Federal judge rules Arizona's Prop. 123 education funding plan illegal

PHOENIX — A federal judge ruled Monday that the funding plan 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 interest it would earn — for future generations.

But Wake said Proposition 123, crafted by the governor as a method to settle a lengthy 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 that 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.

Proposition 123 was designed to provide an additional $3.5 billion to schools over the next decade, with $2.2 billion of that coming from increasing the amount of money withdrawn annually from the state’s endowment trust fund.

Central to the issue is the nature of the trust.

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

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 that the Arizona Education Association, the Arizona School Boards Association and the Arizona Association of School Business Officials supported Prop. 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 Wake, informed of the recent congressional action, will reconsider his ruling.