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Lawmakers getting hammered in court; resources strained

Arizona’s 49th Legislature has been tasked with keeping the state financially afloat during the most troubling economic times in state history. But the choices lawmakers made this year in an effort to balance the budget have led to six lawsuits challenging the state’s use of fund sweeps to fill in deficits.

The state has already lost two of those suits and two more appear headed toward a similar outcome. Counting challenges to fund sweeps, policy changes and a state Supreme Court battle with Gov. Jan Brewer, the Legislature has been sued a dozen times this year, costing the state valuable resources to defend the cases in court.

The Attorney General’s Office estimates that 3,300 total hours have been spent so far defending the suits. Determining the precise financial cost is difficult, as the office has not separated hours spent on the cases by paralegals from senior attorneys, which typically cost the state $150 to $200 an hour in salaries.

Critics say Republican lawmakers have been far too willing to flout the law in their quest to erase billions of dollars of red ink – and pack in several policy objectives.

“Maybe the Legislature doesn’t care about the Constitution,” said Paul Eckstein, a Phoenix attorney. “They’ve had four cases that have run roughshod over the Constitution. They think it’s 31 and 16; that that’s what’s constitutional. And there’s something wrong with that.”

Eckstein has represented several groups that have sued the state this year after lawmakers raided hundreds of specialized funds and used the money to prop up spending in the state’s general operating account.

Each of the six lawsuits challenging fund sweeps contained essentially the same argument: The money in the funds wasn’t the state’s to take.

But the Legislature’s legal problems don’t end with the fund sweeps.

Several lawsuits have been filed to challenge other laws passed this year, including abortion restrictions and a requirement that all city elections be nonpartisan. Yet another lawsuit was filed on the premise that the Legislature acted on policy matters outside the scope of a special session.

Republican legislative leaders also lost a court battle with Brewer, who sued lawmakers over their refusal to send her a package of budget bills they had passed. The Arizona Supreme Court ruled the Legislature must transmit approved bills as quickly as possible, as per the state Constitution.

The House and Senate split a $37,500 legal bill in its attempt to defeat Brewer’s lawsuit by hiring private attorney David Cantelme, according to House records.

But GOP leaders said they still believe the budget maneuvers were appropriate, both under the Constitution and given the circumstances.

House Speaker Kirk Adams said the primary reason for the lawsuits challenging the fund sweeps was that there wasn’t any legal precedent set, and lawmakers are doing everything possible to fill budget holes.
“To the extent that we are looking under every rock to balance this budget, there are going to be things that are not legally clear,” he said. “We’re going to get some clarity on some of these issues.”

Litigation over fund sweeps wasn’t entirely unexpected. Lawmakers were put on notice last year, when several agricultural groups sued after the state took $160,000 as part of the fiscal 2009 budget. The suit was filed in September 2008, alleging the money swept into the state’s general fund belonged to private industry and was pooled together in a state-operated fund to advance grain, citrus and lettuce research and marketing.

Although a ruling on the lawsuit wasn’t issued until July, the arguments from both sides were essentially the same as in legal challenges to fund sweeps made in January as part of an emergency fix to the fiscal 2009 budget and as part of the fiscal 2010 budget.

Senate President Bob Burns acknowledged that budget analysts warned the state was vulnerable to lawsuits if certain funds were swept. But the decision to include any of those sweeps was done by the chamber.

“Some of those (sweeps), we realize, were risky. If people want to continue to spend beyond our means, then we’re forced to take risks we otherwise wouldn’t take,” he said.

Burns said he wouldn’t have included any sweeps if they weren’t necessary to ensure a funding source for “certain levels of spending” that were needed for the budget to win enough support.

The state’s track record in defending itself in lawsuits stemming from fund sweeps is poor so far. In addition to losing the suit filed by the agricultural groups, judges have said two other sweeps were illegal and signaled two more likely are, as well.

Over the summer, Maricopa County Superior Court judges ruled the Legislature’s decision to take $18.5 million from the Science Foundation of Arizona was illegal. The state’s highest court also struck down a sweep of $7 million in interest held by the Arizona Early Childhood Development and Health Board. The board’s revenue comes from a voter-approved 80-cent tobacco tax.

The Legislature’s hand has also been slapped away – at least temporarily – from an account operated by the state’s Industrial Commission that is used to cover private businesses workers’ compensation expenses and to reimburse insurance carriers.

Lawmakers tried to take $4.7 million from the Industrial Commission’s account. The case is still pending before a Maricopa County Superior Court judge, who in July granted a restraining order preventing the state from taking the money. In order issue the order, the judge had to find there was a strong likelihood the Industrial Commission could ultimately prevail in its suit.

Similarly, two state-run insurance guaranty funds that sued over sweeps of $30 million in January’s emergency budget fix were granted a preliminary injunction in August, preventing the funds from being raided.

Sen. Russell Pearce, a Republican from Mesa, said he’s angry that the groups rushed to court to sue over the fund sweeps. Pearce, as the chairman of the Senate Appropriations Committee, played a lead role in crafting the budget plans and choosing which funds to sweep.

“When these groups want to use the power of government to collect their fees, to regulate their industry, and then to think they’re not subject to being a part of the government’s solutions is irresponsible on their part,” he said. “They use the power of government to collect those fees. That makes it a tax. We have a right to set priorities and, in tough times, to shift money around, like we do with a thousand other funds.”

Other lawsuits have been averted or withdrawn because the Legislature reversed some fund sweeps to avoid losing in court. In March, lawmakers reinstated $2 million swept from funds managed by the Arizona Power Authority.

The Power Authority had petitioned for the Supreme Court to intercede and, while the high court declined to take up the case, the filing prompted lawmakers to return the money. At the same time, lawmakers also reversed about $16.8 million in other sweeps to environmental, agriculture and health funds in order to avoid litigation.

Bob Lynch, an attorney who represents the Central Arizona Water Conservation District, is challenging a fund sweep that is set to pull $5.4 million from the Arizona Water Banking Authority. The money was contributed by the state of Nevada as part of a multi-state deal for Colorado River water. The Supreme Court has yet to decide whether it will hear the lawsuit.

The sweep’s possible effect on the far-reaching water deal appears to be a clear example of what Adams recognized as the unintended consequences that arise as lawmakers struggle to balance the budget with the help of money in obscure funds. “Oftentimes, you don’t know what to fix until you take the action,” Adams said.

Adams said lawmakers have full confidence in the abilities of attorneys for Legislative Council and the House and Senate. The sweeps also had received the blessing of Brewer’s chief counsel, Joseph Kanefield.

Adams shakes off accusations that lawmakers acted on the presumption that legislative prerogative and a majority vote trump the state Constitution. Guidelines on legislative authority to take money from specific funds are still undefined by the courts, he said. The law is clearer, by comparison, on the constraints of a governor’s authority to do so.

Until now, massive and far-reaching fund sweeps haven’t been necessary, and the lack of clear case law has left lawmakers on a blind chase to solve a budget crisis, he said.

“Every dollar counts at this point,” Adams said. “Literally, every million dollars counts. You have the worst deficit in the history of Arizona state government, and we have had to take extraordinary steps that I don’t think anybody wants to take.”

And many of the cases have dragged on for months on end, a clear indicator that the state has every intention of defending the Legislature’s actions, said Lee Miller, a lobbyist and attorney who represents the Arizona Republican Party.

“They’re not easy cases to settle because the Legislature is desperate for the money and they’ll fight tooth and nail,” he said.

Attorney General Terry Goddard’s office has been the chief defender of the sweeps in court. Although the budget mechanism has helped give the Legislature access to money without raising taxes, Goddard said the rampant use of the technique in recent budgets is causing governance problems. Every time lawmakers turn to sweeps, he said, it strains the relationship between the state and the entity facing the loss of its money.

“We’re trying to defend them as best we can – that’s my job,” he said. “But from a public policy perspective…it’s just like you’re tearing the state apart.”

Defending against the lawsuits has proven to be no easy task, Goddard said. His office has lost almost 100 attorneys and employees since the beginning of the year.

Goddard said he estimates that nearly the entire civil division has been called upon to defend roughly 20 lawsuits the Legislature is facing, and the growing fund-sweep caseload is taking its toll. “There’s no question that there is an opportunity cost,” he said. “Certainly flexibility is lost and the ability to get out in front of problems. You have to become reflexive instead of proactive.

“They were anxious to grab every dime that wasn’t tied down, and certainly they’ve violated some rights along the way.”

Filing lawsuits can also yield unexpected outcomes, as judges and justices can and sometimes do provide clear direction to help the Legislature achieve its goals, Miller said.

“Whenever you sue the state, be careful of what you ask for because you just might get it,” he said. “The court can tell the Legislature, ‘You did it wrong and you can’t do what you did.’ But most of the time, courts will very courteously tell the Legislature, ‘If you would have done it this way you would have been OK.’”

That logic might apply to the lawsuit filed in November 2008 by Eckstein for the League of Arizona Cities and Towns, which argued the forced payment of $30 million to the state amounted to an unconstitutional increase of state revenues and could not be included in an appropriations bill.

The court ruled in favor of the league, but the opinion added that the Legislature’s erred by failing to identify the source of revenues that local governments would need to tap in order to pay the state. Some lawmakers tried in March to follow the Supreme Court’s advice and revisit a fund sweep, but the idea failed to win enough support.

Still, formulating a general rule of what can and can’t be done to balance the state’s revenue and spending may be next to impossible.

Each case is will be settled on its merits, said Arizona State University constitutional law professor Paul
Bender.

Most legislatures simply carry out a desired objective and leave the matter for the courts to decide in the event of a lawsuit, he said.

Bender, who has argued on several occasions before the Arizona Supreme Court, said he is surprised that the high court has decided to accept petitions for special action that challenge the Legislature.

He attributed the court’s shifting attitude to a growing nationwide trend toward increased animosity between legislative and judicial branches. In Arizona, he noted, a legislative referendum to change the Constitution to ban gay marriage was argued as necessary to stop the court from overturning a statutory ban on gay marriage.

“I have noticed the court’s willingness to step into disputes that traditionally courts have been leery to step into,” he said. “Here, if they don’t get involved, these people (affected by the sweeps) have no recourse.”
The crux of the argument by Pearce and Adams is separation of powers.

The Constitution gives the Legislature the power to appropriate state money. While the lawsuits may give lawmakers and onlookers heartburn now, they will ultimately provide guidance for future legislatures that face economic downturns. The decision to navigate untested legal waters is done to preserve the power of appropriation, Adams said.

“It doesn’t mean that, for fear of a lawsuit, we don’t do something.

The Legislature has the right to appropriate,” he said. “I think this situation demonstrates why it’s important. We’re trying to balance a state budget with a third of the budget essentially untouchable (because of voter protection). That’s a tall order and a neat trick if you can do it.”

- Reporter Christian Palmer contributed to this report.
- Yellow Sheet Editor Daniel Scarpinato contributed to this report.

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