Ducey’s office paid $695,000 in losing legal battle

Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)
Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)

Gov. Doug Ducey’s office paid nearly $700,000 to private law firms in a losing effort to defend an embattled ballot initiative that increased school funding disbursements from the state land trust.

The Governor’s Office paid five lawyers at two firms $695,077 to argue Ducey’s position that the civil suit brought by Phoenix resident Michael Pierce to Proposition 123 lacked merit.

Judge Neil Wake of U.S. District Court ruled last month that previous money transfers under Prop. 123 — a plan created by Ducey to increase school funding — violated federal law because it diverted millions from the land trust without prior authorization from Congress.

Ducey’s outside legal team worked 1,133 billable hours, which amounts to pay of approximately $613 an hour.

Michael Pierce (Photo by Carmen Forman/Arizona Capitol Times)
Michael Pierce (Photo by Carmen Forman/Arizona Capitol Times)

For comparison, Pierce, 66, filed the lawsuit on his own, and was later aided by Phoenix attorney Andrew Jacob on a pro bono basis.

While Ducey’s general counsel, Mike Liburdi, was involved in the Prop. 123 case, the Governor’s Office hired outside legal counsel to handle in-court appearances, said Ducey spokesman Patrick Ptak.

Ducey’s office paid global megafirm Gibson, Dunn & Crutcher $406,093 for work related to the Prop. 123 case, according to information provided by the Governor’s Office. Ducey retained legal counsel from former U. S. Solicitor General Ted Olsen, who just last month declined to join Trump’s legal team. Matthew McGill, of Gibson Dunn’s Washington, D.C., location, also worked on the case.

The Governor’s Office also retained several lawyers from Phoenix firm Fennemore Craig. Ducey’s office paid $288,983 for the work of attorneys Teresa Dwyer, Timothy Berg, and Kevin Green.

“What’s at stake is $3.5 billion for Arizona schools,” Ptak said. “It’s important for the state to have appropriate legal representation to protect these dollars for our schools, and we will spend whatever is necessary to ensure that happens.”

Ducey created the Prop. 123 funding package as a response to a lawsuit brought by the schools that alleged the state violated portions of an earlier ballot measure requiring the state to annually increase its aid to schools. Ducey’s fix would infuse into the state’s underfunded schools an additional $3.5 billion over 10 years.

Pierce’s lawsuit argued that Prop. 123 was illegal because the state should have first received congressional approval for the constitutional amendment before allowing voters to decide on the referendum.

Attorneys representing the state argued that Pierce didn’t have standing to bring the lawsuit, and urged the judge to dismiss the case.

Arizona received congressional approval for Prop. 123 this year — about two years after the ballot initiative passed.

The legal battle over Prop. 123 isn’t over yet. At question now is the $344 million in land trust funds the state disbursed to Arizona schools before receiving congressional approval of Prop. 123.

In his ruling, Wake recommended the parties settle. But if they cannot come to an agreement, the parties will return to court to spar over what is to be done about the $344 million, in which case, Ducey’s lawyers could rack up additional legal fees for the Governor’s Office.

Prop 123 illegal, federal judge rules

Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)
Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)

A federal judge ruled Monday that the funding scheme used by Gov. Doug Ducey to increase aid to schools is unconstitutional.

In a 35-page order, Judge Neil Wake said the federal Enabling Act that made Arizona (and New Mexico) a state in 1912 and gave it lands to hold in trust for schools allows the state to use only the interest off the money earned. The idea, Wake explained, was to preserve the body of the trust — and the future interest it would earn — for future generations.

But Wake said that Proposition 123, crafted by the governor as a method to settle a years’-old lawsuit over school funding, clearly ran afoul of that federal law.

“Nowhere in the history does anyone request or suggest that Congress give unfettered discretion to either state or that it was abdicating its oversight obligations under either state’s Enabling Act,” the judge wrote.

But Mike Liburdi, the governor’s attorney, said there is a provision buried in recent federal legislation which not only authorizes future payments from the trust that go into the school finance formula but effectively ratifies the $344 million in prior payments that Wake said Monday were illegally made.

“We’re not terribly worried,” said gubernatorial press aide Daniel Scarpinato.

But Wake isn’t the first one to raise the question. In fact, state Treasurer Jeff DeWit told lawmakers in 2016 — before the measure went to voters — that they can’t do what the governor was proposing.

Central to the issue is the nature of the trust.

The federal government gave Arizona 10 million acres when it became a state in 1912 with the restriction that it be held for the benefit of certain beneficiaries, mostly public schools. About 9.2 million acres remain.

There also is about $4.8 billion in the trust made up of the proceeds from sales and leases of the land.

Legislative budget staffers said at the time that, at current withdrawals, the fund would grow to about $9 billion by 2025. But with the additional funds taken out, the account is projected to be $6.2 billion instead.

What made that significant not only for DeWit but also Michael Pierce, who filed the federal court lawsuit, is their contention that such a radical change can be made only by amending the Enabling Act, something that was not done.

In agreeing with Pierce, Wake said it does not matter than the Arizona Education Association, the Arizona School Boards Association and the Arizona Association of School Business Officials supported Proposition 123.

“The schools’ current incentive to get extra money for their current needs is at odds with the interests of future Arizona students,” the judge said. “Congress’s conscious plan to vest all citizens with property rights in the trust was necessary to uphold the trust against collusive violations.”

Liburdi said he believes that when Congress consented just recently to give Arizona authority to take more money out of the trust it approved all of the what was in the 2016 ballot measure. And that, he said, means it gave retroactive approval to the money the state already has distributed.

Recent series of political plights plague governor

Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)
Gov. Doug Ducey (Photo by Katie Campbell/Arizona Capitol Times)

The bad news started when a pedestrian was struck and killed by a self-driving Uber SUV in Tempe. Some blame was directed at Gov. Doug Ducey for welcoming the technology company to test autonomous vehicles in Arizona with little-to-no oversight.

Then a federal judge overturned Proposition 123 — a funding package created by Ducey that boosted school funding disbursements from the state land trust.

Meanwhile, Arizona teachers — fueled by national momentum and frustration with Ducey and the Republican-led legislature — have become a recognizable presence at the Capitol as they lobby for a 20-percent pay bump and increased school funding.

Over the past month, Ducey’s administration has faced a series of hurdles that have challenged the governor as he works to close out the legislative session and gear up for his re-election bid.

With high-profile issues like education funding and autonomous vehicles making headlines across the country, Ducey has made national news, but not in a flattering way.

Ducey’s past few weeks have been rough, but that’s typical of a governor who is gearing up for a campaign cycle, said lobbyist Chuck Coughlin.

“He’s had two or three pretty good years,” he said. “It’s a campaign year so you would anticipate it being a bit more rocky, and more turbulent, and the issue matrix that’s presented to him right now is just that.”

Ducey is juggling several hot-button issues. Among those, he’s navigating education-funding concerns, water proposals and pushing a school safety plan that both Republican and Democratic lawmakers have criticized.

Coughlin chalked up Ducey’s struggles as standard policy challenges for a governor with well-defined policy objectives.

Oftentimes, governors coast through their fourth year and avoid major policy initiatives because they’re focused on getting re-elected, said Ducey spokesman Daniel Scarpinato. From calling a special session to address the rampant opioid crisis to the school safety plan, Ducey laid out an ambitious policy agenda this year, he said.

“Certainly, lots of things have become politicized because it’s an election year, but one of the things people hate most is do-nothing politicians who are so risk-averse that they’re unwilling to take on big issues,” Scarpinato said. “You can’t say that about this governor.”

The national spotlight first turned to Ducey when an Uber vehicle killed a pedestrian crossing the street in Tempe — marking the first death caused by an autonomous vehicle.

There are always accidents and mistakes when testing new technologies, said lobbyist Barry Aarons.

“I don’t think the average person would blame the governor for that,” he said. “I think they would blame Uber for that.”

The accident was tragic, but Ducey handled it well and it won’t slow his enthusiasm for the industry, Aarons said.

Ducey branded Arizona as a testing ground for autonomous vehicles in 2015. Unlike California, which called for Uber’s self-driving test vehicles to be specially licensed and registered, Ducey didn’t impose regulations on the emerging industry.

After the fatal accident, Uber suspended its autonomous vehicle testing in Arizona. About a week later, Ducey suspended Uber’s autonomous vehicle testing as well, a move that will keep the company from restarting operations without the governor’s say-so.

Ducey and other state officials are doing their due diligence and scrutinizing the fatal accident so they can prevent future incidents, said former Gov. Fife Symington.

“All new technologies bring risk of some sort,” he said. “Just look at the Apollo program and the astronauts who were killed on the launchpad in Florida. We didn’t shut down the moon program because of it.”

What happened with Uber and what continues to happen with teachers across the state fighting for raises and increased school funding are manifestations of Ducey’s policies, said Zachary Smith, a regents professor of politics and international affairs at Northern Arizona University.

“As far as Prop. 123, he’s just been having a bad week,” Smith said.

In late March, a U.S. District Court judge ruled that previous money transfers under Prop. 123 were illegal because they diverted millions from the state land trust without prior authorization from Congress. Ducey had created the funding package years earlier in response to a lawsuit brought by the schools that alleged the state violated portions of a ballot measure requiring the state to annually increase its aid to schools.

The real thorn in Ducey’s side is Arizona teachers, Smith said.

Buoyed by teacher pay protests in West Virginia and Oklahoma, Arizona teachers are calling for 20 percent raises, which would cost the state around $680 million. Teachers have also called on the governor to halt tax cuts.

Ducey, who has pledged not to raise taxes, rejected teachers’ demands.

But unlike Gov. Mary Fallin of Oklahoma and Gov. Jim Justice of West Virginia, Ducey is up for re-election this year.

“I think that you will see because he is up for re-election, the magnification of the microscope has increased dramatically,” Aarons said.

Ducey said last week that he sides with the teachers and that the state is trending in the right direction in terms of teacher pay.

“I’m not bragging on 43rd,” he said, citing an oft-used ranking of where Arizona falls in terms of teacher pay. “I’m just saying we’re not last.” Some studies have showed Arizona may rank as low as 49th or 50th in the nation in terms of teacher pay.  

A video clip showing some of Ducey’s remarks circulated on social media, garnering more than 10,000 views and criticism from teachers.

The governor argued the state has upped teacher pay by about 9 percent since he took office in 2015. In reality, more than half of that money went to hiring more teachers to keep up with student growth. Ducey’s figure also includes Prop. 123 funds, which were not new dollars, but money the schools were already owed.

The teacher pay issue didn’t start this year, and it’s not going to end this year, Scarpinato said. Ducey has tried to keep moving education funding up, and he will keep doing that notwithstanding what is happening in the political climate, he said.

“We anticipate that education will remain a top issue, if not the top issue, and we’re fine with that because one of the central pieces of his campaign was education,” Scarpinato said.

Lawmakers granted teachers a 1 percent pay bump for the current year and Ducey has promised teachers a 1 percent boost for the upcoming school year.

The teacher pay issue has been going on for years, Symington said. While the education movement that’s causing teacher strikes in some conservative states is unusual, the local “Red for Ed” movement is unlikely to convince lawmakers to funnel more money toward teacher pay and school funding, he said.

“Lawmakers do their best to listen to everybody, but they’re elected to make tough decisions, as is the governor,” Symington said. “They’re going to get the budget out and done ad that’ll be the end of it.”

Ultimately, Ducey’s high-profile month won’t hurt him at the polls in November, Smith said.

“It looks big now because we’re in the middle of it, but I think Ducey’s going to ride this out fine,” he said.

Campaign fundraising totals from Steve Farley and David Garcia are low, and chances are good Ducey will easily outspend the Democratic gubernatorial nominee, Smith said.

Ducey will also likely play up extending the Prop. 301 education sales tax on the campaign trail, Smith said. Last month, Ducey signed a 20-year extension of the current 0.6-cent sales tax for education. Prop. 301 was set to expire in 2021 if voters or the legislature didn’t renew the tax.

“A couple of weeks ago, the governor supported and the legislature passed the extension of Prop. 301,” Aarons said. “An objective observer would have declared that to be a very positive win for him and Republicans in the legislature.”

Tim Hogan: ‘Trial lawyer’ who shaped education and health care in Arizona

Cap Times Q&A

Attorney Tim Hogan has held elected officials accountable for education funding and health care issues for decades, much to the chagrin of those he has opposed.

Hogan, executive director of the Arizona Center for Law in the Public Interest, said this week that he is leaving the center after 26 years.

Some of Hogan’s most consequential suits include Cave Creek Unified School District v. DeWit, in which the courts ruled that the state had been shortchanging schools on inflation funding. Roosevelt Elementary School District No. 66 v. Bishop changed the way school facilities are funded. His latest lawsuit, filed in May, accuses the state of falling short of the court’s orders in Roosevelt.

Hogan reflected on his time with the center and the legal and political landscape, from lessons learned to work that still needs to be done.

Tim Hogan (Photo by Rachel Leingang, Arizona Capitol Times)
Tim Hogan (Photo by Rachel Leingang, Arizona Capitol Times)

You’ve been a perpetual thorn in the Arizona Legislature’s side for 26 years. What’s the driving force behind it for you personally?

Part of it is just the idea that people with power need to use it responsibly and try to look out for the interests of everybody. I think far too often, our Legislature hasn’t done that. I think they tend to cater to more narrow interests and don’t really pay as much attention to vulnerable populations as they should. I’m convinced – it’s a cliche – but education is the foundation of everything. It really is the great equalizer. I don’t sense that’s been a priority. That really is what builds our society and provides people with the opportunity to make informed choices. For the life of me, I don’t know why that’s not constantly at the top of the legislative agenda.

You’re 65, but you aren’t going to retire. Why not?

I still want to do legal work on cases and issues that I care about. … I just don’t want a regular job.

What do you hope people will remember about your work that you’ve done here?

Truly, I don’t worry about that too much. I don’t look back too much. You can’t do this kind of work and look back. You always have to be looking ahead. We’ve got a record of success in a number of areas that I hope will provide a platform for people in the future to build on, because there’s a lot of work left to be done.

You were derisively called a “trial lawyer” by Gov. Ducey after your latest lawsuit against the state for underfunding school infrastructure. What do you think of that term?

I’m not typically what people think of as a trial lawyer, I guess. I’ve done trials and I’m a lawyer, so I suppose if you put the two of those together… You get these kind of reflexive reactions out of public officials. “Trial lawyers” I think he believes has some bad connotation in the public’s mind – ambulance chasers taking some percentage of recovery from clients, which is absolutely false in my case. I’m a salaried employee of a nonprofit organization. We’ve never filed a case for damages here. We don’t do that. … I told somebody a while back, I’ve been called far worse than a trial lawyer. It just doesn’t even register anymore.

Some education advocates have said they felt duped into supporting Prop. 123 now that the governor and Legislature passed voucher expansion and didn’t do much to help schools otherwise this year. You helped Prop. 123 come together. What do you think of Prop. 123, now that a little time has passed?

There’s a disconnect there in thinking that something that was addressing inflation funding was somehow going to open up all these new vistas. … It was a lawsuit to force the Legislature to do what the law required, which was to provide inflation funding. Inflation funding is meant to maintain your buying power. That’s all. To view it as much more than that, it’s a little wishful thinking. I do think people hoped it would usher in a period where some new initiatives would be considered. They kept calling Prop. 123 the first step. People haven’t seen a second step and they’re disappointed and I get that. That’s ultimately why we had to file this lawsuit last month. We’re going to have to create those steps. It’s clear that there wasn’t any political will to do much more than get Prop. 123 behind them.

How do you decide what kind of issue would make a solid lawsuit?

We look for cases that we can do efficiently, that are going to have an impact on a lot of people, and that we can win. We’re too small for me to do cases I don’t think I can win because it’s a multi-year commitment.

You’ve been filing lawsuits on education issues for decades. Have things gotten better or worse for schools and kids in schools and their families since you started this job?

In many respects, it hasn’t changed too much. … There really hasn’t been any emergence of goal-setting and a plan that would tell us what, as a state, we want. I don’t think we know what we want in terms of education. So that hasn’t changed at all. Our funding level really hasn’t varied too much. I think in recent years, we’ve seen a lesser commitment to public education, certainly the failure to restore the cuts from the recession have hurt. At the same time, we’re putting expanded voucher programs into place. That’s one of the continuing struggles. I think some legislators are far too willing to abandon the public education system for a variety of reasons. We’ve seen more of that. It’s almost as if the people who are proponents are saying and have said, “Public education is a failure.” I don’t know how they measure that. But public education is kind of the foundation of who we are and who we want to be, so this notion that we should just kick it to the curb and privatize a system seems to put us on a path that’s hard to change once you’re on it and I don’t think will lead to much good. … It’s a self-fulfilling prophecy. See, we didn’t give you any money and you’re not doing well.

What will you miss the most about working at the center?

Really, it amounts to the people that you work with in this kind of area. I work with great people. I represent great people. It’s one of the huge benefits of working here, you like everybody. It’s not like I have to take on cases, I get to choose.