Arizona lawmakers raided consumer protection funds to help balance budget

PHOENIX - The ABC15 Investigators have discovered Arizona lawmakers took money meant to help consumers wronged by bad real estate deals, contractors and insurers and used it to help balance the state's budget.

One of those consumers was Judy Goldberg of Phoenix who decided to bank on Arizona's sunshine by investing in solar panels.

With loads of incentives and rebates, the $55,000 installation came down in price to $26,000. She got a loan from her bank.

"The bank said, ‘feel free to pay them upfront everything' that's what I did," Judy told ABC15.

Judy handed the full amount to Arizona Solar Power of Cottonwood. The business took her money and took off.

"The doors were closed. They were gone. I was shocked," Judy said.

But, not completely out of luck, Judy knew about the fund set up to help consumers hurt by contractors.

It is specifically for contractors who do shoddy work or take off and not finish the job.

That's according to Bill Mundell, the Director of the Arizona Registrar of Contractors (ROC). Contractors pay into a recovery fund so consumers can get up to $30,000 per legitimate claim.

Recovery Funds Swept
This would have been great for Judy if it were a few years ago, before state lawmakers took money out of some of the recovery funds to help pay for massive budget cutbacks.

Over three years, lawmakers swept most of the ROC's recovery fund money and put it into the general fund. They took $8.4 million and left just $28,000, a negative monthly cash flow, and for consumers an I.O.U. for some time in the future.

Judy calls it a huge setback. She has to wait nearly a year to recover her lost money.

Mundell isn't happy either. He points to the fund's statute which has strong language concerning the money's intended use.

"It says hold in trust for purpose of the fund and pay claims," said Mundell.

The ABC15 Investigators found similar consumer protections funds that were also raided by Arizona lawmakers.

The Arizona Department of Real Estate has a recovery fund which was paid for by licensed realtors. It is set up for consumer protection against wrongdoing by real estate agents. It had almost $700,000. The fund was swept, and now, it's down to just $6,000.

Arizona Real Estate Commissioner Judy Lowe said she is past the angry stage.

"It would mean (giving) an I.O.U. to consumers," Lowe said. "At 4 percent interest rate until we had enough funds to pay that claim."

The state's escrow recovery fund at the Arizona Department of Financial Institutions was also swept.

It would protect consumers with issues relating to escrow. For example, if you were buying a house and the company holding your money in an escrow account went out of business, you could recovery that money.

The escrow recovery fund had more than $5 million taken out and swept into the general fun. Today, the account is closed.

We asked Arizona State Representative John Kavanagh why the funds were swept.

"When you're drowning and underwater you can't be too particular about what life preserver you grab," Kavanagh said.

For five years, Kavanagh, a Republican from Fountain Hills, has been on the House Appropriations Committee.

He is now chairman and said with billions less in state revenue, budget cuts and layoffs, taking the $1.3 billion from these funds was necessary.

"The alternative would have been fire more employees, throw more people off health care," Kavanagh said.

Fighting Back
But, lawmakers didn't get all they wanted. Two insurance funds sued the state.

Lawmakers only got $19,000 for the general fund when they wanted $29 million.

The lawsuit claims the funds have a "particular purpose" of paying consumer claims if an insurer couldn't. The money comes from insurance companies, not taxpayer money, so they are private, "not public funds subject to appropriation".

Two years later, the fund still has its $29 million. Kavanagh is backing off.

"When we saw the legal argument, we stopped," he said.

That same argument could be made for the other consumer recovery funds. They also have a purpose, and the money came from professionals. It is not taxpayer money, yet lawmakers still took it.

Judy did get her solar panels. He went to a second company and took out a second loan. She did that when she thought the fund would pay off her first loan. So, in a few weeks, she will be stuck with two loan payments for nearly a year.

"I just know I did what I was supposed to do. Now, I want to get what I was promised," said Judy.

Rep. Kavanagh told us that no claims from these consumer funds will be denied. He said the funds will be repaid starting as early as late next year. That's news to the folks running some of those funds.

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