Arizona Court of Appeals Division One Holds That Statute Authorizing Alternative Use for School Bond Proceeds Is Unconstitutional.

In 2000, the Cave Creek Unified School District (“the District”) held a special election that included a bond measure, which was described to the voters as support for construction of new school buildings, purchase of buses, improvement of school grounds, and other associated costs.  Under A.R.S. § 15-491(J), school districts can use bond proceeds generally only for purposes listed in the publicity pamphlet.  The bond was approved.  In 2010, the legislature enacted Section 34, which carved an exception to § 15-491(J) by allowing a school district to use bond proceeds for any necessary capital improvement, provided that nine years have passed since the original bond election and that the district’s governing board votes to authorize such alternative use of the proceeds.  Relying on Section 34, the District voted to use its bond proceeds remaining from 2000 on improving existing school infrastructure, rather than constructing new school buildings.  Arguing that the 2000 bond election had created a contract between the District and the voters, Plaintiffs brought an action seeking declaratory and injunctive relief.  They alleged that Section 34 violated Arizona’s and the United States’ constitutional prohibition on the impairment of contracts, and also that Section 34 was an unconstitutional special law.  The parties both moved for summary judgment, and the trial court granted summary judgment in the Plaintiffs’ favor, agreeing with both of these legal theories.

The Arizona Court of Appeals upheld the trial court’s decision, albeit for a different reason.  It held that Section 34 was unconstitutional because it was inconsistent with Article 7, Section 13 of the Arizona Constitution, which provides that questions upon bond issues must be submitted to the vote of the real property taxpayers.  Allowing a school district to repurpose bond funds, which is what Section 34 accomplished, was a question upon a bond issue and therefore could not be decided without the vote of the real property taxpayers.  The appellate court declined to address the constitutionality of Section 34 under the impairment of contracts or special law prohibitions in the Arizona and United States Constitutions.

Judge Howe authored the opinion, Presiding Judge Portley and Judge Orozco concurred.