Biggs v. Betlach

• Decision Date: 16 March 2017
• Docket Number: No. 1 CA–CV 15–0743,1 CA–CV 15–0743
• Citation: 392 P.3d 499
• Parties: Andy BIGGS, et al., Plaintiffs/Appellants, v. Thomas J. BETLACH, Defendant/Appellee. Edmundo Macias; Gary Gorham ; Daniel McCormick; and Tim Ferrell, Intervenor–Defendants/Appellees.
• Court: Arizona Court of Appeals

392 P.3d 499

Andy BIGGS, et al., Plaintiffs/Appellants,

v.Thomas J. BETLACH, Defendant/Appellee.

Edmundo Macias; Gary Gorham ; Daniel McCormick; and Tim Ferrell, Intervenor–Defendants/Appellees.

No. 1 CA–CV 15–0743

Court of Appeals of Arizona, Division 1.

FILED March 16, 2017

Goldwater Institute, Phoenix, By Christina Sandefur and Aditya Dynar, Counsel for Plaintiffs/Appellants

Fennemore Craig, P.C., Phoenix, By Douglas Northup, Timothy Berg, Patrick Irvine, and Carrie Ryerson, Counsel for Defendant/Appellee

Arizona Center for Law in the Public Interest, Phoenix, By Timothy Hogan and Joy Herr–Cardillo, William E. Morris Institute for Justice, Phoenix, By Ellen Sue Katz, Co–Counsel for Intervenor–Defendants/Appellees

Coppersmith Brockelman PLC, Phoenix, By Roopali Desai and D. Andrew Gaona, Arizona Hospital and Healthcare Association, Phoenix, By Ann–Marie Alameddin, Co–Counsel for Amicus Curiae Arizona Hospital and Healthcare Association

Statecraft PLLC, Phoenix, By Kory Langhofer, Counsel for Amicus Curiae Health System Alliance of Arizona

Judge Paul J. McMurdie delivered the opinion of the Court, in which Presiding Judge Kenton D. Jones and Judge Patricia K. Norris joined.

OPINION

McMURDIE, Judge:

¶ 1 We are asked to consider whether the hospital assessment under Arizona Revised Statutes ("A.R.S.") section 36–2901.08 was enacted in violation of Article 9, Section 22, of the Arizona Constitution.¹

¶ 2 Appellants, a group of legislators who voted against House Bill ("HB") 2010 during the 2013 legislative session, appeal the superior court's order granting Defendant's and Intervenor–Defendants' motions for summary judgment. Appellants contend HB 2010 created a new tax on hospitals, and therefore required a super-majority vote under Article 9, Section 22. Because HB 2010 imposed an assessment that is excepted under Section 22 (C)(2), we find it constitutional as enacted and affirm the superior court.

FACTS AND PROCEDURAL BACKGROUND

¶ 3 In September 2013, during the Fifty–First Arizona State Legislature, legislators introduced HB 2010 to expand Arizona's indigent healthcare program. Included in that expansion was an assessment on hospitals to be set by the director of the Arizona Health Care Cost Containment System ("AHCCCS"). HB 2010 passed by a simple-majority vote, and Governor Janice K. Brewer signed it into law as A.R.S. § 36–2901.08.

¶ 4 Members of the Arizona Legislature who voted against HB 2010 subsequently filed suit in September 2013 to enjoin enforcement of the expansion, arguing HB 2010 was passed in violation of Article 9, Section 22.² The parties filed cross-motions for summary judgment in May 2015 seeking a declaration regarding the constitutionality of § 36–2901.08. The superior court found the legislation came within a listed exception to Article 9, Section 22, and thus was not subject to the super-majority vote requirement. The legislators timely appealed and we have jurisdiction pursuant to A.R.S. § 12–2101(A)(1) (2016).³

DISCUSSION

¶ 5 Questions of statutory interpretation and constitutional law are reviewed de novo . State ex rel. Thomas v. Klein , 214 Ariz. 205, 207, ¶ 5, 150 P.3d 778 (App. 2007). We presume that a statute is constitutional and resolve any doubts in favor of constitutionality.⁴ Niehaus v. Huppenthal , 233 Ariz. 195, 197, ¶ 5, 310 P.3d 983 (App. 2013). While all three branches of government have a role in interpreting the Constitution, when a conflict arises it is the courts' constitutional responsibility to be the final arbiter. See Powell v. McCormack , 395 U.S. 486, 549, 89 S.Ct. 1944, 23 L.Ed.2d 491 (1969).

A. A.R.S. § 36–2901.08 Was Constitutionally Enacted in Accordance with Article 9, Section 22, of the Arizona Constitution.

¶ 6 AHCCCS provides health insurance benefits to qualified persons of low income. HB 2010 was intended to expand the program's coverage, with joint funding from the federal and state governments. In order to provide the funding needed from the state government, HB 2010 created an assessment, paid by Arizona hospitals as set forth by the director of AHCCCS. HB 2010, 2013 Ariz. Sess. Laws, ch. 10, § 5 (1st Spec. Sess.).

¶ 72041243828;00046;;ES;NOTAREFERENCE;1000447; Article 9, Section 22 states, "[a]n act that provides for a net increase in state revenues ... is effective on the affirmative vote of two-thirds of the members of each house of the legislature." Subsection B provides that qualifying "acts" include, inter alia , "[t]he imposition of any new tax" and "[t]he imposition of any new state fee or assessment." Ariz. Const. art. 9, § 22 (B)(1), (5). However, Subsection C states that the two-thirds vote is not required on "[f]ees and assessments that are authorized by statute, but are not prescribed by formula, amount or limit, and are set by a state officer or agency." Ariz. Const. art. 9, § 22 (C)(2).

1. The Hospital Assessment Is Not a Tax.

¶ 8 Because the exception under Section 22 (C)(2) applies only to "fees and assessments," appellants first argue that the hospital assessment enacted by HB 2010 was a new "tax" under Section 22 (B), and therefore required a two-thirds affirmative vote from both houses of the Arizona Legislature.⁵

When deciding whether to categorize a government levy as an assessment or a tax, the analysis is context-driven and examines three factors: (1) the entity imposing the levy; (2) the parties upon whom the levy is imposed; and (3) whether the levy is expended for general public purposes or used for the regulation or benefit of the parties upon whom the assessment is imposed. May v. McNally , 203 Ariz. 425, 430–31, ¶ 24, 55 P.3d 768 (2002) ; see also Bidart Bros. v. California Apple Comm'n , 73 F.3d 925, 929–31 (9th Cir. 1996). All three factors support the categorization of the hospital levy in the immediate case as an assessment.

¶ 9 Appellants claim the entity imposing the levy is the state legislature because the levy was created by the legislature through statute. This argument misses the mark. While the legislature may have authorized the levy through statute, we look to the entity with regulatory authority over the levy for purposes of categorizing it as a tax or assessment. See Jachimek v. State , 205 Ariz. 632, 636, ¶ 15, 74 P.3d 944 (App. 2003). Most levies are first authorized by statute. See, e.g. , A.R.S. § 32–124(A) (establishing fees to be collected by the State Board of Technical Registration); A.R.S. § 45–334(A) (authorizing the director of water resources to set Colorado river water use fees); A.R.S. § 17–333 (mandating that the Game and Fish Commission prescribe license fees by rule). This does not mean that the levies are imposed by the legislature. Instead, the levies are imposed by an entity with discretion to set and administer them. Here, because the director has authority to "establish, administer and collect" the levy, we find AHCCCS is the entity imposing the levy. A.R.S. § 36–2901.08(A).

¶ 10 Analyzing the second factor, appellants argue the levy is imposed upon a broad class of hospitals, making it more like a tax than an assessment. Appellants misconstrue the language of the statute on its face. Section 36–2901.08(C) allows the director to "establish modifications or exemptions to the assessment." In doing so, the director is allowed to consider factors including the size, services offered, and location of the hospital. A.R.S. § 36–2901.08(C). Therefore, the levy at issue is not necessarily charged to every hospital in the state.⁶ Even if it were, the assessment is narrowly applied only to hospitals, and not a broad class of citizens as is typical of a tax. This court has previously held that levies that are specific to a class of business are appropriately treated as an assessment. See, e.g., Jachimek , 205 Ariz. at 636, ¶ 16, 74 P.3d 944 (an assessment charged to all licensed pawnbrokers when reporting transactions under state law was not a tax). Therefore, because the levy is restricted to hospitals within the discretion of the director, this factor weighs in favor of treating the levy as an assessment.

¶ 11 Finally, appellants argue the levy is expended for general public purposes, not for the regulation or benefit of the levied parties, and therefore, should be considered a tax. Appellants focus in particular on the "broad public purpose" of the statute, and healthcare expansion as a whole. But while the entire expansion's purpose was to provide healthcare to more of Arizona's indigent population, the purpose of the assessment , as evidenced by the language of HB 2010, was to "be used for the benefit of hospitals for the purpose of providing health care for persons eligible for coverage funded by the hospital assessment." HB 2010, 2013 Ariz. Sess. Laws, ch. 10, § 44(3) (1st Spec. Sess.) (emphasis added).

¶ 12 Appellants also contend hospitals only benefit "incidentally" from the assessment. But, under Arizona law, a levy can be treated as an assessment and not a tax as long as there is "some reasonable relation to the service to be performed on the payer's behalf." See Jachimek , 205 Ariz. at 637, ¶ 21, 74 P.3d 944 (quoting Stewart v. Verde River Irrigation & Power Dist. , 49 Ariz. 531, 548, 68 P.2d 329 (1937) ); see also Kyrene Sch. Dist. No. 28 of Maricopa County v. City of Chandler , 150 Ariz. 240, 244, 722 P.2d 967 (App. 1986) (water system development charges were not taxes simply because they benefited other parties). Here, while the Arizona residents who received coverage under the expansion also benefit from the statute and the assessment, this does not make the levy a tax being expended for a general public purpose.⁷ Because of the hospital assessment fund created by the statute, hospitals receive additional funding for uncompensated care, which is a benefit related to the levy.⁸

¶ 13 Weighing the factors set forth in May , we conclude that the hospital assessment is not a tax. The assessment is imposed by the director of AHCCCS, on hospitals, and it is intended to provide additional...