Key Points:

• Judge initially refused to block transfer of opioid settlement funds to state prison

• AG cites new auditor general report supporting her position

• Governor’s Office insists transfer of funds is proper

Attorney General Kris Mayes says she is weighing whether to sue Gov. Katie Hobbs and the Republican-controlled Legislature over an allegedly illegal diversion of funds from a nationwide settlement with opioid manufacturers, distributors and pharmacies.

Mayes said a new report from the Auditor General’s Office proves what she claimed two years ago — that the state’s decision to give the dollars to the state Department of Corrections, Rehabilitation and Reentry violated the terms of the deal that entitled the state to its $1.14 billion settlement. That deal required the state to use its share of the funds to help abate the opioid epidemic, with the majority of funding restricted to programs aiming to prevent future abuse.

Her first lawsuit against the governor and lawmakers in 2024 to void the transfer to the prison system ended when a judge said she had no evidence that the transferred funds were being used in a way that violated the agreement.

But a new audit concludes that the prison system in 2024 spent $50.9 million of opioid settlement monies “but lacks records supporting they were spent for approved purposes.” And that, according to Auditor General Lindsay Perry, increases the risk that Arizona will be found non-compliant with the 2021 settlement, forcing the forfeiture of the more than $1 billion in future settlement payments. 

“Told you so,” Attorney General Mayes said.

This isn’t just about what already has happened.

Mayes said that, despite that finding, the budgets for the new fiscal year proposed by both Republican lawmakers and the governor both include taking another $40 million in settlement funds. That new transfer, she said, would bring the funds diverted so far to about $150 million.

All that, Mayes said, provides the proof that the trial judge, in refusing Mayes’ 2024 order that Hobbs and lawmakers restore the settlement funds to her office, said she was missing at the time.

And the attorney general said she now is “very actively looking” at going back to court, this time armed with that audit.

Despite the report, gubernatorial press aide Christian Slater said the funds are being used by the prison system to fund treatment of inmates for Hepatitis C. He said that is one of the permitted uses under the nationwide settlement.

He said the problem -– to the extent there is one — is that the audit says there needs to be a “higher level of documentation” of how the money has been spent. And Slater said that is now being done, with the agency updating its policies and procedures and implementing “regular internal audits of opioid-related transactions.”

Richie Taylor, spokesman for Mayes, did not dispute that the settlement allows funds for Hepatitis C treatment, but he said it must be tied back to intravenous drug use — the way the disease is spread — by opioid users.

“The auditor general’s report shows the documentation does not exist,” Taylor said. “So there is no way for the public to know if this would be an approved purpose or how much of it would be.”

Mayes put a sharper point on all that.

She said that the transfer was never about providing treatment for opioid users but instead “backfilling the budget deficit.”

Put another way, Mayes said that Hobbs and lawmakers needed a way to balance the budget. And they did it by raiding the opioid settlement funds.

“We now have a report from the Legislature’s own auditor general that she was not able to find any proof that they have properly spent the opioid funding,” Mayes said, even as she said there is a plan to “seize another $40 million.”

And the issue is even more complex.

Even if treating inmates for Hepatitis C is a permissible expense, Taylor said that doesn’t mean the transfer was proper.

“What the AG took issue with is spending so much of the state’s (settlement) money on an issue that is already the responsibility of the state,” he said, with Hepatitis C treatment something that the Department of Corrections, Rehabilitation and Reentry was already doing. And that, Taylor said, took money away from other opioid treatment programs.

Mayes said that this is more than just a turf fight over who gets to control the money. 

“People are losing their lives over the opioid crisis and fentanyl,” she said. And the attorney general said that the problem, for whatever reason, is particularly acute here.

“Unlike most states, Arizona’s deaths from overdoses are actually still going up,” she said. “Across the rest of the country, opioid overdoses and deaths are going down.”

And Mayes is willing to point the finger at who she said is to blame.

“I believe it is because the state Legislature … decided to sweep that money to backfill a budget deficit instead of properly spending it in communities that desperately need it,” she said.

“They stole the state’s share of the opioid funding and they dumped it in the prison system,” Mayes said. “That is an affront to every Arizonan and it needs to come to an end.”

There was no immediate response from either Senate President Warren Petersen or House Speaker Steve Montenegro to Mayes’ claims about the diversion of the funds or any allegations of harm that it caused.

Mayes insists that the dollars could be better used elsewhere.

“I have talked to communities that are desperate for detox centers, they’re desperate for more Narcan, they’re desperate for more treatment options that they can’t provide,” Mayes said.

All that, she said, weighs on whether she goes back to court – this time, armed with the audit results – to once again try to convince a judge to bar the state from transferring any more settlement dollars to the prison system.

Mayes pointed out that this isn’t just some kind of found money.

She said the dollars awarded to the state are coming from those who were sued for their role in creating and exacerbating the opioid crisis in the first place.

One of them, the attorney general said, was Purdue Pharma which faced multiple lawsuits over its marketing of OxyContin, a high-potency form of opioid that carried a high risk of addiction and misuse.

Another singled out by Mayes — and paying into the settlement — is Cardinal Health, a major pharmaceutical distributor, that was named in lawsuit for allegedly failing to detect and report suspicious opioid orders. Also settling was CVS, which was accused of properly overseeing and flagging suspicious opioid prescriptions filled at its local stores.

“I am going to do everything in my power as the attorney general of this state to save people’s lives and to make sure that this opioid funding … is properly spent to repair the damage that they did to the state of Arizona,” Mayes said.

Less clear is whether Mayes, even with the audit report, can get a judge to block how the governor and lawmakers put together a budget, even if they use opioid funds.

In the 2024 lawsuit, Maricopa County Superior Court Judge Richard Hannah acknowledged Mayes’ concerns that the state, under Mark Brnovich, her predecessor, got the $1.14 billion multi-year settlements as part of an agreement to deal with the damages caused by drug addiction.

Hannah also said he agreed that much of what Mayes was arguing makes sense from the perspective of ensuring the money is spent as the agreement requires: to remediate the opioid crisis that was caused by the companies that agreed to the settlement.

But the judge said that does necessarily mean that the agreement, despite its terms, gives whoever is the attorney general the veto power over the diversion of the funds by the governor and lawmakers.

“As a judge, I cannot agree with the proposition that the attorney general can enter a litigation settlement … that the attorney general can give himself in that settlement the authority to determine how state money is spent,” Hannah said.