The ‘next step’ after Prop. 123 — a legal challenge

Don’t say that I didn’t warn you that Prop. 123 was just trading one lawsuit for another lawsuit(s). The ‘next step’ after Prop. 123 — to the courts! Or in the instant case, a legal challenge to the U.S. Department of Justice.

The Arizona Capitol Times (subscription required) reports, Citizens group asks DOJ to overturn Proposition 123:

Claiming Proposition 123 was illegally enacted, a group of citizens is asking the U.S. Department of Justice to review — and overturn — the voter-approved measure to put more dollars into public schools.

Attorney Thomas Ryan, who represents Advocates for School Trust Lands, contends the state cannot legally increase the amount of money being taken from state trust proceeds without first getting congressional approval.

He said the trust is a contract between the state and the federal government, which gave Arizona the lands a century ago. Ryan said that means it cannot be unilaterally altered by state officials.

Even if federal consent is not required, Ryan is arguing that the cash being taken from the trust cannot be used to settle the lawsuit filed against the state by public schools for failing to comply with a 2000 voter mandate to increase aid to education annually to compensate for inflation. He said that debt to schools — affirmed by the Arizona Supreme Court — must be paid with funds that do not already constitutionally belong to schools.

Daniel Scarpinato, press aide to Gov. Doug Ducey, who crafted and pushed the ballot measure, said the issue was thoroughly researched even before the May election and the voter-approved withdrawal is legal.

* * *

Gov. Ducey got former Congressman John Shadegg to testify to a legislative committee that a 1999 amendment to the 1912 Enabling Act is broad enough to allow Arizona voters, by amending the state Constitution as they did in Proposition 123, to decide how they want to spend the trust without getting further federal approval.

In fact, Shadegg told lawmakers that he reads that 1999 amendment to allow voters to drain the entire trust if they want.

I addressed this bogus argument earlier this year in State Treasurer Jeff DeWit considering suing state for misleading voters on Prop. 123:

[DeWit’s] contention was refuted by former Congressman John Shadegg. He said a 1999 amendment to that 1912 law that he sponsored is broad enough to allow Arizona voters, by approving the required amendment to the state Constitution, to decide how they want to spend the trust.

Actually the principle sponsor of the Arizona Statehood and Enabling Act Amendments of 1999 (H.R. 747 106th Congress) was Rep. Robert Stump (AZ 3d Dist.), not Shadegg. And his statements about how he reads the law are not supported by the Text of the bill.

In fact, he told lawmakers that he reads the 1999 law to allow voters to simply decide to drain the entire trust if they want.

This is absolutely false. The purpose of Proposition 102, also known as the Amend the Constitution Relating to Investment of State Trust Funds Act (1998), was to permit the state to invest in the stock market to preserve the value of the assets of the trust against inflation. There is no language that would “allow voters to simply decide to drain the entire trust if they want” as Shadegg falsely claims. This would be contrary to “SEC. 2. PROTECTION OF TRUST FUNDS OF STATE OF ARIZONA,” and contrary to the Congressional intent behind the Arizona Statehood and Enabling Act, which was to prevent Arizona from selling off the trust assets as had occurred under previous state land trust funds in other states. Congress intended to be more restrictive with Arizona and New Mexico and to preserve congressional oversight over the state land trust funds.

[Shadegg] also says that Arizona was free to decide how to use its trust dollars in accordance with any voter-approved limits in the state constitution.

This is absolutely false. There is no language in the Amendments exempting Arizona from needing congressional approval to “use its trust dollars in accordance with any voter-approved limits in the state constitution.” The 1999 Amendments required congressional approval. Again, the congressional intent behind the Arizona Statehood and Enabling Act was to prevent Arizona from selling off the trust assets as had occurred under previous state land trust funds in other states. Congress intended to be more restrictive with Arizona and New Mexico and to preserve congressional oversight over the state land trust funds.

Proposition 123 would amend the constitution to allow for larger withdrawals. Shadegg said he reads the 1999 federal law as allowing that to happen as long as voters give their OK.

What Shadegg believes is irrelevant. He doesn’t know what he is talking about, and his view is not supported by the text of the law. He is misleading reporters who should know better than to stenographically report what he says as fact.

Back to the Cap Times report:

“A serious and substantial breach of trust against the Arizona Permanent School Fund and generations of Arizona school children is occurring,” Ryan wrote along with Margaret Bird, a member of the board of Advocates for School Trust Lands, along with other Arizona residents.

Some of that is based on the argument that the state cannot alter the formula without amending the Enabling Act.

* * *

In his letter to Lynch, Ryan said the 1912 law specifically authorizes the attorney general to sue “to enforce the provisions” of the Enabling Act, including “the application and disposition of the said (trust) lands and the products thereof and the funds derived therefrom.” And he said the fact that the first disbursements have already gone out to schools does not mean it’s too late for Lynch to intercede and determine if Arizona violated the federal law by changing the distribution formula without getting congressional approval.

“What’s going on is improper,” he said. “Just because somebody passes Prop 123 doesn’t mean the other side of the contract doesn’t have a right to look at it.”

The letter actually seeks more than a look by Lynch. It asks her to “protect schools, public school children and the Arizona Permanent School Fund by taking corrective legal action.”

Ryan isn’t the first to raise questions.

State Treasurer Jeff DeWit made some of the same arguments ahead of last year’s vote. And even after it was approved, he asked the attorney general’s office to tell him and members of the state Board of Investment whether they could legally give out the extra dollars.

But Solicitor General John Lopez sidestepped the question, pointing out that a suit had been filed in federal court challenging the referendum.

“This office does not issue formal opinions regarding matters that are the subject of pending or impending litigation,” Lopez wrote to DeWit.

As it turned out, Phoenix resident Michael Pierce, who filed that lawsuit on his own without an attorney, never pursued the matter. So there has never been a legal ruling on the issue.

Ryan said he considered litigation but decided not to go that route.

“As a private citizen who is a solo practitioner, the cost of taking on the state myself would be astronomical,” he said. “Asking the Department of Justice to do a review of this I think is a rational, reasonable, sensible approach to determining whether or not the state can unilaterally modify the contract.”

And let’s not forget that Treasurer DeWit had a legal opinion of his own that refutes Gov. Ducey’s reliance on John Shadegg. The ‘next step’ after Prop. 123 — to the courts!:

“I have a legal opinion that says Congress has to act,” DeWit said. “As a constitutional officer, I have to abide by the legal opinions before me.

* * *

DeWit’s legal opinion came in November from David Cantelme, a Phoenix professional liability lawyer who detailed the history of Arizona’s land trust from its creation in 1910. Earlier court cases found that Arizona’s duties were that “of a trustee and not simply the duties of a good business manager,” Cantelme wrote.

He noted that Arizona began mismanaging the trust fund in 1915 through ill-advised agricultural loans that eventually drained millions from the fund.

In 1947, the Arizona Supreme Court acknowledged the problems other states had managing their land trusts were taking root in Arizona.

“It was not merely prophetic to anticipate that the legislature would submit to pressure groups and enact legislation encouraging and licensing the state treasurer, governor and secretary of state to invest the permanent funds in questionable investments, but rather it was a certainty that such attempts would be made,” the court wrote.

* * *

Cantelme said [the passage of Prop. 102 in 1998] didn’t pose a legal problem because the change was more restrictive on spending than what Congress had already approved. Washington wants states to preserve their trust funds in perpetuity, and Prop. 118 didn’t threaten that, he said.

With Prop. 123, Cantelme said the proposed changes would spend more aggressively from the trust fund over 10 years than Congress permitted in 1999. To make that kind of change would require new congressional approval, he said.

Note: A Congressional Research Service report found “The 1999 (changes) authorize Arizona to specify in its Constitution how to make fund distributions,” CRS wrote. “…Therefore, Prop 123, if implemented, would comply with the amendments’ instruction that distributions be made according to Arizona’s Constitution, which, in turn, would appear to make congressional action unnecessary.”

A CRS Report is not legally binding, and is often disregarded by the courts in statutory interpretation, particularly by those jurists who follow Justice Antonin Scalia’s textualism approach. Supporters of Prop. 123 keep citing this CRS Report as if it is the final word; it is not.

To the courts!, er, to the DOJ!