Judge stops Arizona from diverting opioid settlement funds, for now

Maricopa County Superior Court Commissioner Mary Cronin temporarily barred the Department of Administration from complying with a provision in the state budget to immediately transfer $75 million from the settlement account controlled by Attorney General Kris Mayes to the state treasurer. Cronin will hear further arguments on July 3.

The order came despite arguments by the Governor’s Office that those dollars are needed to ensure the state ends the current fiscal year on June 30 with a positive cash balance.

Separately, Cronin also prohibited another scheduled transfer of $40 million that the budget called to be moved on July 5.

Thursday’s order does not resolve the dispute. That will require more hearings and a possible trial.

But Cronin said Mayes presented enough evidence to her on Thursday to convince her the money should be kept where it is for now — in the control of the Attorney General’s Office.

“Plaintiff (Mayes) is likely to succeed on the merits of her claims because the diversion of $115 million from their approved uses … would be illegal,’’ the commissioner wrote. “If the funds are illegally diverted from their approved uses, Arizona and its citizens are likely to suffer irreparable harm.”

She said that is because the funds won’t be used to abate the opioid epidemic. Also, there’s a chance the diversion would risk future payments in violation of the settlement agreement.

The order is an interim victory for Mayes, who had told Gov. Katie Hobbs and lawmakers before they adopted the budget on Saturday that sweeping the settlement funds was illegal and that they would wind up in court.

The money in question is part of a $1.14 billion, 18-year settlement the state reached on its own behalf and also for local governments to resolve claims against manufacturers, distributors and pharmacies. All were accused of activities that created and exacerbated opioid abuse.

Mayes said the funds — $501 million that goes specifically to the state, with the balance to local governments — are largely earmarked for abatement of the opioid epidemic. A majority of that, she said, is restricted to paying for programs to prevent future abuse.

The attorney general said diverting funds to the Department of Corrections, Rehabilitation and Reentry as the budget mandates not only violates the agreement, which was approved by a federal judge, but puts the state at risk of losing future payments.

“Instead of spending it on opioid remediation, as required … all $115 million could end up being spent on beans, bullhorns, and buses with barred windows, the daily grist of the DOC’s mill,’’ Mayes said in her legal filings.

But Christian Slater, press aide to Hobbs, who negotiated the spending deal with Republican state lawmakers, said the transfer is justified.

He cited language in the budget that says the dollars being given to DOC can be used only to pay for past and current care, treatment and other programs for inmates with opioid use disorder, along with other “co-occurring substance use disorder of mental health conditions.’’ The wording says it can be used for any purpose as prescribed in the settlement agreement.

That means no violation of the agreement, Slater said.

But Mayes said that’s just half the problem.

She cited testimony from a legislative hearing where there was an admission that the state isn’t taking the dollars to finance new treatment programs for inmates but instead simply replacing existing state funds with the settlement cash. That, in turn, freed up what already was being spent on those programs to instead balance the state budget.

Put another way, Mayes said it’s just shuffling money around to “backfill’’ the budget in the state prison system, with no new net benefit to inmates.

Slater described the transfer another way, saying it “would be more accurately described as funding vital opioid use disorder treatment for a population that is disproportionately impacted by the opioid epidemic.’’

He said the attorney general’s own website indicates that funds can be used for opioid treatment for inmates.

Mayes does not dispute that fact. But she said the amount of money needed for new programs is more in the neighborhood of $10 million a year. Anything beyond that, Mayes said, is simply funding the obligations of the state to run the Department of Corrections.

Nor was she impressed by the arguments that the state was facing the prospect of running a deficit without the settlement dollars.

“It was their obligation to balance the state budget in a legal fashion,’’ Mayes told Capitol Media Services. “They have many other viable options to balance the budget.”

One of those is the state’s budget stabilization fund — more commonly known as the “rainy day fund’’ — which she said has about $1.4 billion.

But lawmakers balked at tapping that account.