The Arizona State Land Department will get to keep its staff and operations intact through the end of the fiscal year, following a ruling from the state Court of Appeals on Dec. 15.
The appellate court ruling allowed the Land Department to avoid laying off more than 100 employees by putting a hold on an October judgment by a Maricopa County Superior Court judge that the department’s funding mechanism is unconstitutional.
“Everybody is feeling great about keeping their jobs,” Land Department Commissioner Maria Baier said. “Next we’ll have to sit down and consider all the paths moving forward.”
The stage for the court action was set in 2009, when the Legislature passed a law to allow the Land Department to operate using a portion of proceeds from trust land sales instead of the state’s general fund.
It was a monumental change that concerned the recipients of state trust land sales. Since Arizona gained statehood, the proceeds from all trust land sales have been used solely to benefit public entities, such as the K-12 school system and mining and agricultural interests.
Tim Hogan, an attorney for the Arizona Center for Law in the Public Interest, challenged the new Land Department funding mechanism in court on behalf of two teachers and the Cartwright Elementary School District. The plaintiffs argued that using money from trust land sales to pay for Land Department operations illegally shifted money away from public education.
“There is only one way to spend the money constitutionally,” Hogan said. “The treasurer is to take the money under the clear terms of the Constitution and deposit the proceeds into the permanent trust. No other use or allocation of the funds is permitted.”
When lawmakers set up the self-funding mechanism for the Land Department, they were looking for ways to cut expenses from the general fund, which was running a deficit of about $2 billion. Eliminating the Land Department from the general fund budget gave lawmakers another $20 million or so per year to plug budget holes.
In addition to easing the Legislature’s budget woes, the change was intended to allow the Land Department to operate more efficiently by being staffed and funded in accordance with the demand for state land sales, said Rep. Bill Konopnicki, a Safford Republican.
Allowing the department to draw money from trust land sales benefits all stakeholders, Konopnicki said, because it would allow the department to expand its staff and complete trust-land sales more swiftly when market conditions are prime for real estate sales.
“It was a clear win, win, win scenario,” Konopnicki said. “When real estate was hot the state didn’t have the staff to do the sales, so we were cheating the education system.”
Right now, it’s unclear where the Land Department’s funding will come from. The Court of Appeals has yet to hear the case — its ruling Dec. 15 only delays the effects of the Oct.1 Maricopa County Superior Court ruling.
Attorneys representing plaintiffs and defendants said they expect the appellate court to hear the original lawsuit next year.
Rep. John Kavanagh, a Republican from Fountain Hills, said the Land Department’s operations would have essentially ground to a halt if the appellate court hadn’t provided the stay. Kavanagh was one of the lawmakers who voted to create the self-funding mechanism for the Land Department.
Kavanagh said that if the funding mechanism in ultimately struck down, it will be difficult to find money to pay for the department’s operations because the state is broke.
“I hope it’s not just temporary relief,” Kavanagh said of the appellate court’s decision. “It suggests that the judges are leaning toward ruling in our favor in the future.”
Hogan said he, too, is pleased by the appellate court’s decision to issue a temporary hold. He said he originally proposed the same course of action because it may give the Legislature time to come up with an alternative solution that works for both parties.
“We’re pleased with the order,” Hogan said. “It strikes the right balance.”
This isn’t the first time the Legislature has tried to establish a self-funding mechanism for the Land Department. In 2000, lawmakers referred a proposition to the voters that would have made similar changes to the agency’s funding structure. The measure failed.