived from [state trust lands], the same shall be deposited by the state treasurer in the permanent fund . . ."
The State Land Department argued that even though this provision seems clear on its face, the state had the implicit authority to deduct sufficient funds from the trust to fund administration of state trust lands, which expense constitutes almost the entire State Land Department budget. In other words, the State Land Department argued that it should be able to fund nearly all of its budget from a pot of money specifically set aside for education by the Arizona Constitution.
Judge Donahoe rejected the State Land Department's "implicit authority" argument saying "it would be contrary to Arizona law because the language of . . . the Arizona Constitution is unambiguous and does not require interpretation."
Although the specific language in Arizona's Constitution was reason enough to strike down House Bill 2014, Judge Donahoe further determined that the bill violated Arizona's Voter Protection Act. Under that Act, the legislature cannot divert funds allocated to a specific purpose by an initiative measure unless the diversion furthers the initiative and at least 3/4 of the members of each house vote to divert the money. In 2002, Arizona voters passed an initiative regarding the permanent state school fund. Judge Donahoe correctly noted that House Bill 2014 passed with less than a 3/4 vote and therefore also violated the Voter Protection Act.
Most importantly, Judge Donahoe's ruling requiring the state to immediately stop spending trust proceeds and to pay back any proceeds that had already been spent.
Despite the overwhelming and fatal legal problems inherent in House Bill 2014, the state appealed the ruling to the Arizona Court of Appeals. In late November 2010, the state also asked the appeals court to stay Judge Donahoe's ruling so that the Land Department could continue to use the illegal funds through the end of the appeals process.
In its request for a stay, the Land Department cried wolf by arguing that it would have to lay off 101 of its 115 employees were it not allowed to use the illegal funds. What the Land Department, Governor Jan Brewer and the legislature are not saying, however, is that they could easily avoid layoffs of state employees by legally appropriating funding for the State Land Department. Instead, the state prefers to raid public education even when it is clear that doing so violates Arizona's constitution.
On December 15, the court of appeals stayed Judge Donahoe's ruling until June 30, 2010, but refused to provide a blanket stay until the appeal is resolved. The Center agreed to the June 30 date because this will allow the Land Department to seek legal funding from the legislature during its budget process in January 2011.
On June 30, the court of appeals lifted the stay, thereby forbidding the Land Department from using any more state trust fund monies to fund its administrative costs. Land Department Director Maria Baier says she will appeal the underlying decision - that state trust monies cannot legally fund administrative costs - to the Arizona Supreme Court.
The lifting of the stay is a major victory for the Center given that the Land Department already spent approximately $15 million of trust fund money. Given the state's current fiscal crisis, the Center doubts this money will be returned to its rightful owner: Arizona's public schools and the children they serve.
The Court of Appeals affirmed the trial court's decision on November 10, 2011.
The decision can be found at:
The Commissioner filed a Petition for Review, which the Supreme Court granted. The Court heard oral argument on October 10, 2012 at 10:30 a.m. On January 9, 2013, the Arizona Supreme Court published its opinion affirming the Court of Appeals and establishing in no uncertain terms that the Court will continue to protect the trust created by the Enabling Act. The Opinion is attached.