Prop 123 FAQ

 

What is Prop 123?

A 2016 Arizona ballot measure referred by the Governor and Legislature that became law and increased distributions from the Arizona Permanent Land Endowment Trust Fund for 10 years.
 

What is the Permanent Land Endowment Trust Fund? (PLETF or The Endowment)

Congress gave Arizona nearly 11 million acres of State Trust Land at our statehood in 1912 to support 13 public institutions (beneficiaries). Whenever the State Land Department sells State Trust land, those proceeds are deposited in the Fund (The Endowment) to be invested forever for those beneficiaries.

How much does Prop 123 increase distributions from The Endowment?

Prop 123 increased the distribution of payments from The Endowment from 2.5% to 6.9% a year based on the average market value of The Endowment from the previous five years. All 13 beneficiaries receive the 6.9% payout from The Endowment with the largest distributions going to the Permanent Common School Fund benefiting K-12 schools.
 

What led to the Prop 123 distribution changes from The Endowment?

In 1998, under Article 10, Section 7 of the Arizona Constitution, The Endowment’s distribution formula was created based on the 5-year average of annual returns after adjusting for inflation. When this formula resulted in zero distributions in FY 2010, the Treasurer’s office proposed a change to make the distribution 2.5% per year through FY 2021, which was approved by voters in November 2012. Proposition 123, passed by voters in May 2016, added an additional 4.4% to this distribution, for a total of 6.9% per year from FY 2016 through FY 2025 (distributions revert to 2.5% in FY 2026).
 

What is the role of the Treasurer’s Office in Prop 123?

The Treasurer manages and invests The Endowment and ensures the monthly payment of distributions to each beneficiary of The Endowment. Along with the State Board of Investment, the Treasurer is responsible for determining distributions based on the formula in the Arizona Constitution.
 

What is the basis for the lawsuits surrounding Prop 123 funding for public schools?

Arizona Trust Land is controlled by both the Arizona Constitution and the Enabling Act, approved by the United States Congress, that created the States of Arizona and New Mexico. The 1999 distribution formula approved by Congress established that distributions were to be protected from inflation. In May 2016, a citizen filed a lawsuit arguing that Congress had to agree to Proposition 123 before it could take effect because the distributions are no longer protected from inflation. A federal judge agreed. However, in March 2018, Congress passed language saying it agreed with Prop 123. The question is whether the 2018 Congressional action was retroactive or not. A second lawsuit in state court argues that the change made by voters in 2012 also needed Congressional approval.
 

Have these pending lawsuits changed any actions within the Treasurer’s Office?

No. The Treasurer’s Office continues to fulfill its legal obligation and responsibility under Prop 123 to pay the increased distributions from The Endowment.
 

What will the Treasurer’s Office do if a court decides current distributions are unlawful?

The Treasurer’s office is not a named party in either lawsuit and will continue to make the increased distributions until the voters or a final court order instructs the Treasurer’s Office to not make the increased distributions.