Arizona can’t use opioid settlement money for budget, judge rules

By Howard Fischer
Capitol Media Services

PHOENIX — A judge late Thursday blocked the state from seizing opioid settlement funds, at least for the time being.

Maricopa County Superior Court Commissioner Mary Cronin temporarily barred the Department of Administration from complying with a provision in the budget to immediately transfer $75 million from the settlement account controlled by Attorney General Kris Mayes to the state treasurer. She will hear further arguments on July 3.

That order came despite arguments by the governor’s office that those those dollars are needed to ensure the state ends the current fiscal year on June 30 with a positive cash balance.

Separately, Cronin also prohibited another scheduled transfer of $40 million that the budget called to be moved on July 5.

Thursday’s order does not resolve the fight. That will require more hearings and a possible trial.

But Cronin said Mayes presented enough evidence to her on Thursday to convince her the money should be kept where it is for the time being: in the control of the Attorney General’s Office.

“Plaintiff (Mayes) is likely to succeed on the merits of her claims because the diversion of $115 million from their approved uses … would be illegal,” the commissioner wrote.

“If the funds are illegally diverted from their approved uses, Arizona and its citizens are likely to suffer irreparable harm,” Cronin wrote.

That, she said, is because the funds won’t be used to abate the opioid epidemic. And then there’s the chance that the diversion risks future payments in violation of the settlement agreement.

The order is an interim victory for Mayes who had told Gov. Katie Hobbs and lawmakers before they adopted the budget on Saturday that the move is illegal — and that they would wind up in court.

All that is part of a $1.14 billion 18-year settlement the state reached on its own behalf and also for local governments to resolve claims against manufacturers, distributors and pharmacies. All were accused of activities that created and exacerbated opioid abuse.

Mayes said the funds — $501 million that goes specifically to the state with the balance to local governments — are largely earmarked for abatement of the opioid epidemic. And a majority of that, she said, is restricted to funding programs to prevent future abuse.

The attorney general said diverting funds to the Department of Corrections, Rehabilitation and Reentry as the budget mandates not only violates the agreement, which was approved by a federal judge, but puts the state at risk of losing future payments.

“Instead of spending it on opioid remediation, as required … all $115 million could end up being spent on beans, bullhorns, and buses with barred windows, the daily grist of the DOC’s mill,” Mayes said in her legal filings.

There is no question but that the adopted budget does divert money. But Christian Slater, press aide to Gov. Katie Hobbs who negotiated the spending deal with Republican state lawmakers, said the transfer is justified.

He cited language in the budget that says the dollars being given to the Department of Corrections can be used only to pay for past and current care, treatment and other programs for inmates with opioid use disorder, along with other “co-occurring substance use disorder of mental health conditions.” More to the point, the language says it can be used for any purpose as prescribed in the settlement agreement.

That, he said, means no violation of that agreement.

But Mayes said that’s just half the problem.

She cited testimony from a legislative hearing where there was an admission that the state isn’t taking the dollars to finance new treatment programs for inmates but instead simply replacing existing state funds with the settlement cash. And that, in turn, freed up what already was being spent on those programs to instead balance the state budget.

Put another way, Mayes said it’s just shuffling money around to “backfill” the budget in the state prison system, with no new net benefit to inmates.

Slater chose to describe the transfer in another way, saying it “would be more accurately described as funding vital opioid use disorder treatment for a population that is disproportionately impacted by the opioid epidemic.” And he said the Attorney General’s own website indicates that funds can be used for opioid treatment for inmates.

Mayes does not dispute that fact. But she said the amount of money that is needed for new programs is more in the neighborhood of $10 million a year. Anything beyond that, Mayes said, is simply funding the obligations of the state to run the Department of Corrections.

Nor was she impressed by the arguments that the state was facing the prospect of running a deficit without the settlement dollars.

“It was their obligation to balance the state budget in a legal fashion,” Mayes told Capitol Media Services.

“They have many other viable options to balance the budget,” she said.

And one of those is the state’s budget stabilization fund — more commonly known as the “rainy day fund” — which she said has about $1.4 billion.

But lawmakers balked at tapping that account.

“Instead, they chose to illegally sweep opioid funding that is designed to save Arizonans’ lives,” Mayes said. “And that is outrageous.”

One side issue is that Mayes contends that anyone who wants to get a share of the settlement funds has to submit an application. She said that enables her office to determine which projects to fund with the dollars.

But Slater said state law specifically exempts state agencies from having to go through a competitive bidding process for funds administered by the state — including these dollars.

Instead, he said, those funds are subject to being appropriated by the Legislature, which is what happened here.

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