Arizona Court of Appeals Division One Holds that A.R.S. § 15-901.01 Requires the Legislature to Provide for Annual Inflationary Increases in Each Component of the Revenue Control Limit, Including the Base Level.

In June 2000, the legislature convened in a special session and adopted Senate Bill 1007, which proposed a .6% sales tax hike to provide additional funding for public educational institutions and (2) imposed financial and academic accountability requirements on K-12 schools.  The legislature determined that certain portions of the bill, including the inflation adjustment provision, would become effective only if approved by the voters.  The measure was then placed on the ballot as Proposition 301.  The inflation adjustment provision at issue provided:  “If approved by the qualified electors voting at a statewide general election . . . the legislature shall increase the base level or other components of the revenue control limit by two percent.”

The voters approved Proposition 301 and in each subsequent budget year, the legislature made inflation adjustments to both the base level and the transportation support level.  The legislature’s budget for fiscal year 2010-2011, however, includes an inflation adjustment only for the transportation support level.

In October 2010, several school districts and three individuals filed a complaint in the superior court seeking a declaratory judgment that the statute enacted pursuant to the referendum, A.R.S. § 15-901.01, requires the legislature to increase both the base level and the other components of the revenue control limit annually for inflation.

The State moved to dismiss the complaint for lack of standing and failure to state a claim.  Following oral argument, the superior court granted the State’s motion, finding that Appellants had standing but did not meet the “legal prerequisites for recovery.”  The plaintiff’s appealed. 

The Arizona Court of Appeals reversed, holding that A.R.S. § 15-901.01 requires the legislature to provide for annual inflationary increases in each component of the revenue control limit, including the base level.  Relying upon the plain language of the statute – that “the legislature shall increase the base level or other components of the revenue control limit” – the Court held that § 15-901.01 constitutes a mandatory directive to the legislature to fund the inflationary increase provision.  The Court also held that the statute requires the legislature to increase all components of the revenue control limit.  Although, the statute states that the legislature shall increase “the base level or other components”, the Court determined that it would contradict the intent of the legislature that drafted the provision and the voters who approved it if the legislature could choose between increasing the base level or other components.  Given the purpose, history, and past legislative treatment of § 150901.01, the Court held that the intent of the statute is to require the legislature to adjust all components of the revenue control limit.

Judge Brown authored the opinion; Judges Swann and Thompson concurred.