State AG's office OK to use fraud funds to balance state budget, court rules - East Valley Tribune: Capitol Media Services

State AG's office OK to use fraud funds to balance state budget, court rules

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Posted: Tuesday, September 24, 2013 6:00 pm | Updated: 12:09 am, Wed Sep 25, 2013.

PHOENIX — Legislators did nothing wrong in taking $50 million from the state's share of a nationwide mortgage fraud settlement to instead balance the budget, the Arizona Supreme Court ruled Tuesday.

Without comment, the justices refused to disturb lower court rulings that nothing in the agreement signed by Attorney General Tom Horne required him to spend the money only on services that benefit homeowners, including those in danger of foreclosure. The justices also formally gave the go-ahead for the transfer of the cash which had been on hold while the case made its way through the legal system.

Attorney Tim Hogan of the Arizona Center for Law in the Public Interest, who had sued to block the move, called Tuesday's ruling “unfortunate.”

“There's still a ton of people that could have benefitted from this money that rightfully should have been spent on people with foreclosure problems instead of going to the general fund,” he said.

Hogan said the irony of the whole thing is that lawmakers, in demanding the cash last year, insisted they needed it to balance the budget. But by the time the fiscal year ended on June 30, the state had a surplus of nearly $900 million.

The dispute stems from last year's $26 billion nationwide settlement with five major mortgage lenders accused of fraud.

Arizona's share of that was $1.6 billion. Most of that was for direct aid to homeowners to help reduce their mortgages. There also was cash compensation for those who already had lost their homes.

The state itself got another $97 million to compensate for its own losses, provide additional help and prevent future fraud. Hogan argued that should include things like paying for financial counselors and legal assistance.

Hogan pointed out that part of the nationwide consent decree Horne signed on Arizona's behalf says the money will be placed in trust for specified used.

Instead, under pressure from the Legislature, Horne turned over $50 million of that to the state general fund to help balance the books.

But in a formal decision earlier this year — the one the Supreme Court upheld Tuesday — the state Court of Appeals rebuffed the challenge. Appellate Judge Jon Thompson said Horne had the discretion to voluntarily give the funds to the Legislature.

Hogan, however, questioned exactly how voluntary Horne's actions were.

Horne admitted during the budget debate he essentially was given a choice by legislative leaders: Give up the money voluntarily or have them take $50 million from somewhere else in his budget.

“The attorney general's ‘discretion’ has been coerced,” Hogan argued. “You can't really call that the exercise of discretion.”

None of that, however, swayed the appellate judges.

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