State lawmakers cannot use proceeds from trust land sales or leases to run the Land Department, at least not without getting voter approval, the Arizona Court of Appeals ruled Nov. 17.
In a unanimous decision, the judges rejected arguments by the Brewer administration that the diversion of cash is legal.
Attorneys for the state Land Department, which manages the properties, had argued that anything that the Land Department does to improve the value of the trust's land increases the amount of money that the trust earns. That meets the constitutional requirements, the lawyers argued.
Judge Donn Kessler said that is legally irrelevant because the Arizona Constitution specifically forbids what was done.
"If the Legislature desires to use the proceeds from trust lands to pay for managing trust lands, it must obtain permission from the people of Arizona in the form of a constitutional amendment," he wrote for the court.
Land Commissioner Maria Baier said she was still studying the ruling. But she said it is likely see will seek review by the Arizona Supreme Court.
The lawsuit stems from an effort by legislators to provide more money for the Land Department. Of the 10 million acres Arizona got when it became a state, about 9.2 million acres remain.
The federal law conveying the land to the state specified that when Arizona sells such land, the money must go to specific beneficiaries, mostly public schools.
The Arizona Constitution forbids taking money from trust funds for any reason other than the purpose for which they were established.
Two years ago, though, the Legislature let the state land commissioner divert up to 10 percent of what was raised in the prior fiscal year in proceeds from all trusts, including the one for public schools.
This includes not only property that the state sells, but also any revenues generated from the sale of minerals and timber on that land. That move allowed lawmakers to cut taxpayer funding used to run the Land Department so funds could be shifted to plug other budget holes.
Proponents of the move argued it would help the trust - and the beneficiaries -- in the long run.
It could help the agency prepare state land so that it's ready to sell later, when the real-estate market returns and developers want to buy it, presumably, at higher prices.
And Baier said using some of the proceeds is only logical.
"Most trusts don't function unless there's a funding mechanism built into them," she said.
Kessler, however, accepted the arguments of the Center for Law in the Public Interest, saying the courts cannot ignore the plain requirements of the Arizona Constitution.
He said the legislation allows the use of trust funds to assist the state in reducing budget deficits.
"In doing so, it diverts money from the trusts' permanent funds, depriving the trusts of the value of lands sold and the products derived from such lands, as well as interest earned on those proceeds," he wrote. "It is a paramount requirement that the trusts must be fully compensated for any lands or products lost from the trust through sales."
The case is Rumery v. Baier 1 CA-CV 10-0807.
by Howard Fischer Arizona Business Gazette Nov. 24, 2011 12:00 AM
Court: Trust-land proceeds can't be used to run department
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