The last of several lawsuits spawned by sweeps of dozens of specialized funds to balance the budget in 2009 was resolved with a Court of Appeals decision on Nov. 23 allowing the Legislature to raid workers’ compensation funds.
And from those suits came a body of law the Legislature can rely on when deciding whether to take money from a fund.
“The common belief was that when the money was in some agency’s hands, and even when the money was generated by fees, it was going to stay there, the Legislature couldn’t take it back,” said attorney Paul Eckstein, who successfully defended the Arizona Early Childhood Development and Health Board from a $7 million sweep in 2009.
Eckstein said the Legislature can now safely raid funds supplied by the general fund and monies deposited in the general fund that were generated by a special tax or non-constitutional body.
But the Legislature has to keep its hands off funds that are established by the Arizona Constitution, such as the state Land Trust, and voter approved measures, such as the Arizona Early Childhood Development and Health Board.
There were at least six “sweeps” lawsuits filed against the state when the 49th Legislature raided specialized money for transfer to the general fund. The Legislature in 2009 was trying to keep the state financially afloat during a massive economic downturn. It raided more than 100 such funds.
Each plaintiff in those lawsuits made the same basic argument that the money wasn’t the state’s to take.
Eckstein said the body of law at least brings certainty.
“Lawyers always like certainty,” Eckstein said. “We advise our clients on what we think the law is and what appellate decisions are clear and definitive.”
In the most recent decision on Nov. 23, the Arizona Court of Appeals ruled that the Legislature can take money from a workers’ compensation fund that provides supplemental awards for catastrophically injured workers.
The court overturned a 2009 trial court ruling that found the Industrial Commission of Arizona’s Special Fund untouchable by the Legislature.
The Court of Appeals found that the Special Fund’s monies are “public funds subject to appropriation.”
The Legislature took $4.7 million from the Industrial Commission’s Special Fund, which is designed to provide extra money for workers whose injuries permanently disabled them to the point of not being able to care for themselves. It also provides compensation for costs related to a second injury after workers suffer an injury such as a loss of a limb.
Judge Larry Grant of Maricopa County Superior Court stopped the transfer, finding that the special fund monies were not public funds because they were insurance proceeds held in trust.
The Court of Appeals disagreed, saying the monies are public funds because the Legislature can amend or dissolve the special fund, and because money goes to the state treasurer for the benefit of the Industrial Commission.
David Ouimette, the Industrial Commission’s attorney, said his client is still deciding whether to appeal to the Arizona Supreme Court. He declined further comment.
Eckstein said the decision was the most “far reaching” of the case law that came from the sweeps. Another attorney who represented a client in a sweeps case, Lori Voepel, said she was stunned by the decision.
Voepel said it could be broadly applied.
And while the state was successful this time, it had its share of losses.
In July, Judge Joseph Kreamer of Maricopa County Superior Court signed a judgment ordering the state to keep its hands off $29.6 million in two separate insurance funds.
Voepel, who represented the two funds, said the state agreed not to appeal the judgment in exchange for the plaintiffs not pursuing attorney fees.
A year earlier, Kreamer rejected a $20 million sweep from the Central Arizona Water Conservation District, which manages the Arizona Water Banking Fund, but the judge did not order the Legislature to return the money.
Kreamer did not order the repayment because the district did not meet requirements for a notice of claim. And although the money was not returned, Kreamer’s decision provides guidance.