CCUSD sued to halt misuse of bond funds

Goldwater Institute challenges Barto’s unconstitutional special law

Jayne Friedman
PHOENIX – On Tuesday, April 5, the Scharf-Norton Center for Constitutional Litigation at the Goldwater Institute filed a complaint and motion for preliminary injunction in Maricopa County Superior Court on behalf of Jayne Friedman to bar Cave Creek Unified School District from entering into contracts or otherwise expending remaining bond funds on purposes not listed in the Nov. 7, 2000 Special Election Publicity Pamphlet.

Friedman, a Legislative District 7 Precinct Committeeman and CCUSD resident and taxpayer was incensed after learning Sen. Nancy Barto, R-Dist. 7, while a House Representative, introduced a floor amendment to the 2010 omnibus bill, Arizona Session Laws 332 § 34, written specifically for CCUSD, allowing the district to divert funds from voter-approved projects to projects preferred by district officials.

For a little background: In 2006, the district issued approximately $13 million in bonds remaining from the original $41.6 million in bonds approved by voters in 2000, primarily for new school construction.

However, in 2006, when the governing board voted to issue the bonds, which were set to expire that November, they had no project in mind. In fact, the long-term planning committee had not yet formed a recommendation to present to the board.

The board eventually voted to build a new “mega high school” on its southern campus and determined it would need an additional $45 million.

The district voted to hold a special election Nov. 6, 2007, requesting $123 million in construction bonds along with a $3.2 million capital override in an all-or-nothing ballot question loaded with a plethora of wish list items from every school in the district.

District administrators recommended combining everything into a single ballot question rather than letting voters choose which projects they wished to fund, believing it would increase its chances for passage.

However, the ballot question was soundly rejected by voters.   

IRS regulations require projects to be decided prior to issuing bonds and for such projects to be substantially completed within three years.

When the 2007 bond measure failed, the district had to come up with a new plan.

In 2008, as the economy tanked, the Arizona School Facilities Board suspended all funding for projects not already underway, including the $12 million or so previously approved in matching funds for CCUSD to build a new high school.

Meanwhile district taxpayers have been paying an average of $51,000 per month in interest alone since the bonds were issued over four years ago, which comes to more than $2.5 million.

The Goldwater Institute asserts § 34 violates federal and state contract clauses and, because it only applies to a discrete static class of existing bonds, it is an unconstitutional special law.

Friedman is seeking a preliminary injunction to stop the unlawful expenditures of the bond proceeds.

According to the CCUSD Annual Report, there is still $17.9 million outstanding on the bonds, which will take taxpayers about 13 more years to repay.

And, while approximately $13 million in proceeds from the 2000 bond measure remain unspent, prior to enactment of § 34, Arizona law required remaining bond proceeds to go toward paying down the outstanding debt.

Until passage of § 34, A.R.S. 15-491(J) stated: “If the voters approve the issuance of school district class B bonds … the school district shall not use the bond proceeds for any purposes other than the proposed capital improvements listed in the publicity pamphlet, except that up to 10 percent of the bond proceeds may be used for general capital expenses, including cost overruns of proposed capital improvements.”

In her motion for a preliminary injunction, Friedman points out that was the law when voters approved the bond measure in 2000 and when the district issued the bonds in 2006.
Therefore, she said voters had an expectation bond proceeds would be spent on constructing new schools and the related projects identified in the publicity pamphlet.
Friedman said, “If voters thought the school district could spend that money for other purposes, they may have voted differently.”

The district is now planning and designing a variety of renovation projects, including lighting upgrades, repainting and roof replacements.

The Goldwater Institute claims the district’s actions violate federal and state contracts clauses as well as the special law clause, citing both federal and state constitutions include provisions preventing government from impairing contracts.

The motion for preliminary injunction states voter approval of a bond measure for specific, enumerated purposes establishes a contractual relationship between the government and voters, which obligates the government to abide by the terms of the contract, and claims, “The 2000 Cave Creek bond election, like all Arizona school district bond elections, created a contract between the school district and voters because bonds cannot issue without voter approval.”

In fact, the Arizona Constitution specifically requires school districts to obtain voter approval before issuing bonds.

And, Arizona statute requires districts wishing to issue class B bonds to mail each voting household a publicity pamphlet with a “complete list of each proposed capital improvement that will be funded with the proceeds of the bonds.”

The Goldwater Institute says the state “may not play a ‘bait-and-switch’ trick on the voters by rewriting existing contracts in its favor.”

Additionally, by voting to use the 2000 bond proceeds for capital improvements not authorized by voters, CCUSD acted pursuant to an unconstitutional law.

The Arizona Constitution does not allow for local or special laws to be enacted when a general law can be made applicable, unless it satisfies all three prongs of a test: 1) the classification is rationally related to a legitimate governmental objective; 2) the classification is legitimate, encompassing all members of the relevant class; and 3) the class is elastic, allowing members to move in and out of it.

The Goldwater Institute argues the aim of § 34 is not legitimate as it seeks to permit school districts to breach their constitutional obligations to the voters and it is an “impermissible purpose to pass a law designed to abrogate constitutionally-protected rights.”

The law also creates an inelastic class since it only applies “when nine years or more have passed since an election that authorized a school district to issue bonds,” and the school board must “authorize the proposed use of the bond proceeds prior to June 30, 2013.”

In other words, § 34 can only be used “by a district sitting on unspent bond money approved by voters on or before June 30, 2004,” and lacks elasticity because other districts/bond measures may not enter the class.

Without a preliminary injunction, Friedman said it is likely her complaint will not be resolved before a substantial portion of the remaining bond proceeds are unlawfully spent, with many of the projects slated to begin as soon as the school year ends next month.

She said, “Once contracts are signed and the money is spent, CCUSD will have violated their contractual obligation to the taxpayers, who will be left on the hook to repay bonds unlawfully spent on projects made possible by an unconstitutional law.”