OFFICE OF THE

ARIZONA STATE TREASURER

JEFF DEWIT
TREASURER

May 24, 2016

Mark Brnovich, Attorney General

Arizona Attorney Generals Office
1275 W. Washington Street
Phoenix, AZ 85007-2926
Re: Request for legal opinion
Dear Attorney General Brnovich;
Please see attached for request for legal opinion as unanimously approved by State Board of
Investment Members today.
Sincerely,

Jeff DeWit
Treasurer and Chairman State Board of Investment

cc: Rex Nowlan, Chief Counsel, Office of Attorney General

Michael Bailey, Chief Deputy/Chief of Staff, Office of Attorney General
State Board of Investment Members

STATE CAPITOL 1700 W. WASHINGTON, PHOENIX, ARIZONA 85007 (602) 542-7800 FAX (602) 5427176
TOLL FREE (877) 365-8310 WWW.AZTREASURY.GOV

OFFICE OF THE

ARIZONA STATE TREASURER

JEFF DEWIT
TREASURER

May 24, 2016

Mark Brnovich, Attorney General

Arizona Attorney Generals Office
1275 W. Washington Street
Phoenix, AZ 85007-2926
Re: Request for legal opinion
Dear Attorney General Brnovich:
Pursuant to 41-193 (A)-7, and on behalf of the State Board of Investment (Board), I am
requesting a written legal opinion in regards to distributions from the Arizona Permanent Land
Endowment Trust Fund (Trust.)
As you are aware, the May 17 special election contained Proposition 123, which amends Article
X, section 7 of the Constitution of the State of Arizona that pertains to the establishment of the
Trust, the Board, the investment parameters of the Trust and distributions from the Trust.
The ballot measure, set to be officially canvassed on May 27, 2016; increases distributions from
the trust from 2.5% to 6.9% for 12 beneficiaries and a specific distribution of $259,266,200 (a 7.4%
distribution) for common schools from the Trust by June 30, 2016 and a 6.9% distribution for all
beneficiaries for the following nine fiscal years. The measure strikes out the current distribution
formula placed in the Arizona Constitution in 1998 and ratified by Congress in 1999 under H.R.
747. According to H.R. 747 that formula met the intent of Congress to protect the Endowment
from inflation.
The questions are:
Can the Board comply with the new distribution requirements in Proposition 123 before
Congress approves the permanent removal of inflation protection of the Trust, given the
1999 Act by Congress said the purpose of the H.R. 747 was to account for inflation, a
portion of the interest should be retained and reinvested to fuel future income growth?
A complaint was filed May 19 in U.S. Federal District Court in Phoenix on this very
issue. Should the Board approve the new distribution requirements of Proposition 123
while this litigation is pending and/or any further litigation on Proposition 123?
Should the office of the State Treasurer distribute the increased payouts while litigation
on Proposition 123 is pending?

STATE CAPITOL 1700 W. WASHINGTON, PHOENIX, ARIZONA 85007 (602) 542-7800 FAX (602) 5427176
TOLL FREE (877) 365-8310 WWW.AZTREASURY.GOV

OFFICE OF THE

ARIZONA STATE TREASURER

JEFF DEWIT
TREASURER

Section 26 of the Enabling Act says distributions from the Trust are only to be used for
schools under exclusive government control. Does section 26 of the enabling act need to
be amended by Congress as well since Charter Schools are not under exclusive
government control and currently receive funds from the Trust?
Will the Board be personally liable for any increased distributions that the current and
future litigation on this matter be deemed inappropriate?
Please advise the Board of any and all other issues to which the Board shall be aware in
order to act consistent with the law.
Time is of the essence and I ask that your office provide us with your opinion on these
questions and any other guidance you can provide prior to our June 28, 2016 meeting in order
for the Board to be able to comply with the requirements of Proposition 123. If you find that you
have any conflict in answering these questions, please provide direction as to what the next
steps would be for the Board to receive official counsel to advise the board on these matters.
I have attached a legal opinion from last December which states Congress does need to act on
the changes made in Proposition 123.

Sincerely

Jeff DeWit
Treasurer and Chairman State Board of Investment
State of Arizona

cc: Rex Nowlan, Chief Counsel, Office of Attorney General

Michael Bailey, Chief Deputy/Chief of Staff, Office of Attorney General
State Board of Investment Members
STATE CAPITOL 1700 W. WASHINGTON, PHOENIX, ARIZONA 85007 (602) 542-7800 FAX (602) 5427176
TOLL FREE (877) 365-8310 WWW.AZTREASURY.GOV