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Science Foundation sues state over sweep of 21st Century Fund

Science Foundation Arizona has filed a lawsuit claiming that the state breached a contract when lawmakers raided the 21st Century Fund in January and failed to reimburse $18.5 million the nonprofit already had spent.

The lawsuit, which was filed in Maricopa County Superior Court May 8, seeks a repayment of the $18.5 million and asks the court to prevent the fund from being emptied.

In 2006, the Legislature established the 21st Century Fund and pledged to contribute $25 million a year for four years if Science Foundation Arizona was able to raise at least that much in private donations. The money was to be used to improve the state’s competitiveness in bioscience fields by creating a public-private partnership to fund research and development programs.

In January, with lawmakers looking for ways to close a $1.6 billion budget deficit halfway through the fiscal year, the $22.5 million appropriation to the 21st Century Fund was reversed. The budget legislation also reverted any money that remained in the fund, “whether encumbered or unencumbered,” to the state’s general fund to balance the deficit.

In the complaint, Science Foundation Arizona noted said the state did not make scheduled payments to the 21st Century Fund in November and December 2008, citing “a cash flow problem.” The nonprofit said it arranged for its private-sector partners to advance their portion of the grant funding, with the state contribution to be used to pay for later research grants.

In December, the state authorized the nonprofit to begin granting money, saying that while the 21st Century Fund allocation may be lowered in the coming months, it wouldn’t be eliminated.

The next month, however, lawmakers voted to drain the fund.

In April, the Economic Development Commission, which manages the 21st Century Fund, denied Science Foundation Arizona’s request for reimbursement based on the emergency budget legislation that passed in January.

That constitutes a breach of contract, Science Foundation Arizona argues, because the contract signed between the nonprofit and the state allows for “just and equitable compensation” for work in progress or completed when the contract is terminated.

Science Foundation Arizona is also arguing that the fund sweep violates the contract clauses of the state and federal constitutions, which prohibit the passing of any law that impairs the obligation of a contract.

The fund sweep violates the constitutional clauses, Science Foundation Arizona argues, because it is the basis for the Commerce and Economic Development Commission’s decision to refuse reimbursement for the expenses incurred under the contract.

Last week, Department of Administration Director Bill Bell ruled that CEDC had to repay the $18.5 million. However, his decision cannot force the Legislature to come up with the money.

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