Arizona Supreme Court Holds That The Arizona Legislature Exceeded Its Authority When It Transferred $7 million in Interest Income Earned on Revenue From the Early Childhood Development & Health Fund Into the State’s General Fund.

In addressing the deficit in Arizona’s 2009 budget, the legislature transferred $7 million in interest income earned on revenue from the Early Childhood Development & Health Fund (the “Fund”) into the state’s general fund.  The Early Childhood Development & Health Board (the “Board”) brought a special action alleging that the transfer was unconstitutional.

The Arizona Supreme Court accepted jurisdiction and ordered that the $7 million be returned to the Fund, along with the interest that would have been earned on that amount.  In reaching its decision, the Court addressed two measure passed by the voters of the state: the Voter Protection Act and the Arizona Early Childhood Development and Health Initiative (the “Early Childhood Initiative”).   

The Voter Protection Act limits the legislature’s ability to amend initiatives approved by the voters and to divert or appropriate funds “created or allocated to specific purpose” by those measure to situations in which the legislature achieves a three-fourths majority vote of each house, and the action furthers the purpose of the initiative.  The Court found that the legislature unconstitutionally diverted the funds from a specific purpose without the requisite three-fourths majority vote.

The Early Childhood Initiative, at A.R.S. § 8-1181, established a tax on tobacco products to support early childhood development and health programs created by the Board.  The statute delineates the control and distribution of income from this tax and states that “interest and other income from investments of monies in any account shall be credited to that account except as otherwise provided by law.”  The Court found that, when read in context, this language provides the legislature solely with the authority to credit interest and other income to a Fund account other than the account of origin, rather than the authority to transfer interest and income from funds generated by the tobacco tax to the general fund.  The Court reasoned that permitting the legislature to sweep these funds into the general fund is inconsistent with the purpose of the Early Childhood Initiative: to invest in early childhood health and education programs by dedicating funding to these programs. 

Justice Ryan authored the opinion, Justices McGregor, Berch, Hurwitz, and Bales concurred.