State Treasurer Jeff DeWit: the Cave Creek settlement plan is illegal

In a previous post, Analysis: The Cave Creek settlement is a bad deal, motivated out of fear of getting nothing, I made the following point:

You will recall that State Treasurer Jeff DeWit was vehemently opposed to Governor Ducey’s original plan to raid the state land trust for to find funds to settle this lawsuit. Treasurer blasts Ducey’s education plan. Howard Fischer reports, GOP plan would give AZ schools $3.5B increase:

State Treasurer Jeff DeWit has been critical of Ducey’s original proposal to withdraw additional funds from the State Land Trust. The current withdrawal is 2.5 percent. He said he hadn’t seen the most recent plan in writing, but was concerned about what he’d heard.

“There is a hard-and-fast line we cannot cross. We cannot spend principle,” he said. “We can go up to 3.75, but that’s the best number everyone agrees we can do without spending principle. That’s the safe number.”

So I have to assume that DeWit is still opposed to the Governor’s plan.

As a matter of fact, late Tuesday Arizona treasurer comes out against latest school cash deal:

Republican state Treasurer Jeff DeWit is urging Arizona lawmakers to revise a deal that would settle a school funding lawsuit.

DeWit said in an email to lawmakers Tuesday evening that the agreement hammered out between Republican lawmakers, schools and Gov. Doug Ducey puts the principal of the state’s permanent land trust at risk. If it is adopted without changes he warns it will be tied up in court for years and keep schools from getting additional cash.

DeWit says withdrawals should be lowered to keep the trust intact. His email came as Ducey prepares to call the Legislature into a special session to vote on the deal.

Howard Fischer reports, State treasurer: New education funding plan likely illegal:

State Treasurer Jeff DeWit said Tuesday a plan to settle the school funding lawsuit with trust land proceeds is irresponsible.

And he said it’s also likely illegal.

DeWit said the additional withdrawals for the next decade called for in the proposal being pushed by Gov. Doug Ducey would mean huge losses in revenues available to schools beyond that. He said that undermines the purpose of Congress giving Arizona 10 million acres of land in 1912 to set up a permanent trust.

DeWit said taking the fiscally risky move is unnecessary. He said the state has more than enough money in the bank to finance the deal — especially with schools willing to settle for less than a judge said they actually are owed.

* * *

The lion’s share of the 10-year package comes from boosting the distribution from the land trust from the current 2.5 percent of the value of the fund — about $87 million a year — to 6.9 percent.

* * *

DeWit said that additional nearly $2.1 billion withdrawn between now and 2026 ignores what happens next.

The fund, which is now worth about $5  billion, would be worth $9.6  billion in 2026 by keeping the withdrawal rate at the current 2.5 percent; going to 6.9   percent for a decade would leave it at $6.5 billion.

The difference would be felt in 2026.

Without dipping deeper into the fund, schools that year would be entitled to $177  million; adopting this plan would put state aid to schools at just $100 million.

And the difference is even more pronounced the farther out you go.
Aides to DeWit said giving schools an extra $2.1   billion from the trust over the next decade translates into them getting $6.8   billion less in the 40 years that follow. And taking that out over 90 years pushes the total loss to schools to $76 billion.

Then there’s the legal issue of the fact the trust fund was set up by Congress.

“The whole point of the congressional oversight of this is to ensure that we never touch a penny of the principal,” he said. What that also means, said DeWit, is that boosting the distribution needs not just voter approval next May but also the consent of Congress.

Richard Stavneak, staff director of the Joint Legislative Budget Committee, insisted that’s not the case. He said legislators have tinkered with the formula before without going back to Washington, calling it “settled law” that further federal legislation is unnecessary.

DeWit, an elected official, disagreed.

“Somebody’s going to sue,” he said, saying this plan is far different than what has occurred before.

“I’m going to do everything in my power to protect the school endowment trust,” DeWit said. But pressed on whether he would be the plaintiff in such a case, he said, “I can’t answer that question yet.”

* * *

House Minority Leader Eric Meyer said his staff attorneys agree with DeWit that boosting the withdrawal rate to 6.9 percent without congressional consent would be illegal.

The State Treasurer is correct. There has been a series of cases involving the state trust lands dating back to the Arizona-New Mexico Enabling Act of 1910. For a good discussion of the standard of review in these cases, see Kadish v. Arizona State Land Dept., 747 P.2d 1183 (Ariz. 1987):

HISTORICAL BACKGROUND OF THE ARIZONA ENABLING ACT

The issue before us can neither be understood nor resolved without an understanding of the historical process from which it evolved. In 1910, the Arizona-New Mexico Enabling Act became law, authorizing the people of the territories of Arizona and New Mexico to form state governments. Act of June 20, 1910, Pub.L. No. 219 (ch. 310), 36 Stat. 557. Sections 19 through 35 of the Act referred exclusively to the proposed state of Arizona.[3] The Enabling Act included provisions that confirmed prior land grants to the Arizona Territory and granted still more land to the new state. In 1911, the Arizona electorate accepted the land grants by ratifying art. 10, § 1 of the Arizona Constitution. The full provisions of the Enabling Act became part of the organic law of this state. Ariz. Const. art. 20, ¶ 12. See also Gladden Farms, Inc. v. State, 129 Ariz. 516, 518, 633 P.2d 325, 327 (1981). Because federal law is supreme in this field, neither this court, nor the legislature, nor the people may alter or amend the trust provisions contained in the Enabling Act without congressional approval. Murphy v. State, 65 Ariz. 338, 181 P.2d 336 (1947).

* * *

Murphy capsulizes the historical reasons for the stringent provisions of the Enabling Act. Land grant acts similar to our Enabling Act previously had authorized the formation of other state governments. These acts had given the new states authority to determine how school trust lands were to be sold and the proceeds preserved for trust purposes. The result of this largess was highly unsatisfactory:

The sad experience of Congress with the handling by these twenty-three states of the granted lands, the sale thereof, and the investment of monies derived from a disposition of the granted lands, brought about a new policy which found expression in the Enabling Act for New Mexico and Arizona. The dissipation of the funds by one device or another, sanctioned or permitted by the legislatures of the several states, left a scandal in virtually every state, and these granted lands and the monies derived from a disposition thereof were so poorly administered, so unwisely invested and dissipated, that Congress concluded to make sure, in light of experiences of the past, that such would not occur in the new states of New Mexico and Arizona.

Murphy, 65 Ariz. at 351, 181 P.2d at 344.

To ensure that Arizona and New Mexico would not dissipate the assets granted, Congress required that they hold the granted land in trust and enacted the restrictive provisions of § 28 of the Enabling Act noted above. 65 Ariz. at 351-52, 181 P.2d at 344-45, citing the report of Senator Beveridge, Chairman of the Committee on Territories, S.Rep. No. 454, 61st Cong., 2d Sess. (1910). See also 45 Cong.Rec. 8227 (1910) (explanation by Senator Beveridge in floor debate concerning strict safeguards on land transferred to the state of Arizona).

Congress’s concerns were well-founded. New Mexico’s experience was sadly typical. Despite the stringent trust restrictions of its Enabling Act, the New Mexico legislature enacted laws permitting the disposition of trust assets in a manner that breached the trust. See, e.g., Ervien v. United States, 251 U.S. 41, 40 S.Ct. 75, 64 L.Ed. 128 (1919). In Arizona, the legislature authorized the investment of school trust funds in first mortgages upon supposedly valuable reclaimed farm land. These speculative expenditures were at best “non-beneficial.” See Murphy, 65 Ariz. at 357, 181 P.2d at 348. The legislature eventually had to compensate the trust fund for the resulting losses by appropriating money out of the general fund. See Udall v. State Loan Board, 35 Ariz. 1, 273 P. 721 (1929); Laws of 1929, ch. 94.

Thus, the general intent of Congress is clear. It intended the Enabling Act to severely circumscribe the power of state government to deal with the assets of the common school trust. The duties imposed upon the state were the duties of a trustee and not simply the duties of a good business manager. See generally County of Skamania v. State, 102 Wash.2d 127, 685 P.2d 576 (1984) (when managing and administering the trust lands, the state must comply with the same fiduciary obligations as apply to a private trustee). The grant in trust was intended to curb the *488 power of the state to deal with the trust lands in the “prophetic realization, … that the state might [otherwise be] lured from patient methods to speculative advertising … in the hope of a speedy prosperity.” Ervien, 251 U.S. at 47-48, 40 S.Ct. at 76. Thus, to comply with congressional intent, we must strictly apply the Enabling Act’s restrictions regarding disposal of school trust assets.

With these principles in mind, we turn now to the specific provisions in the Enabling Act as originally adopted and as amended from time to time by Congress.

In short, if the proposed distribution from the state trust lands deviates from what Congress has authorized in the Arizona-New Mexico Enabling Act of 1910 — it has been amended by Congress several times to permit certain uses and distributions over the years — the use of the state trust lands for settlement purposes is subject to congressional approval, adding another unnecessary layer of complication to this complex proposed settlement agreement.

DeWit said, though, that it shouldn’t even be necessary to risk a lawsuit.
“We have an extra $300  million coming in,” he said. In fact, the state ended the last fiscal year with $322 million in the bank, not counting $460 million in the “rainy day” fund.

“We can use the extra money to settle the schools’ lawsuit right now, especially considering how low the plaintiffs are now showing that they’re willing to go,” DeWit said. And he chided Ducey for backing the hit to the trust account.

“It seems odd that we have a governor’s office seemingly upset that we have all this extra revenue coming into the state, that the economy’s doing well,” the treasurer said. “We have them trying to suppress those numbers and get the deal pushed through quick before everyone realizes there is extra revenue that’s come in that could be used to settle the school lawsuit that wouldn’t involve raiding the trust fund.”

DeWit appears to be suggesting that the starting point for settlement should be the Arizona House Democratic Education Funding Plan. No More Waiting. But Governor Ducey and Tea-Publicans — and their GOPropagandists at The Arizona Republican — will not go for it, and DeWit explains why:

DeWit said proponents want to use trust dollars to settle the lawsuit to leave the extra funds that are available “to spend on whatever they choose to spend that money on.” And those options, said DeWit, could include allowing Ducey to fulfill his campaign promise to cut taxes every year he is governor.

You are correctomundo, Jeff! Governor Ducey and our lawless Tea-Publican legislature are ignoring their constitutionally prescribed duty to raise taxes to pay for public education and to pay for the (judgment) debts of this state:

Article XI, Section 6: The university and all other state educational institutions shall be open to students of both sexes, and the instruction furnished shall be as nearly free as possible. The legislature shall provide for a system of common schools by which a free school shall be established and maintained in every school district for at least six months in each year, which school shall be open to all pupils between the ages of six and twenty-one years.

Article IX, Section 3: The legislature shall provide by law for an annual tax sufficient, with other sources of revenue, to defray the necessary ordinary expenses of the state for each fiscal year. And for the purpose of paying the state debt, if there be any, the legislature shall provide for levying an annual tax sufficient to pay the annual interest and the principal of such debt within twenty-five years from the final passage of the law creating the debt.

In for a penny, in for a pound. What’s another violation of the law and Arizona Constitution when they are already in violation of the law and Arizona Constitution? They just don’t care, because there is never any accountability for their lawless actions. The GOP-friendly media in this state will not even hold them accountable.