Do Arizona counties have to count their public-pension catch-up payments toward the constitutional expenditure limit, or are those payments excluded as 'long-term obligations'?

Plain-English summary

Maricopa County asked the Attorney General whether the annual payments it made to amortize its unfunded liabilities in four public retirement plans (ASRS, EORP, PSPRS, and CORP) had to count toward the constitutional expenditure cap in Article 9, § 20 of the Arizona Constitution. The County's argument was that these "Amortization Amounts" qualified for an exclusion from "local revenues" under § 20(3)(d)(i), which excludes amounts collected to make payments under "bonds or other lawful long-term obligations."

Attorney General Mark Brnovich said no. The exclusion only covers bond-like obligations under which the county actually received money or property up front, and where payment is required by a contract. Pension amortization fails every test:

1. Not bond-like. The duty to pay employees, including through retirement benefits, is compensation for services. The county does not "receive amounts or property" from incurring it.
2. Not voluntarily incurred long-term obligations. Counties operate on a pay-as-you-go basis. State statutes require the unfunded-liability payment to be made annually. Each year's amortization is its own current expenditure, not a multi-year obligation incurred for a specific purpose.
3. Not required by a contract. Although employee retirement benefits are contractual under Yeazell v. Copins and Article 29, § 1 of the Arizona Constitution, the county's duty to fund the plans flows from statute, not from the county's contract with anyone.

The opinion also leaned on purpose: § 20 was adopted in 1980 to control runaway local spending. Allowing localities to label any multi-year obligation as a "long-term obligation" would let them route around the cap.

The bottom line: Maricopa County (and every other Arizona county) has to budget pension catch-up payments inside its expenditure cap, not outside.

Currency note

This opinion was issued in 2019. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical context: what the opinion meant in 2019

For county finance directors and budget officers

The opinion locked in a strict reading of the expenditure cap. Counties that had been excluding their PSPRS or CORP amortization from the cap would, under this opinion, need to revisit those calculations. The AG framed the issue as constitutional, not statutory, so the legislature could not "fix" it by statute alone.

For state auditors and the auditor general's office

The auditor general was a co-requestor. The opinion gave audit programs a clear rule: pension amortization belongs in the local-revenues column, full stop. The AG did not opine on whether Maricopa County had violated the cap. That was left as a factual matter for audit.

For taxpayers and watchdogs

The opinion strengthened the practical force of Article 9 § 20. Pension underfunding had been a major driver of unbudgeted local spending in the decade leading up to the opinion. Treating amortization as inside the cap forced counties to either raise their budget headroom (subject to voter approval under § 20) or absorb the pension cost by trimming elsewhere.

For county attorneys and municipal-bond practitioners

The opinion mapped out which obligations qualify for the (3)(d)(i) exclusion: bonds, certificates of participation, sale-leasebacks. The common thread is the county receives "amounts or property" up front and pays them off. Pension amortization does not match that pattern.

Common questions

Q: What is Article 9, § 20 of the Arizona Constitution?
A: It's the constitutional expenditure cap for counties, cities, and towns, adopted by voters in 1980 (Prop. 108). It limits each locality's annual expenditures to its 1979-80 base, adjusted annually for population, inflation, and certain transfers. Some categories of revenue and expenditure are excluded.

Q: What does § 20(3)(d)(i) actually exclude?
A: "Any amounts or property received from the issuance or incurrence of bonds or other lawful long-term obligations issued or incurred for a specific purpose, or collected or segregated to make payments or deposits required by a contract concerning such bonds or obligations." In plain English: the proceeds of a bond issue, plus the dedicated funds set aside to service that bond.

Q: Why aren't pension amortization payments "long-term"?
A: Because the legislature requires the county to pay them every year. Each year is a fresh statutory duty, not a multi-year debt the county chose to take on. Counties do not budget benefit payments as multi-year debts.

Q: Doesn't Arizona Constitution Article 29 say pension benefits are contractual?
A: It does, between the employee and the state. The county's duty to fund the plan, by contrast, comes from state statute (§§ 38-737, 38-810, 38-843, 38-891), not from a contract the county signed. The AG cited Rochlin v. State, 112 Ariz. 171 (1975), for that distinction.

Q: What kinds of payments do qualify for the (3)(d)(i) exclusion?
A: Anything bond-like where the county received money or property up front and is paying it back. Examples the AG listed: regular bonds, certificates of participation, sale-leasebacks. The Auditor General had been treating the exclusion that way "for a long time," and the AG endorsed that reading.

Q: Who can challenge a county that excludes pension amortization from its cap?
A: The opinion does not lay out an enforcement mechanism, but the Auditor General's audit findings would be the most natural path. Citizen taxpayer suits are also possible.

Background and statutory framework

Article 9, § 20 was the 1980 voter response to fast-growing local government spending. It pegged each locality's expenditures to a 1979-80 base and required voter approval to spend more. The exclusions in § 20(3)(d) were designed to keep certain bond-financed activity outside the cap, since bond proceeds are not really "local revenues" in the ordinary sense; the locality has just borrowed the money and will pay it back over time.

The four pension plans at issue are governed by Title 38:
- ASRS (Arizona State Retirement System): A.R.S. § 38-737 sets the contribution rates, including unfunded-liability amortization.
- EORP (Elected Officials' Retirement Plan): A.R.S. § 38-810.
- PSPRS (Public Safety Personnel Retirement System): A.R.S. § 38-843.
- CORP (Corrections Officer Retirement Plan): A.R.S. § 38-891.

Each statute requires the participating local employer to contribute its share of unfunded actuarial accrued liability annually. The amount is calculated by the plan's actuaries and sent to the locality. The locality cannot opt out.

The opinion's reasoning sequence:

1. Plain text. § 20(3)(d)(i) requires that the obligation be "bond[s] or other lawful long-term obligations" and that the locality have received "amounts or property" from issuing or incurring it. Pension amortization fails both.

2. Context within Article 9. The companion provisions in §§ 17-21 also tie "long-term obligations" to bonds. Reading the phrase consistently across the article confirms that "long-term obligations" means bond-like.

3. Pay-as-you-go budgeting. Arizona counties operate on a cash basis under A.R.S. § 42-17106. Multi-year debts have to either be paid out of segregated funds (not the general budget) or comply with the constitutional debt limit in Article 9, § 8. Pension amortization fits neither bucket.

4. The "incurred" element. § 20(3)(d)(i) requires the obligation to have been "incurred for a specific purpose," which the AG read as requiring voluntary action. Pension funding requirements are imposed by state law, not voluntarily incurred. Rochlin v. State, 112 Ariz. at 176, expressly held that obligations imposed by state law are not voluntarily "incurred."

5. The "contract" element. The exclusion's second clause covers payments "required by a contract concerning such bonds or obligations." Counties pay pension amortization because state law requires it, not because of a contract.

6. Purpose canon. Reading the exclusion broadly would let localities label everything "long-term" and gut the spending cap. Whitman v. American Trucking Associations, 531 U.S. at 468, on hiding elephants in mouseholes, was the AG's rhetorical close.

Citations and references

Constitutional provisions:
- Ariz. Const. art. 9, § 20 (county/city expenditure limits)
- Ariz. Const. art. 9, § 8 (county debt limits)
- Ariz. Const. art. 9, § 17 (state expenditure limits)
- Ariz. Const. art. 29, § 1 (public retirement system contractual relationship)

Statutes:
- A.R.S. §§ 38-737, 38-810, 38-843, 38-891 (unfunded-liability funding rules for ASRS, EORP, PSPRS, CORP)
- A.R.S. § 42-17106 (county cash-basis budget law)

Cases:
- Rochlin v. State, 112 Ariz. 171 (1975), pension funding obligations are statutorily mandated, not voluntarily incurred debts
- Yeazell v. Copins, 98 Ariz. 109 (1965), retirement benefits are contractual between employee and the state
- Mountain States Legal Found. v. Apache Cty., 146 Ariz. 479 (App. 1985), items outside "local revenues" are outside the expenditure cap
- Fields v. Elected Officials' Ret. Plan, 234 Ariz. 214 (2014), codification of Yeazell in Article 29
- Whitman v. American Trucking Associations, 531 U.S. 457 (2001), Congress does not hide elephants in mouseholes

Source

• Landing page: https://www.azag.gov/opinions/i19-004-r18-021r18-019
• Original PDF: https://www.azag.gov/sites/default/files/2025-06/I19-004.pdf

Original opinion text

To:

Lindsey A. Perry, CPA, CFE

Arizona Auditor General

Bill Montgomery

Maricopa County Attorney

Issue Presented

Article 9, § 20(1) of the Arizona Constitution limits "expenditures" by counties, cities, and towns. Expenditures are defined as "any authorization for the payment of local revenues." Id. § 20(3)(c). If something is excluded from "local revenues," it is thus outside the scope of the expenditure limit. There are several such exclusions, including "[a]ny amounts or property received from the issuance or incurrence of bonds or other lawful long-term obligations issued or incurred for a specific purpose, or collected or segregated to make payments or deposits required by a contract concerning such bonds or obligations." Id. § 20(3)(d)(i).

The Arizona Auditor General and the Maricopa County Attorney both requested legal opinions on the following question, which we restate for purposes of this opinion:

Maricopa County pays monies each fiscal year to satisfy the County's duty to pay annual amounts necessary to amortize unfunded liabilities for certain public retirement plans ("Amortization Amounts"). Are the Amortization Amounts excluded from "local revenues" under § 20(3)(d)(i)?

Summary Answer

No. The Amortization Amounts are not excluded under § 20(3)(d)(i). First, the duty to compensate county employees for their services, whether through salaries or benefits, is not a "bond or other lawful long-term obligation[]." Ariz. Const. art. 9, § 20(3)(d)(i). The "other lawful long-term obligations" that are excluded from local revenues must be bond-like, and the County must receive "amounts or property" from their issuance or incurrence. Id. Payments for services do not result in the receipt of amounts or property. Second, the County did not voluntarily "incur[]" the Amortization Amounts as "long-term obligations," as the Constitution requires, id.; instead, those liabilities are the result of the statutory requirement that the County contribute to the plans on an annual basis, as well as the performance of the plans' investments, among other things. Third, the payment of the Amortization Amounts is not "required by a contract," id., but rather by "obligations created and mandated by the state." Rochlin v. State, 112 Ariz. 171, 176-77 (1975). Fourth, excluding the Amortization Amounts from local revenues would contravene article 9, § 20's history and purpose.

Background

A. The Adoption of Constitutional Expenditure Limits

The Legislature referred and the voters approved constitutional expenditure limits for counties, cities, and towns. 1980 Ariz. Sess. Laws Ch. 10, S.C.R. 1001, at § 9 (2d Spec. Sess.) (Prop. 108) (codified as amended at Ariz. Const. art. 9, § 20). That referral was part of a larger package of new and amended fiscal restraints on state and local governments related to public debt, revenue, and taxation—all of which passed. See, e.g., id. §§ 5–8, 10 (Props. 104–107, 109) (codified as amended at art. 9, §§ 8, 17–19, 21). The spending limits added to earlier such limits that applied to state government only. 1978 Ariz. Sess. Laws Ch. 206, S.C.R. 1002, at § 1 (2d Reg. Sess.) (Prop. 101) (codified as amended at art. 9, § 17).

The purpose of the expenditure limits in article 9, § 20 was to stop runaway growth of local government spending and an "ever-increasing local tax burden." 1980 Special Election Publicity Pamphlet, Leg. Council Arguments Supporting Prop. 108 at 66. The other spending limits had a similar purpose.

B. The County, City, and Town Expenditure Limit in Article 9, Section 20

Subject to certain exceptions, article 9, § 20(1) states that "[t]he governing board of any [county, city, or town] shall not authorize expenditures of local revenues in excess of" the spending limits "prescribed in this section." Generally speaking, those spending limits are the fiscal year 1979–80 expenditure levels for each particular locality, adjusted annually for population and cost-of-living changes, as well as for any transfer of government programs or change in boundaries. See id. § 20(1), (4), (5); see also La Paz Cty. v. Yuma Cty., 153 Ariz. 162, 167 (1987).

"Expenditure[s]" are defined as "any authorization[s] for the payment of local revenues." Ariz. Const. art. 9, § 20(3)(c). "Local revenues" are defined as "all monies, revenues, funds, fees, fines, penalties, tuitions, property, and receipts of any kind whatsoever received by or for the account of a political subdivision or any of its agencies, departments, offices, boards, commissions, authorities, councils and institutions." Id. § 20(3)(d). If something is excluded from the definition of "local revenues," then the authorization for expending that amount is excluded from the definition of "expenditure," see id. § 20(3)(c), and does not count toward the overall spending limit in § 20(1), which applies only to "expenditures." See Mountain States Legal Found. v. Apache Cty., 146 Ariz. 479, 483 n.7 (App. 1985).

C. The County's Obligation To Pay Amortization Amounts

The County participates in four public retirement plans: the Arizona State Retirement System (ASRS), the Elected Officials' Retirement Plan (EORP), the Public Safety Personnel Retirement System (PSPRS), and the Corrections Officer Retirement Plan (CORP). For each plan, the State mandates that unfunded actuarial accrued liability be paid each year. See A.R.S. §§ 38-737(A, C) (ASRS); 38-810(C, D) (EORP); 38-843(B) (PSPRS); 38-891(A) (CORP).

Analysis

I. The Plain Language of § 20(3)(d)(i) Confirms That the Amortization Amounts Do Not Fit Within its Exception to "Local Revenues"

The Amortization Amounts do not fit within the exception to "local revenues" in § 20(3)(d)(i) based on the plain language of that exception. "When interpreting the scope and meaning of a constitutional provision," the "primary purpose is to effectuate the intent of those who framed the provision and … the electorate that adopted it." Jett v. City of Tucson, 180 Ariz. 115, 119 (1994). This intent is effectuated by "'fairly interpreting the language used.'" Cave Creek Unified Sch. Dist. v. Ducey, 233 Ariz. 1, 6–7 ¶ 21 (2013). When a term is undefined, a court will "consider how the[] term 'is generally understood and used by the people.'" Fields v. Elected Officials' Ret. Plan, 234 Ariz. 214, 219 ¶ 19 (2014). A court will thus "first examine the provision by assigning each word its 'natural, obvious, and ordinary meaning.'" Id. And "[w]e read constitutional provisions as a whole, and give meaningful operation to each part in harmony with the others." State v. Lee, 226 Ariz. 234, 238 ¶ 11 (App. 2011).

Section 20(3)(d)(i) provides as follows:

Any amounts or property received from the issuance or incurrence of bonds or other lawful long-term obligations issued or incurred for a specific purpose, or collected or segregated to make payments or deposits required by a contract concerning such bonds or obligations. For the purpose of this subdivision long-term obligations shall not include warrants issued in the ordinary course of operation or registered for payment, by a political subdivision.

Reading § 20(3)(d)(i) as a whole, the italicized language means that localities may exclude from local revenues amounts that are collected or segregated to make payments or deposits required by a contract concerning bonds or other lawful long-term obligations incurred for a specific purpose. Several of those criteria are missing here.

A. Unfunded Pension Liabilities Are Not Bond-Like Obligations

The duty to compensate county employees for their services—whether through salaries or benefits—is not a "bond[] or obligation[]" within the meaning of § 20(3)(d)(i), because the County will not receive "amounts or property" from their "issuance or incurrence."

The phrase "such bonds or obligations" in the provision's second clause necessarily refers back to the phrase "bonds or other lawful long-term obligations issued or incurred for a specific purpose" in the provision's first clause. This tells us, first, that the "obligations" referred to in both clauses must be bond-like, such as certificates of participation. Nearby constitutional provisions confirm this interpretation. Throughout article 9, sections 17 through 21, the phrase "other lawful long-term obligations" is repeatedly joined with "bonds." This is a strong indicator that the "long-term obligations" referred to in § 20(3)(d)(i) must be bond-like to qualify.

Reading § 20(3)(d)(i) holistically also tells us the "bonds or other lawful long-term obligations" that qualify must be ones for which "amounts or property [were] received" in the first place. The text points in that direction. So does the placement of that provision in the context of "local revenues," which the Constitution defines as a long list of "receipts," but not services. Id. § 20(3)(d).

The second clause of § 20(d)(3)(i) thus excludes from local revenues amounts "collected or segregated to make payments or deposits required by a contract concerning" bonds or other lawful long-term obligations for which amounts or property were initially received. The Amortization Amounts do not qualify. Compensating employees for services is not like making bond payments, and the County received no amounts or property from participating in the public retirement plans.

B. Unfunded Pension Liabilities Are Not "Long-Term Obligations" Under § 20(3)(d)(i)

The unfunded pension liabilities also are not "long-term obligations." Ariz. Const. art. 9, § 20(3)(d)(i). Counties operate on a pay-as-you-go basis, and debts that (when issued) will not be paid back in the fiscal year must either (1) be special segregated funds that do not obligate the taxpayers or (2) comply with the county debt limitations in article 9, section 8 of the Constitution. Counties do not budget compensation, including payment of benefits, as long-term obligations but rather as part of each fiscal year. And Arizona law requires localities to make up any unfunded pension liabilities on an annual basis. Unfunded liabilities therefore are not long-term obligations.

C. Unfunded Pension Liabilities Are Not "Incurred For A Specific Purpose"

Even if they were long-term obligations, the Amortization Amounts would not be excludable from local revenues because they were not "incurred for a specific purpose." Incurrence implies voluntary action. See Rochlin, 112 Ariz. at 176 ("Obligations which have not been voluntarily incurred but which have been imposed by state law have been held not to be debts in the constitutional sense.").

Here, the County did not voluntarily incur the unfunded pension liabilities. By their nature, the Amortization Amounts are the result of unfunded liabilities that develop over time based on a plan's performance and other factors, and then are assessed against the County by the State pursuant to statute. See Rochlin, 112 Ariz. at 176–77.

D. Payment of the Amortization Amounts Is Not "Required by a Contract"

The Amortization Amounts also are not "required by a contract." Ariz. Const. art. 9, § 20(3)(d)(i). Instead, the County is required by statute to pay them.

In Yeazell v. Copins, 98 Ariz. 109 (1965), our supreme court held that retirement benefits are a contract between the employee and the State. Id. at 112–17. This "contractual underpinning of public retirement systems" was subsequently "codified" in article 29, section 1 of the Arizona Constitution. Fields, 234 Ariz. at 221, ¶ 31. But only a few years before the Legislature and voters adopted article 9, § 20, the court concluded that the obligation to pay unfunded public pension liabilities is not one that the State's political subdivisions voluntarily incurred. Rochlin, 112 Ariz. at 177. Rather, those obligations were "created and mandated by the state," and were required by "the state … of its political subdivisions." Id.; see A.R.S. §§ 38‑737(A, C) (ASRS); 38-810(C, D) (EORP); 38-843(B) (PSPRS); 38-891(A) (CORP). Thus, although "[m]embership in a public retirement system is a contractual relationship" between employees and the State, Ariz. Const. art. 29, § 1(C), a County's obligation to pay unfunded pension liabilities is statutory, not contractual. Because the County is required by statute (not a contract) to pay the Amortization Amounts, those payments fall outside of § 20(3)(d)(i).

II. This Interpretation Furthers Section 20's Purpose

This interpretation is not only mandated by § 20(3)(d)(i)'s plain text, it is consistent with § 20's purpose. That section was designed to stop runaway growth of local government spending and an "ever-increasing local tax burden." If any payments made for any more-than-a-year obligation were excludable from local revenues, then localities could circumvent constitutional spending limits by making any obligation a long-term one—for example, an obligation that takes a year and a day to come due. That obviously was not the Legislature's or the voters' intent in enacting § 20. Cf. Whitman v. Am. Trucking Assocs., 531 U.S. 457, 468 (2001) (Congress "does not … hide elephants in mouseholes.").

Conclusion

The Amortization Amounts are not excluded from the definition of "local revenues" by article 9, § 20(3)(d)(i). Instead, such amounts must be included in "expenditures" for purposes of the county, city, and town spending limits in § 20(1).

Mark Brnovich

Attorney General