Arizona Court of Appeals Division One Holds That Legislature’s Sweep of Monies from Agricultural Funds Does Not Violate the Arizona Constitution.

In its attempt to balance the state budget in 2008, the legislature passed, and the governor signed, House Bill 2620, which directed the transfer of money from 104 state funds to the state general fund.  About $160,000 was swept from three agricultural funds:  the Arizona Iceberg Lettuce Research Council Fund, the Arizona Citrus Research Council Fund, and the Arizona Grain Research Fund (“Funds”).  Groups representing a variety of agricultural producers (“Farmers”) brought suit against the governor challenging the constitutionality of the sweeps.  On cross-motions for summary judgment, the trial court ruled in favor of the Farmers, concluding that monies in the Funds were collected for specific purposes, namely marketing, promotion, and research of Arizona agricultural products and that the legislature could not modify those purposes without legislation allowing such modification.

The Court of Appeals reversed.  The Court noted that the legislature has broad powers over the state budget, but recognized that the Arizona Constitution places some limitations on those powers.  The legislature is restricted from making fund transfers (1) when express provisions of the Arizona Constitution prohibit a transfer, (2) when funds have been allocated to a specific purpose by a citizen initiative measure, and (3) when funds held by the state are actually owned by or held subject to the claims of third parties.  The Court concluded quickly that the first two restrictions do not apply in this case and focused its analysis on the third.

First, the Court rejected the Farmers’ argument that because the Funds’ enabling statutes restrict spending to particular purposes, the legislature may not redirect those monies.  Instead, the Court said, the enabling statutes restrict only how the agricultural councils may spend those monies and do not place any limitations on the legislature because the legislature established the Funds.  Citing Rios v. Symington, 172 Ariz. 3, 833 P.2d 20 (1992), the Court also rejected the Farmers’ argument that fund transfers may not be included in appropriations bills.

The Court then turned to the Farmers’ central argument that the state holds the monies in the Funds as a trustee or custodian and rejected that argument as well.  Based on the statutory language and a declaration from a Deputy State Treasurer regarding how the monies in the Funds are treated, the Court concluded that the enabling statutes for the Funds do not meet the general requirements for trust, particularly because the legislature has stated in other statutes its intent to create a trust, but did not do so in the Funds statutes.  Further, the Court concluded that the state is not a custodian for monies actually owned by contributors to the Funds.  The monies deposited in the Funds are collected pursuant to the general fee collection statutes, and none of the enabling statutes specify that the Funds are held solely for the benefit of the contributors to the Funds.  Although the contributors to the Funds may feel that their contributions are made for the purpose of benefiting their industries, the statutes do not make any specific person a beneficiary of the Funds and do not guarantee the contributors any particular benefit.  And because the contributors to the Funds have no property interest in the Funds, the Court also rejected the Farmers’ claim that the sweeps violate the Takings Clause of the Fifth Amendment to the U.S. Constitution or its state counterpart, Arizona Constitution Article 2, section 17.

Finally, the Court rejected the Farmers’ argument that Article 9, sections 3, and 9 of the Arizona Constitution prohibit the fund transfers because those provisions require every law imposing a tax to distinctly state the purpose of the tax.  Citing to several Arizona Supreme Court cases, the Court concluded that those constitution provisions apply only to property taxes, which are not at issue in this case.

Judge Irvine authored the court’s opinion; Judges Winthrop and Thumma concurred.