Rumery v. Baier – 11/10/2011

December 2, 2011

Arizona Court of Appeals Division One Holds That A.R.S. § 37-527 Violates Article 10, Section 7 of the Arizona Constitution By Depriving the Trust Beneficiaries of the Most Substantial Support Possible and Full Benefit of the Grant.

In 1910, the United States Congress granted Arizona over 10.7 million acres of land to be held in trust for enumerated beneficiaries, with the “common schools” being the largest beneficiary.  The Arizona electorate accepted the land grants by ratifying Article 10, Section 1, of the Arizona Constitution in 1911.  The Arizona Constitution is silent, however, as to how the costs of managing the trust lands are to be paid.

 In 2009, the legislature established the Trust Land Management Fund to assist the State in reducing budget deficits.   A.R.S. § 37-527 provides that up to ten percent of both the annual proceeds from “[e]ach beneficiary’s trust lands” and “[a]ll sales of timber, mineral, gravel or other natural products or property from each beneficiary’s trust lands” are to be deposited into the Management Fund “exclusively to manage trust lands.”  The money in the Management Fund is appropriated to the Arizona State Land Department, the agency that manages the trust lands. 

 A short time later, several individuals filed suit alleging that the statute was unconstitutional.  The trial court granted the plaintiffs’ motion for summary judgment, thereby enjoining the State Land Commissioner from designating any amount of state trust land proceeds for deposit into the State Trust Land Management Fund and ordering all amounts previously transferred from state trust land proceeds to the Trust Land Management Fund to be repaid to the State Treasurer for deposit into the separate permanent funds.  The State Land Commissioner filed a timely notice of appeal.

 On appeal, the Court of Appeals upheld summary judgment in the plaintiffs’ favor, concluding that the diversion of trust land proceeds authorized in A.R.S. § 37-527 violates Article 10, Section 7 of the Arizona Constitution because it deprives the trust beneficiaries of the full benefit of the trust without express permission.  The Arizona Constitution is very specific in setting forth the assets that compromise the permanent funds and the rules for the management of each fund’s assets.   Article 10, Section 7(A) provides that “whenever any monies shall be in any manner derived from any of said lands, the same shall be deposited by the [S]tate [T]reasurer in the permanent fund corresponding to the grant under which the particular land producing such monies was . . . conveyed or confirmed.”  Subsection (B), in turn, provides that “[n]o monies shall ever be taken from one permanent fund for deposit in any other, or for any object other than that for which the land producing the same was granted or confirmed.”  In this case, the Court of Appeals concluded that taking funds that the Arizona Constitution requires be deposited in the trust to pay for managing the trust lands deprives the beneficiaries of the most substantial support possible and full benefit of the grant.  The Court thus held that A.R.S. § 37-527 is unconstitutional.

Judge Kessler authored the opinion; Judges Downie and Swann concurred.