Wednesday, November 18, 2015

Ducey and DeWit face off over education "deal"

Legal positions of both are covered by the Arizona Capitol Times (subscription required).

Since Gov. Doug Ducey unveiled his plan to fund K-12 schools through increased payments from the state’s land trust, state Treasurer Jeff DeWit has warned that the proposal could find its ultimate downfall in court.

But the Ninth Floor said it is unconcerned with several possible litigation scenarios, none of which it says would hold up in court.

I'll mention the issues and then weigh in on what I think is the most important fault in the deal.

Does Congress have to approve the deal?

DeWit has long argued that Ducey’s land trust plan would violate the 1910 congressional act that authorized statehood for Arizona. The land trust plan, he argued, requires congressional action to amend the Arizona-New Mexico Enabling Act.

But Mike Liburdi, Ducey’s general counsel, said a 1999 amendment to the Enabling Act, which governs the uses of the Permanent Land Endowment Trust Fund, eliminates the need to seek congressional approval for the land trust plan. In prior years, when Arizona or New Mexico wanted to change the way it distributed land trust money, Congress would amend the act to meet the specific details of the states’ proposals. But in 1999, Congress added language stating the trust fund revenues can be distributed in whatever way is determined in the Arizona Constitution.

Are the ballot issues separate?

Furthermore, the Treasurer’s Office contends that the entire K-12 education package that will go before voters in a May 17 special election, of which the land trust is a major component, violates the Arizona Constitution’s "separate amendment" rule, which bars separate and unrelated measures from being combined in a single constitutional amendment.

The land trust portion of the plan would increase the trust fund’s annual payments to public schools, currently set at 2.5 percent of the fund’s value, to 6.9 percent for 10 years. The education measure, Proposition 123, would also reset base-level K-12 funding and create economic triggers that would allow the Legislature to suspend or reverse annual inflation payments to schools during fiscal downturns.

Proposition 123 was approved by the Legislature in an October special session. Its passage would settle a five-year lawsuit by K-12 groups over education funding.

The argument that Proposition 123 would violate the separate-amendment rule was negated by a 2012 court ruling, Liburdi said. In that case, a group opposed to a ballot measure that sought to create a "top-two" primary elections system in Arizona argued that it violated the rule because of a provision eliminating taxpayer-funded elections for political parties’ precinct committeeman elections. The Arizona Supreme Court ruled that the provisions were interrelated and part of a larger unifying purpose.

Does the raid on the state land trust violate the prudent investor rule?

The treasurer has also warned that the plan could run afoul of the state’s "prudent investor rule" by doing long-term damage to the fiscal health of the Permanent Land Endowment Trust Fund, which is made up of revenue from trust land sales and the returns on investments that are made with that money. The prudent investor law requires trustees to "invest and manage trust assets as a prudent investor would by considering the purposes, terms, distribution requirements and other circumstances of the trust. In satisfying this standard the trustee shall exercise reasonable care, skill and caution."

DeWit argues that Ducey’s plan will damage the long-term health of the fund. Though projections from state budget analysts indicate that the fund will have more money it when the 10-year land trust plan expires in 2026, it will have notably less than if Ducey’s plan doesn’t go into effect and the current distribution rates are left in place.

Arizona’s Enabling Act also requires trust fund money to be "prudently invested on a total rate of return basis."

However, Hogan [an attorney with the Arizona Center for Law in the Public Interest] was dismissive of the notion that the prudent investor rule could be used to block the way in court.

"So long as appropriate approvals are secured, the people of Arizona can direct how they want to distribute monies from that permanent fund. If they wanted to and if they got congressional approval, they could say we want 100 percent of the fund to be distributed right now to public schools," he said.

This latter argument about prudent investment strikes me as the strongest case. Any way you cut it, Ducey's deal would result in less money for future students than would be available if moneys for education came from other sources and the state land trust was left in place as is.

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