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AZ High Court receives arguments on plan to take $7M from First Things First

State attorneys on April 27 filed a response with the Arizona Supreme Court to defend the Legislature's 2009 sweep of millions of dollars in interest from revenue earmarked by voters to pay for health care for children.

The legal action initiated by Arizona Solicitor General Mary O'Grady advances the legal fight over the Legislature's ability to commandeer money intended to pay for voter-approved initiatives. But the state's highest court still has discretion to decline jurisdiction over the matter.

In January, lawmakers demanded payment to the state's general fund of $7 million in interest accrued from a fund created to accumulate revenue from an 80-cents-per-pack tax on cigarettes as a result of Proposition 203, passed in 2006. The proposition was also known as the First Things First initiative.

But the takeaway was challenged by the Arizona Early Childhood Development and Health Board, a government agency also created by the initiative, which has argued that the Republican-dominated Legislature lacked constitutional authority to claim the money.

Paul Eckstein, an attorney who represents the board, has argued the sweep of interest earnings violates the 1998 Voter Protection Alliance Act, or Proposition 105, a constitutional amendment that limited the Legislature's power to amend voter-approved initiatives. The state Constitution now allows lawmakers to change voter-approved policies only in ways that advance the original purpose of the policy and only if approved by a three-fourths vote of the Legislature.

That's where things gets interesting – and murky – because the collision of the two acts leaves it open to interpretation whether restrictions apply to the interest accrued by funds that were approved by voters for specific purposes. In this case, the interest in question was drawn on a fund balance that has reached about $330 million.

Prop 203 spelled out that the interest must be put to use by the Arizona Early Childhood Development and Health Board "except as otherwise provided by law."

O'Grady argued the interest is fair game and that the Prop.-105 restrictions do not apply to the interest collected on unspent revenue accumulated from the tobacco tax.


"The Legislature only exercised the authority that the initiative's terms expressly granted it," O'Grady wrote in the 15-page document, which was filed on behalf of Governor Jan Brewer, Treasurer Dean Martin and State Comptroller D. Clark Partridge.

Before the filing, Democratic lawmakers had convened with Nadine Basha, chairwoman of the First Things First initiative, to oppose the fund sweep and to avert a similar effort during the formation of the fiscal 2010 state budget.

Basha, wife of former gubernatorial candidate Eddie Basha, vowed the Arizona Early Childhood Development and Health Board "will protect every penny" of its money, which the General Accounting Office has pegged to be around $330 million.

"We felt like we had a charge from the voters of Arizona to protect this money," she said.

Assistant Minority Leader Rep. Kyrsten Sinema, a Democrat from Phoenix, said she expects the court will rule that voter protections apply to interest earnings.

Basha, the board's chairwoman, said the state has not received any of the $7 million, which she added must be invested to ensure the vitality of the board's mission of providing health care and development programs for children under the age of five.

The ability to invest is of particular interest to the board, as the Joint Legislative Budget Committee has estimated that expenses incurred through Prop. 203 obligations will likely surpass tax revenues as soon as 2012.

However, O'Grady disputed the importance of the $7 million, stating that it represented a small fraction of the money under the board's control and that taking the money would not impair the board from carrying out its mission.

J. Elliott Hibbs, the board's executive director, said tobacco revenues are declining as fewer people are choosing to smoke. Higher taxes have led to fewer tobacco sales statewide.

"We knew that we had a declining source of revenue," Nadine Basha said.

In the meantime, the board has assembled regional districts to carry out its goal of providing health and developmental services for children across the state, and has recently approved $141 million in programs for the 2010 fiscal year, Hibbs said.

Hibbs said the board has moved to begin providing care ahead of schedule by asking the Department of Administration for "bypasses" of state procurement requirements for services such as childcare, medical home visitations, and food aid for poor families with children under five years old.

By law, regional district positions are held by volunteers, but approximately 120 full-time employees have been hired, said Hibbs, who estimated $155 million to $165 million will be needed in fiscal 2010.

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