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Land Dept. funding stable for 2012, but future uncertain

With the clock winding down on a court ruling that temporarily preserved millions in funding for the Arizona State Land Department, the agency is looking at a pair of contingency plans that could keep it afloat for the next year.

Land Department Director Maria Baier said she may ask the Arizona Court of Appeals to extend a stay that would allow the agency to continue funding itself through proceeds from the sale of state trust lands. The Legislature created the Trust Land Management Fund in 2009, but a judge later ruled that the funding mechanism was unconstitutional.

The appellate court stayed Maricopa County Superior Court Judge Gary Donahoe’s ruling in December, but that stay is scheduled to end June 30. Meanwhile, the Land Department’s operating budget for fiscal year 2012, which begins July 1, still includes $12.5 million in trust land money.

“There may be a need to ask the court for an extension of the stay beyond June 30. But we have not reached that determination for certain yet,” Baier said.

But the Land Department has a contingency plan if the court doesn’t extend or overrule the stay — the agency can use money from a risk management revolving fund managed by the Arizona Department of Administration.

ADOA, which serves as the state’s insurer, uses the fund for workers’ compensation payments, claims for damages against state agencies and other insurance-related expenses. The fund is expected to have a balance of about $49 million at the end of the current fiscal year.

Under the budget for the upcoming fiscal year, the Land Department can use about $9.9 million from the fund for operating expenses “if any expenditures from the trust land management fund are required to cease by court order.” If the department loses the lawsuit, it will also still be able to use about $2.6 million from fees that won’t be affected by the litigation.

“It’s not a stable source of funding or a permanent source of funding or anything like that, but I think in an emergency there may be an opportunity to use some of that,” Baier said.

Attorney Tim Hogan, of Arizona Center for Law in the Public Interest, said he’ll oppose any Land Department request to extend the stay. Hogan, who brought the suit challenging the Trust Land Management Fund on behalf of two teachers and the Cartwright Elementary School District, said the appellate court’s stay was intended to give the Land Department time to ask the Legislature for more funding. The department should have used that time accordingly, he said.

“The court entered a stay of limited duration here and the purpose of that, I think, was for the Land Department to resolve its funding issues at the Legislature this year. As far as I know, the Land Department didn’t make any effort to do that,” Hogan said.

The Legislature actually cut nearly $2.1 million from the Land Department’s budget for the upcoming year, leaving the agency with about $1.1 million in general fund money.

Rep. John Kavanagh, who chairs the House Appropriations Committee, said the risk management fund money was intended for one-time use only. If the Land Department loses the lawsuit, the Legislature will once again fund the agency with general fund money.

“If we lose, we will have no choice but to fund it, which I suppose is ironic because that would mean less money for education, among other things,” said Kavanagh, a Fountain Hills Republican.

The Land Department is preparing a response to a brief Hogan filed in April. The Court of Appeals has not yet set a date for oral arguments in the case.

The Trust Land Management Fund, which the Legislature created in 2009, allows the Land Department to use proceeds from the sale of state trust land as operating money. In his lawsuit, Hogan argued that the funding mechanism was illegal because it violated a provision in the Arizona Constitution that requires the money from the sale of trust lands to be used primarily for school funding.

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