PHOENIX - Arizona legislators violated the state constitution when they diverted proceeds from the state land trust to help balance the budget, the state Supreme Court ruled Wednesday.
In a unanimous decision, the justices rejected arguments by the Brewer administration contending it is permissible to fund the Land Department with trust funds rather than money from general tax revenues. The move, made three years ago, was designed to free up tax money for other needs.
Wednesday's ruling means lawmakers looking to balance next year's budget will have to look elsewhere.
An earlier ruling prevented the transfer of trust funds for the current budget. But the replacement funds lawmakers came up with to run the agency this year are from a special risk-retention fund - essentially the state's savings account to pay for lawsuit settlements. And that is only a temporary solution.
State Land Commissioner Vanessa Hickman said her job now will be to persuade lawmakers to find the approximately $13 million a year necessary to run her agency - all of which came out of the land trust for a year and a half until the earlier ruling halted the practice.
Although the court said funding the department with trust funds was not allowed, it did not require the state to repay what was withdrawn previously.
When Arizona became a state in 1912, it received 10 million acres from the federal government. That land grant specified the proceeds from the sale or lease of the land must go to specific beneficiaries, mainly public schools.
About 9.3 million acres remain.
In 2009, lawmakers, with the support of the governor, voted to let the state land commissioner divert up to 10 percent of what was raised in the prior fiscal year in proceeds from all trusts, including not just sales but revenues generated from the sale of minerals and timber. That move allowed lawmakers to eliminate all taxpayer funding used to run the Land Department so funds could be shifted to plug other budget holes.
Proponents of the move argued it would help the trust and its beneficiaries in the long run by enabling the agency to get land ready to sell when the real estate market returns and, presumably, values increase. Foes of the move sued.
Justice Scott Bales, writing for the high court, said lawmakers ignored one thing: the Arizona Constitution, which requires that proceeds from the sale of state lands and of products from those lands must be deposited into the permanent fund.
"The language does not permit diverting proceeds instead into a management fund," Bales wrote. "Nor does the context suggest that (the) language should be interpreted to mean something other than what it says."
Hickman said she believes adequate funding for her agency makes sense financially for the state in the long run. She pointed out that her agency sold $214 million worth of state land last budget year.
"That's a pretty good year for the department," Hickman said. And she said the state can do better if her agency is in a position to properly market other lands.
"We're starting to see a lot of interest, and a lot of it is at pre-recession pricing," she said. "I think we've got some good opportunities coming up next year for sales."
With the trust fund proceeds now off-limits, Hickman said that leaves two basic options: get lawmakers to find the money for her agency elsewhere or persuade voters to amend the constitution to allow some trust dollars to be used for agency management.
Rep. John Kavanagh, R-Fountain Hills, said the latter option is not realistic. He said it makes little sense to take the issue to the ballot over $13 million, so the state will have to look elsewhere.
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