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 that 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 those tax dollars for other priorities.
Wednesday's ruling means lawmakers looking to balance next year's budget will have to find another source of cash.
An earlier ruling prevented the transfer of trust funds for the current budget. But the money lawmakers did come up with to run the agency this year is 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 convince lawmakers to find the approximately $13 million a year necessary to run her agency.
When Arizona became a state in 1912 it got 10 million acres of land from the federal government. That land specified the proceeds from the sale or lease of those lands were designed for specific beneficiaries, mainly public schools.
About 9.3 million acres remain.
In 2009, though, 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 cut 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 the beneficiaries -- in the long run, saying it will enable the agency to get land randy to sell when the real estate market returns and developers want it again, presumably at a higher price. 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 land 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 that 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 convince voters to amend the Constitution to allow some trust dollars to be used for agency management.
Rep. John Kavanagh, R-Fountain Hills, said that latter option is not realistic. He said it makes little sense to take the issue to the ballot over $13 million.
"We'll look at other funds,'' said Kavanagh, who chairs the House Appropriations Committee, especially if there's no money left to be transferred out of the risk-retention fund. And if there are no other pots of money to be found, he said, it ultimately will become part of what taxpayers have to finance.