Claiming Proposition 123 was illegally enacted, a group of citizens is asking the U.S. Department of Justice to review — and overturn — the voter-approved measure to put more dollars into public schools.
Attorney Thomas Ryan, who represents Advocates for School Trust Lands, contends the state cannot legally increase the amount of money being taken from state trust proceeds without first getting congressional approval.
He said the trust is a contract between the state and the federal government, which gave Arizona the lands a century ago. Ryan said that means it cannot be unilaterally altered by state officials.
Even if federal consent is not required, Ryan is arguing that the cash being taken from the trust cannot be used to settle the lawsuit filed against the state by public schools for failing to comply with a 2000 voter mandate to increase aid to education annually to compensate for inflation. He said that debt to schools — affirmed by the Arizona Supreme Court — must be paid with funds that do not already constitutionally belong to schools.
Daniel Scarpinato, press aide to Gov. Doug Ducey, who crafted and pushed the ballot measure, said the issue was thoroughly researched even before the May election and the voter-approved withdrawal is legal.
At the heart of the issue is what is known as the Enabling Act that created Arizona as a state.
It also provided Arizona with about 10 million acres of federal land, directing that it be sold or leased for the benefit of specific entities, mostly public education. About 9.2 million acres remain and the value of the public school trust is close to $5 billion.
Prior to Proposition 123, schools and other beneficiaries of the trust annually got 2.5 percent of what is in the account. That was changed by the referendum to 6.9 percent for the next 10 years.
The move is part of a deal to end a lawsuit filed against the state by the schools for failing to provide that inflation funding. The Supreme Court ruled lawmakers broke the law; the question of how much was owed was still being litigated when the schools agreed to a settlement.
That deal will provide an extra $3.5 billion to schools over the decade, with $2.2 billion of that coming from the additional trust proceeds. Ryan wants Attorney General Loretta Lynch to step in and declare the additional withdrawal void.
“A serious and substantial breach of trust against the Arizona Permanent School Fund and generations of Arizona school children is occurring,” Ryan wrote along with Margaret Bird, a member of the board of Advocates for School Trust Lands, along with other Arizona residents.
Some of that is based on the argument that the state cannot alter the formula without amending the Enabling Act.
Ducey has disputed that. He even got former Congressman John Shadegg to testify to a legislative committee that a 1999 amendment to the 1912 Enabling Act is broad enough to allow Arizona voters, by amending the state Constitution as they did in Proposition 123, to decide how they want to spend the trust without getting further federal approval.
In fact, Shadegg told lawmakers that he reads that 1999 amendment to allow voters to drain the entire trust if they want.
Proposition 123 does not go that far. But it does affect the account.
Legislative budget staffers said that without approval of Proposition 123 and a change in the withdrawal rate, the fund would grow to about $9 billion by 2025. They said the additional withdrawals will instead leave it at $6.2 billion by that date.
In his letter to Lynch, Ryan said the 1912 law specifically authorizes the attorney general to sue “to enforce the provisions” of the Enabling Act, including “the application and disposition of the said (trust) lands and the products thereof and the funds derived therefrom.” And he said the fact that the first disbursements have already gone out to schools does not mean it’s too late for Lynch to intercede and determine if Arizona violated the federal law by changing the distribution formula without getting congressional approval.
“What’s going on is improper,” he said. “Just because somebody passes Prop 123 doesn’t mean the other side of the contract doesn’t have a right to look at it.”
The letter actually seeks more than a look by Lynch. It asks her to “protect schools, public school children and the Arizona Permanent School Fund by taking corrective legal action.”
Ryan isn’t the first to raise questions.
State Treasurer Jeff DeWit made some of the same arguments ahead of last year’s vote. And even after it was approved, he asked the attorney general’s office to tell him and members of the state Board of Investment whether they could legally give out the extra dollars.
But Solicitor General John Lopez sidestepped the question, pointing out that a suit had been filed in federal court challenging the referendum.
“This office does not issue formal opinions regarding matters that are the subject of pending or impending litigation,” Lopez wrote to DeWit.
As it turned out, Phoenix resident Michael Pierce, who filed that lawsuit on his own without an attorney, never pursued the matter. So there has never been a legal ruling on the issue.
Ryan said he considered litigation but decided not to go that route.
“As a private citizen who is a solo practitioner, the cost of taking on the state myself would be astronomical,” he said. “Asking the Department of Justice to do a review of this I think is a rational, reasonable, sensible approach to determining whether or not the state can unilaterally modify the contract.”