Governor Napolitano wants legislators to pass a bill during the upcoming Oct. 20 special session that would make $50 million available from the State Compensation Fund and help pay for additional spending she is seeking for Child Protective Services, the Department of Corrections and the Department of Revenue.

The bill, which will be a rework of a measure that was stymied in the House in the regular session, will propose changes that fund officials believe are needed to protect fund assets, which are used to pay claims to workers injured on the job.

Bill Jones, an attorney representing the fund in litigation against the state that was filed after the fund-protecting bill failed to be enacted, said passage of such a bill probably would make fund officials amenable to transferring the $50 million to the state general fund.

“The Fund is willing to be a good neighbor to do what it could to aid in the resolution of this financial situation,” said Mr. Jones.

He added that the fund also would probably look favorably on dropping the lawsuit.

The use of the Compensation Fund to ease the state’s financial crisis gathered steam shortly after the regular session began last January. Rep. Andy Biggs, R-Dist. 22, chaired a House Appropriations subcommittee that was investigating selling state assets to raise money. The Compensation Fund was one of the assets examined.

Legislators split over the desirability of selling the fund to a private company, but during a special budget session in March passed a bill transferring $50 million from the Compensation Fund to the general fund, with a provision that the Compensation Fund was to be reimbursed by being given state property and buildings to be identified later.

According to legal documents filed by Attorney General Terry Goddard in response to the Fund’s lawsuit, there was an agreement to turn over the State Hospital at 24th Street and Van Buren to the Fund for the $50 million.

But the transfer never was done. The fund balked, saying it needed protection for its assets, which are payments by private businesses for workers’ compensation coverage.

A regular-session bill, H2195, was rewritten with a striker amendment to satisfy the fund. The amended bill said the state could not impair the fund’s assets and that the state would reimburse the fund with property worth 125 per cent of any amount taken from the fund.

The Senate passed the rewritten bill 25-0 on May 21, and the House Commerce and Military Affairs Committee recommended the House concur in the amendments.

But House Republican leaders and the House GOP caucus felt the amended bill gave away too much to the Compensation Fund, and it never was brought for a House vote.

The Fund responded by not taking the procedural steps necessary to physically transfer $50 million to the general fund and by filing a lawsuit saying the Legislature does not have authority to take funds that are used to pay claims to workers injured on the job and spend the money on general state programs. The Fund said its money came from assessments paid by private businesses.

The Arizona Farm Bureau Federation, the National Federation of Independent Business, the Phoenix Chamber of Commerce and the Tucson Chamber of Commerce all sided with the Fund as co-plaintiffs.

Attorney General Terry Goddard, responding for the state, said the Legislature does indeed have authority to require such transfers in exchange for state-owned real estate. The suit was assigned to Superior Court Judge Rebecca Albrecht and a pre-trail conference has been scheduled for Oct. 23.

More Auditors For Department Of Revenue

In addition to reviving the Compensation Fund transfer, Ms. Napolitano is asking legislators to invest $5 million in the Department of Revenue for additional auditors and collectors. The investment, she says, should net increased revenue of about $10 million.

The Compensation Fund bill and the DOR revenue-increase program are two attempts to take the immediate edge off the governor’s requests for more money for CPS and DOC. Earlier this year, the governor and the Legislature battled from January through June on a $6.3 billion budget for fiscal 2004, which began last July 1, while facing a potential $1 billion shortfall in revenue.

That battle continues. Governor Napolitano attempted to increase spending on her own by line-vetoing a number of legislative budget reductions, and the Arizona Supreme Court has yet to decide whether her line-item veto authority is that broad. Republican legislative leaders filed the challenge.

When the special session convenes Oct. 20, the availability of funds will be at center stage.

The state’s financial analysts are still determining the state’s current fiscal condition. A staff member at the Joint Legislative Budget Committee said, “We are still in the process of closing the books” for fiscal 2003, which ended June 30.

JLBC Forecasts

There are two notes of optimism, however.

JLBC has reported that revenue collections for July and August, the first two months of fiscal 2004, were $24.8 million above forecast.

JLBC also reports that, based on preliminary figures, the state finished fiscal 2003 an estimated $227 million in the black.

JLBC says the estimate is subject to change but that if it holds up, the general fund should have enough to cover remaining fiscal 2004 expenses and end up in the black again at the end of the fiscal year next June 30 with nearly $45 million in the bank.

Sen. Robert Burns, R-Dist. 9, chairman of the Senate Appropriations Committee, says he has scheduled meetings before the special session to determine the state’s condition.

“I just don’t want to battle the stomach acid until then,” he said. “When we do sit down with staff, we’ll get our first snapshot.” —