$344 Million School Funding Headache in Arizona

TUCSON (CN) — Arizona’s use of its state land trust to fund schools was illegal because the money was used without congressional approval, but the point is moot, because the state got authorization last week, a federal judge ruled — but it’s still uncertain whether the state must return $344 million to the trust.

“This case turns on the federal question of … whether Congress abrogated its oversight authority over changes in the school trust lands fund. The parties hotly dispute this, as even now the state maintains it was not required to obtain the congressional approval it eventually acquired,” U.S. District Judge Neil V. Wake ruled Monday in a lawsuit filed by state resident Michael Pierce.

Pierce sued the state and Gov. Doug Ducey to halt the funding process, which takes money from the state land trust to pay for public education. The state has been taking trust funds, but Congress authorized Arizona only to use interest from the fund, not the principal, Wake wrote.

The point is moot, because Congress approved the funding changes last week, but Wake could still rule on whether the state must return about $344 million taken from the fund from 2012 to 2017 without congressional approval.

The ruling is the latest in a longstanding battle over the use of income from federal land given to Arizona when it joined the union in 1912.

Two years before Arizona and New Mexico gained statehood, Congress passed a law authorizing their formation and bequeathed the states with tens of millions of acres of valuable land. The ways the states could use their land — and the money derived from leasing or selling it or any natural products from it, such as timber — were and are controlled by Congress via the 1910 New Mexico-Arizona Enabling Act and its amendments.

Before Arizona and New Mexico, other new states had raided profits from their former federal lands. In 1898, New Mexico Territory had been caught improperly disposing of timber income, so in Arizona, that money was narrowly earmarked for “public education and critical institutions,” Wake said in the ruling.

Wake noted that Arizona’s Enabling Act required mirror protections in the state constitution so the state couldn’t make changes without congressional approval, and Congress required that any proceeds from trust land sales “be used as a permanent inviolable fund, the interest of which only shall be expended for the support of the common schools within said state.”

But in 2012, Arizona unilaterally changed the funding formula, allowing the transfer of principal from the trust in years when there was no interest income, which is a violation of the Enabling Act, Wake ruled. The state argued that 1999 amendments to the Enabling Act authorized the changes in the funding formula.

The ruling does not end the dispute. Wake ordered both parties to submit briefs on whether the recent authorization from Congress validates the 2012-17 disbursements of funds, and whether the $344 million must be repaid. Attorneys have until April 4 to submit briefs.

Attorneys Michael Liburdi, representing Ducey, and Andrew Jacob, representing Pierce, did not immediately return messages seeking comment.

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