Update on Pubic School Finance
Recently, the Senate Research Center published "School Days and Legal Maze, Constitutional Challenges to Public School Finance in Texas." The report focuses on the Edgewood court cases, and I have included portions of the report in this article. Copies of the full report can be obtained by contacting my Capitol Office.
On May 29, 2003, a majority of the Texas Supreme Court (seven justices, with another concurring in the judgment), in West Orange-Cove Consolidated I.S.D v. Alanis, 207 S.W. 3d 558 (Tex. 2003), reversed lower court decisions dismissing a claim brought by four plaintiff school districts, and remanded the case to the trial court for further proceedings. The majority ruled only that the allegations in the plaintiffs' petition were sufficient to state a claim that the state's system of funding public education in effect forced the districts to impose a state ad valorem tax, which is barred by the Texas Constitution. The decision did not rule on the constitutionality of the state's current system of public schools, instead remanding this issue for consideration in the trial court.
The issue concerned Article VII, Section 1, of the Texas Constitution, which provides that: A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of free public schools.
In 1989, in Edgewood Independent School District v. Kirby, 777 S.W.2d 391 (Tex. 1989), the Texas Supreme Court ruled that the state's public school finance system, with its heavy dependence on local property taxes, violated this provision of the state constitution. The system, held the court, resulted in wide disparities in the quality of public education between poorer and wealthier school districts. The Texas Legislature responded with legislation, which was subsequently challenged, resulting in a series of cases known as the Edgewood cases. In 1995, in Edgewood Independent School District v. Meno (Edgewood IV), 893 S.W.2d 450 (Tex. 1995), the court finally ruled that the revised system implemented by the Texas Legislature met constitutional muster. However, the court in that case warned that the new system, because of remaining funding disparities, could again become unconstitutional.
The warning in Edgewood IV concerned Article VIII, Section 1-e, of the Texas Constitution, which prohibits the levying of state ad valorem taxes. The funding system challenged in Edgewood IV created a two-tiered system:
- Tier 1 guarantees sufficient financing for all school districts to provide a basic program of education that meets accreditation and other legal standards. Under this tier, a school district that cannot generate revenue equal to a "basic allotment" through the minimum tax rate receives state funds to make up the difference.
- Tier 2 provides for partially state-supported local supplementation. Under this tier, for each penny a district raises the tax rate above the minimum, the state guarantees a certain yield per weighted student. The tax rate for maintenance and operations continues to be capped at $1.50, subject to various adjustments and exceptions. There is also some state funding for facilities, sometimes referred to as Tier 3 in the system.
The court in Edgewood IV ruled that this system did not impose an unconstitutional state ad valorem tax, because while it did set minimum and maximum tax rates, districts and their voters still had the discretion within these parameters to choose the tax rate and control the distribution of the proceeds. However, the court warned that if the cost of education rose to the point that a district was forced to tax at the maximum tax allowed under the bill just to meet minimum accreditation standards, the tax would in effect become an unconstitutional state-mandated ad valorem tax.
In West Orange-Cove Consolidated I.S.D, four school districts alleged that the court's warning had been confirmed, because they and other districts were now forced to tax at maximum rates set by statute in order to educate their students. These local taxes, they alleged, had now effectively become an unconstitutional state-mandated ad valorem tax. The district court dismissed the plaintiffs' complaint and the appellate court confirmed.
The state had argued in part that the plaintiffs' suit was not ripe because the system did not require all districts throughout the state to tax at the rate of $1.50, and therefore did not result in a statewide ad valorem tax. The majority rejected this argument, stating that the constitution prohibits state ad valorem taxes upon any property within this state. The issue, the majority said, is not the pervasiveness of the tax, but the state's control over it. An illegal state ad valorem tax is a tax imposed by the state, either directly or indirectly. Therefore, the majority asserted, a single district could make a claim that it is unconstitutionally constrained by the state to tax at a particular rate.
The state made four other arguments which were rejected by the majority:
- The state asserted that the duty to provide an adequate public education belongs to the legislature, not local school districts. School districts, the state claimed, are not forced to tax at any rate, but instead choose to tax and educate at desired levels. The state is only encouraging certain choices, not compelling them. The majority said that the state was in effect arguing that nothing short of virtually absolute state control of ad valorem taxation violates the constitution. The constitutional prohibition, declared the majority, is violated whenever state control denies a taxing authority meaningful discretion. The legislature has a duty under the constitution to make suitable provision for a general diffusion of knowledge through free public schools. As long as the legislature establishes a suitable regime that provides for a general diffusion of knowledge, the legislature may decide whether the regime should be administered by a state agency, by the districts themselves, or by any other means. In fact, the legislature, through the Education Code, sets school accreditation standards and imposes sanctions for noncompliance. These provisions require school districts to provide an adequate education, and leave no meaningful discretion for districts to do otherwise. The majority reiterated its view that the current system can effectively deprive school districts of meaningful discretion and force them to tax at maximum rates.
- The state argued that the only requirement of school districts is that they provide anaccredited education as defined by the legislature, and that the plaintiffs cannot allege in good faith that any district is forced to tax at the maximum rate just to meet thisrequirement. On the contrary, the state asserted, districts taxing at maximum rates do so to provide enhanced educational opportunities and not merely to maintain accreditation. The majority rejected this argument, stating that accreditation standards are not the only requirements the state imposes on school districts. The state has chosen to rely heavily on school districts to discharge the duty to provide "a general diffusion of knowledge essential to the preservation of the liberties and rights of the people." The public school system the legislature has established, the majority held, requires that school districts provide both an accredited education and a general diffusion of knowledge. Because both requirements are binding on the districts, if a district is being forced to tax at a maximum rate in order to meet accreditation standards or to provide a general diffusion of knowledge, this in effect becomes an unconstitutional state ad valorem tax.
- The legislature has granted a partial homestead exemption from school district taxation, which a district may increase up to a certain amount at its option. The state argued that no school district that has opted for an increased homestead exemption can allege that it is forced to tax at maximum rates because it has the meaningful discretion to deny the increased exemption and tax at a lower rate. The majority disagreed, stating that to obtain dismissal of the plaintiffs' action based solely on the pleadings, the state must establish that the mere existence of local-option exemptions precludes as a matter of law the allegation that school districts are forced to tax at maximum rates. The state, the majority held, has not met this burden because the plaintiffs may be able to show that even without granting additional homestead exemptions, they could not provide an accredited education or a general diffusion of knowledge. Also, the majority noted, while school districts have discretion whether to increase homestead exemptions, it is far from obvious that this discretion is meaningful.
By authorizing local-option homestead exemptions, knowing that some constituencies will insist on them, the legislature may actually have increased the pressure on school districts to tax at maximum rates. In any event, the majority ruled, the plaintiffs are entitled to attempt to show that homestead exemptions do not afford them meaningful discretion.
- The state argued that the plaintiffs cannot allege a violation of the constitution unless they tax at the applicable absolute maximum rate, not merely near that rate. The majority rejected this argument, responding that the constitutional issue remains the extent of the state's control. A district taxing a few cents below the maximum rate may no longer be able to provide an accredited education or a general diffusion of knowledge even by raising the rate to the maximum, and the majority held the district should not be forced to raise the rate to the maximum just to prove the point.
To contact Sen. Deuell about the legislative process, contact the Capitol Office at (512) 463-0556 or mail to Sen. Bob Deuell, Texas Senate, P.O. Box 12068, Austin, TX 78711. The website for the Texas Senate is www.Senate.state.tx.us. The e-mail address for Sen. Deuell is: firstname.lastname@example.org.