State legislators and the governor acted illegally in taking $7 million from a 2006 tobacco tax initiative to instead balance the state budget, the Arizona Supreme Court ruled Friday.
The justices rejected arguments that lawmakers are free to reallocate investment and interest income from the money raised by the tax as long as they do not touch the tax revenues themselves.
But Justice Michael Ryan, writing for the unanimous court, said the legislators - and the governor who signed the measure taking the money - are wrong.
He said voters, in approving the 80-cents-per-pack hike in tobacco taxes for the First Things First program, specifically wanted all the proceeds earmarked to improve early-childhood development. Ryan said the measure specifically gives the board charged with handing out the cash authority over any interest on funds received but not yet allocated.
More to the point, Ryan said a 1998 constitutional amendment bars legislators from altering what voters have approved. He said the only exception is when a new law "furthers the purpose" of the original measure - and then only if approved by three-fourths of the members of both the House and Senate.
Ryan said the raid on the funds to balance the budget did not further the underlying purpose of the initiative, which is to establish new programs for early-childhood health and education. And even if it did, the justice continued, the Arizona Constitution allows such changes only on a three-fourths vote of both the House and Senate; this measure passed the House on a 34-22 margin and the Senate on a 16-12 vote.
House Speaker Kirk Adams, R-Mesa, said he was disappointed by the ruling, saying it complicates efforts by lawmakers to fund basic services as other sources of revenues are declining.
"Now $7 million isn't a lot in the grand scheme of things," he said. "But when you look at what we are having to cobble together - $5 million here, $7 million there, $4 million there - all of it adds up. And all of it matters at this point.''
And Adams said this legal fight highlights the flaws in that 1998 constitutional amendment that makes voter-approved spending mandates off-limits, am amendment he said needs to be repealed or altered.
Adams said the new tobacco tax has raised about $400 million since being implemented. At the same time, lawmakers are trying to bridge what currently is a $3 billion gap between revenues and expenses.
"We have an overall concern with how this $400 million is being spent at a time when Arizona is facing the worst fiscal crisis in our history and we're struggling to meet the financial requirements for basic state services," he said.
Adams said that, in times of need, lawmakers should be able to divert the dollars that now go toward new programs for youngsters to instead fund essential health care and education.
But Liz Barker Alvarez, spokeswoman for First Things First, rejected Adams' premise.
"We consider investment in programs and services that ensure that Arizona's children get to school healthy and ready to succeed to be a necessity, not a nicety,'' she said.
Alvarez said her organization recognizes the state's "unprecedented fiscal crisis resulting in significant budget cuts across services that affect children and families." But she said the money raised by the tobacco tax is being used to deal with the needs of individual communities.
The dispute before the high court stems from a discovery by lawmakers in late January that there wasn't enough money coming in to support the $9.9 billion spending plan. Their fix for the $1.6 billion deficit included spending cuts, use of anticipated federal stimulus dollars and cash "swept" from various special funds.
Lawmakers did not touch the actual revenues from the new tobacco tax, which raises about $150 million a year. Instead they took the estimated $7 million in interest the cash had gathered while the newly formed Arizona Early Childhood Development and Health Board decided how to spend the revenues.
Ryan said that ignores the language in the initiative that specifically promised to fund early-childhood health and education programs, language he said sought to shield the money raised from being reallocated by the Legislature.
That broad language, he continued, clearly gives the board control of not just the taxes themselves but any interest that accumulates.
"Allowing monies to be siphoned from the (early-childhood) fund to the general fund is not consistent with the purpose of the initiative," Ryan wrote. "Rather, the purpose of the initiative was to ensure that revenues serve the specific program aims of the initiative."
Gov. Jan Brewer was more accepting of Friday's ruling than Adams.
"The governor has been very open about her distaste of fund sweeps," said Paul Senseman, her press aide, even though she signed the legislation authorizing the sweep.
Friday's ruling is the latest in what has been a series of legal defeats for lawmakers in their efforts to tap other funds to balance the budget.
Earlier this month, a Maricopa County Superior Court judge said it was wrong for lawmakers last year to seize assessments that farmers had imposed on themselves for specific research and marketing programs.
The Arizona Supreme Court ruled in February that it was illegal to demand that cities and counties give up more than $29.7 million.
And last month, another Maricopa County judge issued a restraining order blocking the state from taking $4.7 million from accounts of the Industrial Commission, at least temporarily. There has been no final ruling on whether the raid was illegal.