Supreme Court to hear challenge of First Things First fund sweep

The Arizona Supreme Court has agreed to hear a challenge of a legislative fund sweep that targeted money generated by a tobacco tax and intended to pay for children’s health care.

But in the same stroke on June 1, justices declined to address a dispute of a fund sweep protested by a state labor commission.

In January, lawmakers demanded payment to the state’s general fund of $7 million in interest accrued from a fund created to accumulate revenue from an 80-cents-per-pack tax on cigarettes as a result of Proposition 203, passed in 2006. The proposition was known as the First Things First initiative.

But the takeaway was challenged in late-March by the Arizona Early Childhood Development and Health Board, a government agency also created by the initiative that has argued the Republican-dominated Legislature lacks constitutional authority to claim the money.

Paul Eckstein, an attorney who represents the board, has argued the sweep violates the 1998 Voter Protection Alliance Act, or Proposition 105, a constitutional amendment that limited the Legislature’s power to amend voter-approved initiatives.

The state Constitution allows lawmakers to change voter-approved policies only in ways that advance the original purpose of the policy and only if approved by a three-fourths vote of the Legislature.

Solicitor General Mary O’Grady disagrees with the contentions of the Arizona Early Childhood and Development and Health Board, which to date has accrued more than $330 million from the tobacco tax enacted in 2006.

O’Grady, in court filings, has argued the language of the initiative spelled out that the interest must be put to use by the board “except as otherwise provided by law,” and that the language makes the money fair game for state lawmakers.

The Arizona Supreme Court has scheduled oral arguments to occur on June 30. The lawsuit filed by the board targets Gov. Jan Brewer, state Treasurer Dean Martin and state Comptroller D. Clark Partridge.

No such arguments are on the horizon for the Industrial Commission of Arizona, which in early-April petitioned the high court to determine the legality of the sweeping of $4.7 million from commission funds accrued from private sector insurance carriers, self-insured employers and the State Compensation Fund.

In court filings, attorney David Ouimette stated the two funds targeted in the January 31 special session budget are “private and special purpose trust funds which may not be appropriated or expended as if they were part of the state’s general fund.”

The funds are largely used to supplement compensation for injured or disabled workers, to reimburse employers and insurance carriers and to cover insolvent insurers and uninsured employers, wrote the attorney.

Laura McGrory, executive director of the Industrial Commission, did not immediately return calls for comment.

The Industrial Commission of Arizona yesterday joined the ranks of public bodies seeking the Arizona Supreme Court to intervene in Legislature-approved fund sweeps.

The labor agency filed a petition for special action that seeks to prevent Martin and Brewer from receiving and spending $4.7 million from commission funds accrued from private sector insurance carriers, self-insured employers and the State Compensation Fund.