A series of fund sweeps enacted by the Legislature have kicked off several lawsuits challenging lawmakers’ authority to recoup some of that money — and more legal battles could be on the way as the state prepares to sweep hundreds of millions more in 2010.
The most recent lawsuit, filed by a coalition of water and power districts on Feb. 19, seeks special action by the Arizona Supreme Court to review two fund sweeps included in the 2009 fiscal budget revision passed in January.
The Irrigation and Electrical Districts Association of Arizona and more than a dozen individual member districts are challenging the Legislature’s decision to pull $2 million from accounts operated by the Arizona Power Authority, which buys and sells power generated by Hoover Dam.
They contend the Legislature acted in error when it pulled $1 million from the Power Authority’s operating budget and another $1 million from the Hoover Uprating Fund.
The Power Authority’s fund is used to buy and sell Hoover-generated power, while the Hoover Uprating Fund exists to handle the finances of bonds issued by the agency.
Both funds are “beyond the authority” of the Legislature, according to arguments by attorney Robert Lynch, who submitted a special-action petition to the court on Feb. 19.
As a special action, the court has the discretion to hear the arguments or reject the case entirely.
Lynch urged the state high court to accept the case because only four months of the 2009 fiscal year remain and the Arizona Supreme Court has yet to rule on whether lawmakers have the authority to sweep money not associated with the general fund.
“No decision of this court has yet addressed an attempt by the Legislature to ‘sweep’ monies from statutory funds not supported by state appropriations and dedicated and obligated to specific statutory programs,” Lynch noted in the 22-page filing.
In total, lawmakers swept almost $600 million from special funds last month to help close a $1.6 billion budget deficit.
The lawsuit filed by the water and power districts seeks to prevent state Treasurer Dean Martin from collecting or demanding the $2 million from the funds operated by the Power Authority. It also seeks to prevent enforcement of the fund sweeps by Gov. Jan Brewer, as well as the transfer of the funds by the commission in charge of the Power Authority.
Lynch said the $2 million fund sweep might seem minimal, but the sweeps could have grave effects on the Power Authority’s operating contract with the federal Western Area Power Administration, and the security of its $49 million in bonds with maturity dates beginning in 2009.
The sweeps also could jeopardize existing energy contracts between members of the Irrigation and Electrical Districts Association of Arizona and the Arizona Power Authority, he said.
“It turns a seemingly small matter into a huge crisis,” Lynch said.
Martin was unavailable for comment.
Paul Senseman, a Brewer spokesman, said the governor is aware of the lawsuit but has yet to take a position on its merits.
Joseph Mulholland, the Arizona Power Authority’s executive director, did not return calls for comment.
The petition for special action resembles a September lawsuit filed by the Arizona Farm Bureau, the Western Growers Association and other agricultural interests challenging a legislative sweep of $160,000 from private industry funds collected to advance grain, citrus and lettuce research and marketing. That sweep was enacted last June, when lawmakers first met to craft a budget for fiscal 2009.
That case, Arizona Farm Bureau Federation v. Napolitano, is still being decided by Maricopa County Superior Court Judge Craig Blakey.
The League of Arizona Cities and Towns, which represents 90 municipal governments, was the second group to challenge the Legislature’s fund sweeps, filing a lawsuit in November against Martin and former Gov. Janet Napolitano after the state tried take $30 million from cities and redirect it to the general fund.
A major prong in the league’s argument was that the state’s budgetary authority is limited to overseeing appropriations that affect state agencies, institutions and public schools.
The court ruled Feb. 3 that the provision requiring the forced transfer was unconstitutional because it was included in the fiscal 2009 budget bills passed by the Legislature last year. The ruling, however, applied to funds tied to the state’s general fund, and it didn’t address the authority of the Legislature to sweep funds not associated with the general fund.
Considering the Supreme Court’s opinion in League of Arizona Cities and Towns vs. Martin, Lynch said he believed the sweep of funds held by the Arizona Power Authority “doesn’t pass muster” because the provisions amount to “putting substantive legislation into an appropriations bill.”
The three separate legal battles might be a signal of an onslaught of lawsuits challenging legislative sweeps of non-appropriated funds, said Martin Shultz, the vice-president of governmental affairs with Pinnacle West Capital Corporation.
“These funds don’t just happen,” he said. “They were created for a purpose.”
Utility giant APS, a subsidiary of Pinnacle West, sent a letter Feb. 19 to Brewer and legislative leaders stating that proposed fiscal 2010 budget reductions impacting the Corporation Commission could jeopardize the agency’s ability to regulate utilities.
The 2010 appropriations options include sweeping $376,000 from the utility regulation revolving fund, and implementing a $1 million reduction in its spending authority.
The APS letter notes that the regulation account is funded by an assessment on utility customers, and the fund was “never envisioned as an extra source of revenue for the Legislature to fund general government expenses.”
According to the Joint Legislative Budget Committee, fund sweeps included in the fiscal 2009 budget revisions pulled $598 million from individual accounts.
Combined with the original 2009 fiscal year budget passed in 2008, the total amount of fund sweeps rises to almost $940 million. Outlines presented by the House and Senate Appropriations committee chairmen would sweep $360 million from special funds in 2010.