Judge Portley of the Arizona Court of Appeals [official website] ruled [decision, PDF] on Friday that the state legislature can transfer funds from the Industrial Commission of Arizona (ICA) [official website] to the state's general fund. The ICA was established under Arizona's Workers' Compensation Act [text] to administer the State Compensation Fund, created to pay compensation benefits to injured workers. The Court of Appeals stated that the ICA Special Fund is a public fund subject to legislative control, rather than a trust, and therefore the transfer is allowed under Arizona's constitution. Furthermore, while court acknowledged that the employers and employees have a vested interest in the Special Fund, it held that there was no evidence that the transfer would "impair the ability of the Special Fund to meet its obligations for the relevant fiscal year." An appeal to the Arizona Supreme Court remains a possibility [Arizona Daily Sun report].
Friday's decision overruled a trial court decision in favor of the ICA, which held that the funds were "insurance proceeds held in trust for the benefit of employees and employers by the Workers' Compensation Act" and that those employees and employers had vested rights in the ICA Special Fund. The lawsuit is a challenge to HB 2051 [text], which Governor Jan Brewer [official website] signed into law in 2009. It was challenged by the ICA itself, as well as interest groups including the National Federation of Independent Businesses, the Arizona Self-Insurers Association and the American Insurance Association [official websites]. The law was intended to balance the state's budget in part by transferring money from various special accounts, including $4.7 million from the ICA's Special Fund into the state's general fund.